Northrop Grumman Pays $325 Million for Decade of Defective Spy Satellite Parts

Northrop Grumman Corporation and its predecessor TRW Inc. agreed to pay $325 million to settle False Claims Act allegations that they provided and billed the National Reconnaissance Office for defective microelectronic parts used in classified spy satellites over a decade-long period from 1992 to 2002. The settlement resolved allegations that the defense contractor knowingly supplied defective Heterojunction Bipolar Transistors (HBTs) that were improperly tested, made misrepresentations about the reliability of the components, and concealed material facts about defects in critical satellite equipment used for signals intelligence and reconnaissance operations.

The massive fraud was exposed by whistleblower Dr. Robert Ferro, an employee of The Aerospace Corporation who filed a qui tam lawsuit in 2002 after discovering evidence of the systematic provision of defective parts to the nation’s most sensitive intelligence satellite programs. The Department of Justice investigated Dr. Ferro’s allegations for six years before intervening in the lawsuit in November 2008, ultimately securing one of the largest False Claims Act settlements in defense contractor history. Dr. Ferro received $48.75 million as his share of the settlement, representing the 15 percent whistleblower reward for exposing fraud that could have compromised national security satellite systems.

The defective HBT components were integrated into National Reconnaissance Office satellite equipment during a critical period when the United States was expanding its space-based signals intelligence and imaging capabilities. The provision of improperly tested microelectronics to classified satellite programs represents not just financial fraud but a potential compromise of national security systems, as defective components in spy satellites could cause system failures, reduce operational lifespan, or degrade intelligence collection capabilities. The fact that Northrop Grumman and TRW concealed the defects rather than disclosing them demonstrates willful misconduct rather than innocent quality control failures.

The case exemplifies how defense contractors exploit cost-plus contracting and classified program secrecy to defraud taxpayers while potentially compromising critical national security systems. The decade-long fraud persisted from 1992 to 2002 because classified NRO programs operate with minimal public oversight, enabling contractors to conceal defects and falsify test data with low risk of detection. The six-year investigation period from Dr. Ferro’s 2002 whistleblower filing to the DOJ’s 2008 intervention demonstrates the extraordinary difficulty of prosecuting defense contractor fraud even when a knowledgeable insider provides detailed evidence.

The $325 million settlement represents a small fraction of the total value of NRO satellite contracts awarded to Northrop Grumman and TRW during this period, ensuring the fraud remained highly profitable even after being caught and prosecuted. As with most defense contractor fraud settlements, Northrop Grumman did not admit wrongdoing and no executives faced criminal prosecution, perpetuating a culture of impunity where systematic fraud is treated as a routine cost of doing business rather than a serious crime deserving personal accountability and criminal penalties.