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For Ge, A Time Bomb In Ohio?


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FOR GE, A TIME BOMB IN OHIO?

Ed Russell is spending a lot of time these days watching videos in the basement of his Dublin (Ohio) home. But they aren't borrowed from his local video store. Russell, a former General Electric Co. vice-president fired in November, 1991, is boning up for his day in court by viewing seven days of depositions he gave in a case against GE. Beginning on Feb. 21, a Federal District Court jury in Cincinnati is scheduled to hear evidence on why Russell was fired. Was it for doing a lousy job, as GE says? Or was he wrongfully discharged for blowing the whistle on a diamond price-fixing scheme in which, Russell alleges, GE was involved?

Russell's charges could spiral. By the end of March, the Justice Dept.'s Antitrust Div. likely will decide whether to bring an indictment against both GE and DeBeers Consolidated Mines Ltd. for price-fixing in 1991 and 1992. Investigators have ranged to Europe in trying to uncover evidence of such a scheme by the two companies--which control 80% or more of the world industrial-diamond market. A federal grand jury in Columbus is hearing evidence in that probe.

The case provides a dramatic test for GE Chairman John F. Welch Jr., and other big-name executives, including former GE Plastics chief Glen H. Hiner, now CEO of Owens-Corning Fiberglas Corp. GE denies all the charges, as do DeBeers, Hiner and other principals. Indeed, GE's lawyer, Dan K. Webb, tried at a December meeting to persuade antitrust officials not to bring an indictment against GE, backing his case with a two-volume refutation of the charges.

WARNING. How did GE get into such a scrape? Russell, 55, a tall, voluble New Yorker, spent 18 years at GE, eventually running its Superabrasives diamond-making unit in Worthington, Ohio. He claims he gave Hiner, his boss at the time, a briefing paper warning of the antitrust dangers of a scheduled meeting with DeBeers in September, 1991. Hiner's meeting, GE says, focused on a possible technology exchange.

But Russell claims in his suit that Hiner and other GE officials had contacted DeBeers and related companies hoping to reach an agreement to stabilize prices in the industrial-diamond market. He says that he was dismissed on Nov. 11, 1991, in retaliation for his warnings.

GE's defense against Russell's charges puts Welch squarely in the middle of the case. It argues that Welch himself ordered Russell's termination because of performance shortfalls and that Welch never knew about Russell's alleged warnings. Welch said in testimony for Russell's civil suit that Russell lied to him during a July, 1991, meeting about his division and didn't seem to understand serious problems in the business. Russell, Welch said, bombed again at another meeting in September. The next day, Welch wrote Hiner that "...Russell has to go. He made a fool out of himself in July, and yesterday he appeared totally out of it."

GE scored a partial victory on Jan. 14, when Magistrate Judge Robert A. Steinberg, who is handling pretrial matters in the Russell case, recommended that two of the three counts Russell had brought be thrown out. But Steinberg said the third charge--under an Ohio law protecting whistleblowers--should go to a jury. Steinberg found "substantial evidence" contradicting GE's claim that Russell's performance was poor, noting that he had just gotten a "substantial raise."

The magistrate also seemed to find plausible Russell's contention that he was actually fired because of his warning about price-fixing. Russell claims he presented the crucial briefing paper to Hiner on Sept. 3, 1991. Steinberg found it possible that Hiner discussed the paper with Welch on Sept. 4, when the two were together most of the day. Steinberg concluded that a jury should decide "whether Welch was aware of the briefing paper when he made the decision to terminate Russell's employment."

GE says the paper merely looked at the pros and cons of a technology exchange with DeBeers. Besides, the company claims, the paper wasn't given to Hiner until after Welch had decided to fire Russell. GE, however, was hurt by its inability to find the final version of the document.

GE also notes that the magistrate made no ruling on the merits of Russell's third charge; he ruled only that it involved disputed facts. Moreover, the magistrate's recommendations aren't binding and the U.S. judge in the case, Herman J. Weber, could throw the whole case out. There's also the possibility of a settlement: Both sides acknowledge they have talked.

The Justice Dept., meanwhile, has been proceeding with its investigation. Last April, the FBI arrested James Whitehead, CEO of Brussels-based Diamant Boart, a major GE diamond customer with ties to DeBeers, when he was on a trip to the U.S. Acting on an arrest warrant authorized by the Antitrust Div., the FBI flew him to Columbus, where he testified before the grand jury. The testimony is secret, but Russell alleges that Whitehead's former boss, then Diamant Boart CEO Philippe Liotier, helped arrange the GE-DeBeers price-fixing. Whitehead calls Russell's charges "rubbish."

Investigators didn't stop with the unusual arrest. On Nov. 9 and 10, at the behest of U.S. officials, the economic crimes unit of the Brussels Judiciary Police searched Liotier's offices at Diamant Boart and at its parent company, Soci t G n rale de Belgique, Belgium's largest company, where Liotier went to work after turning the CEO post at Diamant Boart over to Whitehead. The target: evidence of price-fixing. Some documents were collected, though their contents haven't been disclosed. Liotier didn't respond to requests for comment.

What does all this add up to? The allegations against GE may yet fizzle out. But if they don't, Welch--and his company--could be badly besmirched.

ALL THAT SPARKLES DOESN'T SHINE: GE'S DIAMOND MESS

JAN. 14, 1994 U.S. Magistrate Judge Robert A. Steinberg recommends that GE be granted summary judgment on two of three counts in Russell's case. But he proposes that the third count go forward.

APR. 21, 1992 Former GE Vice-President Edward J. Russell sues the company for wrongful discharge, claiming he was fired because of his opposition to attempted price-fixing and other illegal practices. GE denies the charges. As a result of Russell's allegations, a Columbus (Ohio) grand jury begins an investigation into the industrial-diamond industry.

FEB. 21, 1994 Scheduled trial date in the Russell case. By the end of March, the Justice Dept. is expected to decide whether to indict GE on criminal price-fixing charges.

MAY 11, 1993 GE Chairman John F. Welch Jr. gives a deposition in Russell's civil case.

NOV 9-10, 1993 Belgian police search Brussels offices of Diamant Boart and its parent, Societe Generale, at the request of U.S. authorities, seeking evidence for the grand jury investigation.

APR. 12, 1993 James Whitehead, CEO of Brussels-based toolmaker Diamant Boart, a major GE industrial diamond customer, is arrested in Columbia, S.C., and compelled to testify before the Ohio grand jury.Zachary Schiller in Cleveland, with Patrick Oster in Brussels


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