Military contractor L-3 pays $25.6 million to settle U.S. fraud lawsuit

NEW YORK (Reuters) - L-3 Communications Holdings Inc agreed to pay $25.6 million to settle a lawsuit accusing the military contractor of defrauding the U.S. government by selling thousands of holographic weapon sights that it knew were defective.

Tuesday’s settlement resolves civil claims that L-3 and its EOTech unit violated the federal False Claims Act by concealing defects that caused the sights to fail in extreme cold or humidity, including one defect that was hidden for 8-1/2 years.

Also known as combat optical sights, the sights are mounted on weapons and used by special operations forces and law enforcement to target and accurately return fire in extreme environmental conditions, according to papers filed by U.S. Attorney Preet Bharara in Manhattan federal court.

Bharara said New York-based L-3 hid the defects from the Department of Defense, Department of Homeland Security and FBI, even as it sold them tens of millions of dollars of the sights beginning in 2004. He also said L-3 touted the military’s use of its products to improve its image and boost commercial sales.

In a statement, L-3 said it cooperated fully with the government and is pleased to settle. The company previously set aside money for the accord, which requires court approval.

Bharara’s office did not immediately respond to a request for comment.

Shares of L-3 fell as much as 6.1 percent to $118.30 after the lawsuit was filed, but before the settlement became public.

In afternoon trading, the shares were down $2.37, or 1.9 percent, at $123.65 on the New York Stock Exchange.

The case is U.S. v. L-3 Communications EOTech Inc et al, U.S. District Court, Southern District of New York, No. 15-09262.

Reporting by Jonathan Stempel in New York; Editing by Bill Rigby and Richard Chang