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Ever since James Neal Blue and his brother Linden Stanley Blue bought La Jolla-based General Atomics back in August of 1986, the high-tech U.S. government contractor -- into everything from nuclear fusion to supercomputers -- has operated as a family affair. James, 66, a Yale graduate and ex-Air Force pilot, is GA's president and chairman of the board, and Linden, 65, who once ran Beech Aircraft and is also a veteran of Yale and the Air Force, derived their wealth from "gas utility companies in Ohio, Utah, Colorado, and Wyoming, oil and gas production in Canada, and real estate in Colorado," according to a company news release.

Their mother, Virginia Neal Blue, one of Colorado's most prosperous women, "spent most of her life becoming an accomplished financier and realtor," according to the website of the Colorado State Archives. "In 1962, she was elected the first female Denver Realtor of the Year, and soon she became the first female president of the University of Colorado Associated Alumni.

"In 1967 Blue was elected to the post of Colorado State Treasurer, the first woman to hold the position. In this official capacity Blue improved banking and investment practices in the state, and when she left three years later, the state was left with an extra $8 million." She is memorialized by a stained-glass portrait in the Colorado capitol's state "Hall of Fame."

The brothers apparently inherited their mother's knack for making money. Following the purchase of General Atomics, for a reported $60 million from Chevron Oil, the Blue brothers set out to grow the company's federal contracting business. A company "advisory council," featuring such Defense Department luminaries as former Secretary of State Alexander Haig and ex-U.S. Joint Chief of Staffs chairman General John Vessey, was set up to trawl for taxpayer dollars. The brothers and their employees also became big contributors to both Republicans and Democrats, being especially kind to the local congressional delegation, which in turn pushed hard for GA research appropriations.

At the time of the Blue acquisition, technical problems and public resistance had sidelined the company's flagship "gas cooled" nuclear-reactor technology, but the firm was still turning out so-called TRIGA reactors, used to make radioisotopes; experimenting with nuclear fusion; doing research for Ronald Reagan's "Star Wars" missile defense plan; and negotiating nuclear-waste disposal deals with Russia, all thanks to federal largesse.

The brothers set out to broaden the firm's base, and as the years went by, the company received a raft of new federal contracts. In addition to its profitable ventures in federally sponsored nuclear and computer technology, the firm developed the Predator, an "unmanned aerial vehicle" that saw service over Bosnia as part of NATO forces. What had been a marginally profitable venture under its prior owners became a cash cow for the Blue family.

The Blues, who both own mansions in La Jolla, also began getting good write-ups in the Union-Tribune. U-T society columnist Burl Stiff has reported that family members attend parties held by U-T publisher David Copley, and the paper often cites a Blue brother's opinions on its editorial pages. "People can be against things without thinking too much until there is a problem," Linden was quoted as saying in a March U-T editorial backing nuclear power.

Last year, Linden, who was briefly held prisoner by Fidel Castro after flying his plane too close to Cuban air space in 1961, wrote a U-T op-ed piece opposing efforts to revive trade with the island nation. "The 'accommodators' tend to be a combination of well-intended appeasers, traditional apologists for U.S. policy toward Castro, and, more recently, business opportunists."

But now James Neal Blue and General Atomics face a challenge to their federally funded empire. The U.S. Attorney and Sam Kholi, a former GA employee, claim that the firm conspired with Blue's two sons, Linden P. Blue and Neal Karsts Blue, to defraud federal taxpayers of millions of dollars by rigging contracts, padding payroll costs, and presenting false claims for payment using a company owned by the sons. Like his father, Linden P. Blue lives in La Jolla; his brother Neal resides in Las Vegas.

"Contrary to...conflict-of-interest provisions [of federal law], General Atomics entered into what were effectively sole-source contracts with a company in which two General Atomics employees, Audrey Voyles and Sam Kholi, and two children of the controlling stockholder of General Atomics, Linden P. Blue and Neal Karsts Blue, had financial interests.

"General Atomics awarded the service agreement to Alliance after conducting a sham competitive-bidding process, which was manipulated in order to award the contract to Alliance," the government alleges. "General Atomics knowingly made or used, or caused to be made or used, false statements including but not limited to false certifications, memorandums, and representations in connection with the awards of purchase orders...in order to get false or fraudulent claims paid by the United States."

According to the government's complaint, filed this March 28, the junior Blue brothers set up Alliance Staffing Associates, Inc., a temporary-employment firm based in Mira Mesa, nine years ago. "In or about May 1992, Sorrento West Properties, which, like General Atomics, is a subsidiary of Tenaya Corporation, [owned by James Neal Blue], loaned Alliance $150,000 in start-up capital.

"On or about July 6, 1992, General Atomics and Alliance executed a 'Services Agreement,' whereby General Atomics agreed to provide 'general management services' to Alliance, and Alliance agreed to reimburse General Atomics the 'full costs incurred' by General Atomics. Through the Services Agreement, General Atomics maintained operational control of Alliance and recaptured portions of payments made to Alliance pursuant to its various contracts with Alliance."

Kholi triggered the federal action, using the False Claims Act, a Civil War-era statute that allows citizens to bring whistle-blower lawsuits on behalf of the United States against contractors alleged to have cheated the government. Under the law, the whistle-blower can collect, as a bounty, up to 30 percent of funds collected by the government as a result of the suit. The government can also choose to intervene in the lawsuit, as it has done in Kholi's case, which adds to the pressure against the alleged offender.

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