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A LAVISH LIFESTYLE STRAINS CREDIBILITY

Shortly after P. Takis Veliotis became general manager of the Davie Shipyard here, one of the yard`s employees noticed something unusual–a handful of workers were building a pleasure yacht, an odd project for a yard dedicated to construction of commercial lake and ocean vessels.

Overwhelmed by curiosity, the employee alerted Louis Rochette, the shipyard`s treasurer, to the situation. Rochette soon learned two things:

The yacht was for the private use of Veliotis. The cost, which eventually totaled $25,000 in materials alone, were being secretly billed to other projects at the yard, according to officials of Canada Steamship Lines, which owned Davie.

Rochette reported his findings to Canada Steamship`s head office in Montreal.

As a reward for his detective work, he was abruptly transferred to Montreal. He resigned from the company shortly afterward.

Veliotis went on to head Davie Shipyard. In 1972, he was hired by General Dynamics Corp., the giant defense firm controlled by the Crown family of Chicago, to direct the construction of billions of dollars of tankers to carry liquefied natural gas.

In the space of a decade, Veliotis became a member of General Dynamics`

board, executive vice president in charge of the company`s largest division, was responsible for General Dynamics` vast international sales operation and supervised more than 25,000 people who built two of the nation`s most sensitive and secret nuclear weapons, the Trident submarine and the SSN 688 Los Angeles-class attack sub.

But Veliotis abruptly left General Dynamics in May, 1982, after he came under suspicion of accepting $1.35 million in bribes from a subcontractor on tanker and submarine projects. A federal grand jury in New York indicted Veliotis in 1983 on 17 counts of fraud and perjury, and he is being sought as a fugitive from this prosecution. He lives in Athens.

Fifteen months after he left General Dynamics, he charged that the mammoth defense firm had collected $640 million in fraudulent claims from the Department of Defense. Through his lawyers, he has sought immunity from the kickback charges in exchange for testifying against General Dynamics.

It has been 23 years since Veliotis had Davie workers outfit his private yacht, but the incident in many ways characterizes the rise to power of the onetime junior draftsman whose charges against General Dynamics have instigated the most sweeping defense fraud investigation in U.S. history.

Indeed, Takis Veliotis` life history has gained pertinence as Congress and the Department of Justice try to gauge whether his charges can be believed, how he rose to a position of enormous responsibility in the American defense industry and why he was given a top-level security clearance recommended by Adm. Hyman Rickover just weeks after General Dynamics gave Rickover`s wife gifts of expensive jewelry.

In a two-month inquiry, The Tribune has sought the details of Veliotis`

life through records and interviews in the United States, Europe and Canada.

For some, the report about the yacht might have spelled dismissal or disgrace. But Gordon Black, the executive vice president of Canada Steamship, recalls that Veliotis, 38 at the time, had developed a father-son relationship with T. Rodgie McLagan, chairman of Canada Steamship.

”T.R. backed Veliotis,” transferred Rochette and permitted Veliotis to repay ”whatever amount was in dispute,” Black recalled. There is no record of how much was repaid.

How Veliotis acquired his first yacht also has implications for the story of his finances, a tangled morass of contradictions and misstatements that has fed the suspicion he accepted kickbacks. His murky finances also have contributed to the accusation that neither General Dynamics nor U.S. government security-screening processes gave Veliotis` background a thorough investigation.

From his arrival in Quebec to work as a $250-a-month draftsman 31 years ago, Veliotis has implied to friends, employers and business acquaintances that he came from a wealthy Greek shipping family. Sometimes he described the unseen benefactor as his father, sometimes as a ”rich uncle.” When seeking a security clearance for Veliotis in 1977, General Dynamics chairman David Lewis wrote the U.S. Navy that Veliotis had worked for his father as a marine engineer from 1947 until 1953.

On a 1977 application for that same clearance, one of the U.S.` top security designations, Veliotis listed his employer from 1947 until 1953 as E.G. Veliotis, 34 Afenoutli Street, Piraeus, Greece. E.G. Veliotis also was listed as his supervisor. On the same form he noted that his father`s name was Eleutherios George Veliotis.

But in the divorce trial in 1968 that ended his first marriage, Veliotis testified that his father died in 1947, and that between 1947 and 1955 he had received only $20,000 from his father`s estate.

Lewis and others at General Dynamics say that Veliotis told them his father owned a shipping firm that had ocean-going vessels. One of Veliotis`

acquaintances in Canada, who has known him since 1954 and asked not to be identified by name, said Veliotis told him his father was a civil servant in Greece`s maritime administration; the acquaintance doubted that the family owned any vessels. Maritime industry experts queried in Athens in 1984 could recall no major Veliotis shipping company.

The family and finances

If the source of Veliotis` money was unidentified holdings in Greece, few friends or acquaintances in Canada ever saw evidence of it. Veliotis` mother lived with him for most of his years in Canada and the U.S., and she had no apparent independent wealth. His older sister, whom he listed on 1977 forms as deceased, lived in Quebec in the 1950s and worked as a manicurist, according to relatives of Veliotis` first wife.

His brother, George Eleutherios Veliotis, lived in Scarsdale, N.Y., and also worked in the maritime industry, where he was known to many of Takis Veliotis` friends. No source described him as wealthy. George Veliotis committed suicide in 1983, the day after receiving a subpoena to answer questions about alleged kickbacks from General Dynamics subcontractors. Veliotis has never claimed any other close relatives.

Takis Veliotis married Bessie Charkas, a young American woman of Greek heritage, at Montreal, Quebec, on Nov. 6, 1955. At the time, Veliotis was earning about $3,155 a year at Davie. Veliotis testified at his divorce hearing that he had $28,000 in cash at that time.

Nanny Charkas, a relative of his first wife, said in a November interview that the marriage was arranged by the couple`s families in Greece and that Veliotis` family was not wealthy. In her divorce testimony, Bessie Charkas said she got a $20,000 dowry and that Veliotis unsuccessfully demanded more from her family. A dowry is mentioned in a detailed financial contract filed with the couple`s marriage license.

Veliotis, too, acknowledged in court testimony that the source of the $7,750 down payment on the couple`s first home, which was in Charkas` name, could have been his wife`s money. Veliotis said he didn`t know before their marriage that she had a dowry, though. The only discussion of finances with his wife`s family he acknowledged in court was an $800 loan he received from his father-in-law shortly before the couple married.

Within a few years of his marriage to Charkas, it became apparent that his financial situation had improved.

In a 1968 divorce proceeding, for example, Veliotis` wife said she believed that in 1958 he began a love affair with Paulette Marie Dupuis, an officer in the Canadian army and daughter of a prominent Quebec military officer.

She testified that he traveled often and entertained widely during the 10-year romance with the young woman, who was to become his second wife. Veliotis acknowledged in court that he and Dupuis had taken trips together and met at places such as the New York World`s Fair, Mexico and Montreal, but he characterized many of the meetings as chance encounters.

He also testified that he entertained Dupuis and others on his yacht during cruises to Malbaie, Three Rivers, Lake Champlain, Sorel, the Island of Orleans or ”anywhere a boat can go,” in the waters of eastern Canada and the U.S.

”When I went on a trip with the yacht, we arranged for a group: For instance, there would be myself, Teddy, Johanna–which are my two children

–Mr. Dupuis, Mrs. Dupuis, her sons, on some occasions, Miss Dupuis, and all different friends of mine, and we could leave Quebec and we could go down to Ste. Anne de Beaupre and come back,” Veliotis recalled at one point.

Veliotis also testifed he entertained Dupuis and others at the ski chalet he rented during the 1966-67 season at Lake Beauport.

High-living lifestyle

At the same time Veliotis traveled and entertained, he also was supporting his wife, Bessie, who said she was excluded from the trips; was paying the mortgage, taxes and upkeep on a house purchased in 1956; was rearing two children; was the major shareholder of a company that owned a $168,000 apartment building; owned stock in several companies and owned about $2,000 worth of bonds and his 40-foot yacht.

When the divorce was settled in July, 1968, Veliotis agreed to pay his wife a $50,000 payment and deeded to her their home in suburban Quebec. Two months later he bought a new home in Sillery, Quebec`s most prestigious neighborhood, and told an acquaintance that he paid $100,000 for it.

Yet records at Canada Steamship Lines reveal it took Veliotis 10 years with the Davie yard before his annual salary exceeded $20,000. His yearly gross salary of $3,155 in 1955 grew to $12,000 in 1960, company records say, and to $19,790 by 1963. By the time of his divorce proceedings in 1968, Veliotis said he earned $30,000 a year and that his annual take-home pay was about $16,800. He said he sometimes would get a bonus of 5 to 15 percent of his salary and that he had a company expense account.

But Velitois said he had no earnings apart from his salary. ”My net revenue apart from my salary, after deductions for debt, losses in business, I think would be negative revenue . . . a loss,” he testified. He said his bank account was overdrawn.

The high living continued when Veliotis moved on to General Dynamics, according to General Dynamics officials and a report by a Senate

investigations committee. Veliotis bought a huge home in Milton, Mass., for $173,000, a condominium in Florida, a new 58-foot yacht and invested nearly $500,000 in a local bank in 1977, four years after arriving at General Dynamics.

When he purchased the bankshares that made him the largest single investor in Multi-Bank, a holding company that owned a group of banks in southeastern Massachusetts, he told Rev. Bedros Baharian, another member of the board of directors, that the money came from an investment in a bank in Canada.

The federal grand jury in New York that indicted him has charged that by the time Veliotis was able to buy those Massachusetts bankshares, he already was receiving bribes from a General Dynamics subcontractor.

A source close to the federal prosecution of Veliotis told The Tribune that the government thinks part of the Multi-Bank investment came from kickback money Veliotis moved from a Swiss account through a Toronto bank.

Of course, Veliotis was making far more money with General Dynamics than he had been at Davie. At the arms firm he was pulling down yearly salaries that grew from $100,000 in 1973 to $310,000 in 1981, his last full year of service.

Nevertheless, some company officials still marveled at his lifestyle.

”One senior General Dynamics official, himself apparently well compensated for his services, said he had worked with Veliotis on occasion and had been struck with the question of how he could live as well as he did on what he made,” a report of the Senate permanent investigations subcommittee said.

Some contradictions

In fairness, there could be explanations for some of the questions raised about how Veliotis lived so well on his salary in Canada and the U.S.

For instance, the Canadian testimony was in a bitter divorce trial. He charged that his wife, Bessie, had abandoned his house and children on increasingly long visits to her family in Michigan. She, in turn, said he kicked and slapped her, year after year punching her to further inflame her gall-bladder condition. She testified he hid the children in Greece, refused to tell her where they were and paid the mortgage and taxes on the family home only reluctantly.

The implication of family wealth persisted up to the very moment that Veliotis left General Dynamics and fled to Greece. Lewis said that from November, 1981, until he resigned in 1982, Veliotis made frequent trips to Greece to deal with the affairs of his mother`s estate. Veliotis left the impression there were significant financial issues at stake.

If Veliotis` financial story seems confused, the contradictory accounts of his educational, professional and military background can be equally baffling.

When Veliotis first went to work at Davie in 1954, he told acquaintances that he hoped to take courses at Quebec`s prestigious Laval University. His friends from that era said he never actually registered. As time went on, he often described himself as a graduate engineer and by the mid-1950s, company press releases began listing ”T. Veliotis, B. Sc. Eng.,” an indication he held a bachelor`s degree in engineering.

On Dec. 27, 1972, about two months after Veliotis accepted a job with General Dynamics, he signed an application for a Department of Defense security clearance that gave this educational record: 1930 to 1935, a lower school in Evagelismos, Piraeus, graduated; September, 1936, to June, 1942, St. Paul College, Piraeus, graduated with a ”B.A.” degree; September, 1942, to June, 1944, Athens University, Athens, graduated with a degree in physics;

May, 1944, to May, 1947, Royal Naval Academy, Piraeus, graduated with a degree in engineering.

The next month, General Dynamics issued a press release announcing Veliotis` appointment with a little different version: ”Mr. Veliotis was born in Kariai, Greece, and earned engineering degrees at the University of Greece and at the Laval Technical School in Canada. During World War II he served as a lieutenant on submarine duty with the Royal Hellenic Navy.”

In December, 1975, General Dynamics issued a press release describing Veliotis` background in yet a different way: ”Mr. Veliotis, 48, was born in Kranidion, Greece, and earned degrees at St. Paul College, Royal Naval College and the National University, Athens, Greece. During World War II, he served in the Middle East with the Royal Hellenic Navy.”

The security questions

On June 28, 1977, Veliotis signed an application for one of America`s top security clearances that listed the Evagelismos elementary school, St. Paul College, Athens University and the Royal Navy Academy. But under the column for ”degrees,” Veliotis only claimed the ”B.A.” at St. Paul, the equivalent of an American high school diploma.

In February, 1980, however, Veliotis was again credited with several high degrees in a press release issued by General Dynamics. It also added new details to his military career: ”During World War II, he served as an officer in the Royal Hellenic Navy and was decorated for his wartime service by the late King Paul and Queen Frederika.”

The fact that General Dynamics seemed to ignore contradictions, misstatements and exaggerations by an employee that it promoted to the fifth- highest position in the company was disturbing to Senate investigators. But their concerns intensified when a Senate committee began to examine the ease with which Veliotis seemed to be able to get the government`s top security clearances.

In 1984, as concern in Congress mounted over breaches of national security and the loss of critical technology through espionage to the Soviet Union, the Senate permanent investigations subcommittee conducted a detailed inquiry into how well workers were screened in the defense industry.

Among other cases, the committee concentrated on Veliotis because it noted that his career at General Dynamics had given him access to one of the most critical defense technologies–how the U.S. manufactures nuclear missile submarines–yet he was by then a fugitive living in a foreign country.

The Senate investigators questioned whether enough attention had been focused upon the importance of the national secrets that Veliotis had gained access to in his job.

Many defense experts agree that submarine-launched ballistic missiles

–the missiles carried by the Trident–are the most important part of U.S. nuclear deterrence. American technology designed and applied at the facility Veliotis headed at Electric Boat has made U.S. submarines so silent that the Soviets cannot find and pinpoint the missile-carriers for attack. Though the Soviet Union might well be able to destroy U.S. land-based missiles and bomber force by pre-emptive strike, it would face retaliation from the Trident submarines.

Top Navy officials acknowledged after Veliotis fled that they had were worried that he might compromise national security, and a major internal investigation was conducted to determine how much information he might have. Its results have not been made public.

The subcommittee`s staff investigation was aired at a series of public hearings this year. It concluded that Veliotis represented a ”potential

(national) security breach of serious dimensions.”

Enlightening investigation

The Senate staff found that in a series of investigations of Veliotis`

background for security clearances between 1972 and 1980, investigators had been unable to substantiate his claims for significant periods of time or had found information contradicting his assertions.

For instance, they could not confirm he either attended or graduated from Athens University because records for the period had been destroyed in World War II. They could not find a Laval Technical School in Canada and there was no record of his attending Laval University. Officials at the Royal Naval Academy, Piraeus, said he had enrolled there but earned no degree, the Senate report said.

The Senate report said the security investigation even failed to document such basic facts as his place of birth, education and military career. It could not confirm that he had held a commission in the Greek navy nor earned any decorations. Because he had not graduated from the naval academy, the Senate report concluded that a commission was unlikely.

Gaping holes in his background were overlooked. For example, the report said, though Veliotis said he immigrated to Canada in 1953, the FBI developed information indicating that he had been sentenced to 45 days in jail in Greece for money-order fraud in June, 1954. The FBI report was in the hands of government officials before Veliotis was given his clearance, but there apparently was no effort to learn more about this case or question Veliotis about it. It contradicted his assertion on an official government application that he had never been convicted of a crime.

Neither the government investigators nor General Dynamics addressed the question of whether Veliotis` dismissal from his last position in Canada, Davie shipyard, had affected his employment or security clearances in the U.S. The Tribune was told by two senior Canadian business executives that when members of the Royal Canadian Mounted Police conducted a security check on Veliotis for U.S. authorities, the executives warned the Mounties he might be a security risk. There is no indication that this information was given consideration by U.S. authorities. The Canadian businessmen asked not to be identified.

The Senate report said the security men never even questioned Veliotis about an unexplained trip to the Soviet Union in 1973.

`Q` clearance barrier

The Senate report and the accompanying documents, many of them from General Dynamics files, make it clear that the company did not inform security officials about discrepancies or difficulties in Veliotis` background. Even after General Dynamics officials knew he was under criminal investigation on Feb. 5, 1982, the Senate investigators could find no record that they informed security officials.

From the beginning, General Dynamics appeared willing to make significant sacrifices to put Veliotis and his team of Canadians into their assignments. It accepted a downgrading of the security clearance of its entire Quincy, Mass., shipyard when Veliotis initially could not get a top-secret clearance. In 1977, General Dynamics was facing crippling management and production problems at Electric Boat at the same time it was trying to get the Navy to pay $534 million in claims for cost over-runs on the Los Angeles-class attack subs. Lewis had become convinced that Veliotis could correct the problems and he was backed by Lester Crown, the company`s largest shareholder.

Indeed, General Dynamics told the Navy after a detailed management search that Veliotis was more fit to take this post than dozens of American candidates from throughout the country.

The main barrier to his appointment was the ”Q” clearance, a special national security designation that permits the bearer access to nuclear energy information, including how U.S. nuclear engines run so silently. The ”Q”

clearance usually can be granted only to American citizens. In 1984, for instance, only four foreign nationals held this clearance.

General Dynamics officials had long known this was going to be a problem. As early as 1973, William Pedace, nuclear engineering and design assistant, told a meeting of company officials that Adm. Rickover, the czar over all nuclear construction in the Navy, would vehemently oppose granting the clearance to a foreigner.

In the summer of 1977, when the company was convinced it had to get Veliotis into the job at Electric Boat, Pedace bought and delivered to Rickover a set of diamond earrings and a jade pendant valued at $1,625 for the admiral`s wife. The gifts were given on the instructions of Gordon MacDonald, General Dynamics executive vice president.

These are the only gifts of significant value that Rickover ever accepted from General Dynamics.

On Aug. 2, 1977, Rickover wrote a letter to the chief of the Energy Department`s security section requesting that Veliotis be given a ”Q”

clearance. In the past, Rickover said that he wrote the letter because General Dynamics told him Veliotis was essential to improve the operations of Electric Boat.

On Sept. 27, 1977, the FBI completed its field investigation of Veliotis. It had taken less than two months. ”Q” clearances normally take an average of seven months. On Oct. 21, 1977, P. Takis Veliotis took over the

construction of America`s most secret weapon–the Trident submarine.

TUESDAY: A bankruptcy sparks Veliotis probe.