You are correct in both statements, the second of which points directly at why your first statement indicates government fraud. By hiding the fact of how shaky the financials were, the government deemed them "good enough". If the true facts were presented, I have a hard time understanding how any government financial reviewer would score them "good enough". Fraud, pure and simple.
L-3 bought that fraud with full knowledge too. Don't think their due diligence missed that also. That is why the sale went through on the low ball offer, right?
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