Friday, March 10, 2006

Jury fines defense contractor in Iraq $10M

Jury fines defense contractor in Iraq $10M
By Laura Parker, USA TODAY

A federal jury on Thursday ordered a U.S. defense contractor accused of war profiteering in Iraq to pay more than $10 million in damages and fines.

In the first civil fraud case brought against a military contractor during the Iraq war, the jury in Alexandria, Va., found that Custer Battles LLC committed fraud in 37 instances in connection with a $9 million contract to help distribute new currency in Iraq.

The jury's decision came at the end of a three-week trial in which a string of witnesses testified that Custer Battles, which has offices in Rhode Island and Virginia, inflated its expenses with fake invoices that were run through a series of shell subsidiaries set up in the Cayman Islands.

Witnesses also detailed how the company boosted profits by overbilling the government for shoddy equipment.

The company denied the charges and said it would appeal.

The case was brought by two former Custer Battles employees, Robert Isakson and William "Pete" Baldwin, under a Civil War-era law that allows individuals to file lawsuits in secret on behalf of the government. Under the law, the cases are sealed while the government determines whether to join in.

The Justice Department declined to participate. Charles Miller, a department spokesman, declined to comment.

"The Bush administration has done nothing to recover this money or to penalize the people who committed the fraud," said Alan Grayson, attorney for Isakson and Baldwin. "All of the work was done by the whistle-blowers. They did nothing to help us."

Even so, under the federal False Claims Act, the government is entitled to about 70% of the award, with Isakson and Baldwin entitled to the rest.

The company's founding partners, Scott Custer, 37, and Michael Battles, 35, had denied the accusations. Custer is a former Army Ranger and Battles is a West Point graduate who ran unsuccessfully for Congress as a Republican in Rhode Island in 2002. They have called the lawsuit a private dispute brought by disgruntled former employees.

Robert Rhoad, one of Custer Battles' defense attorneys, said that he was disappointed by the verdict and that his clients will appeal. At the trial, defense attorney David Douglass told the jury that "no false claims were submitted, that no one was defrauded, that Custer Battles performed an admirable and impressive task under unbelievably difficult circumstances."

The case involved only $3 million of the currency contract paid to Custer Battles by the Coalition Provisional Authority, the U.S.-led agency that ran Iraq after Saddam Hussein was ousted.

According to a transcript of the trial, retired brigadier general Hugh Tant, who was in charge of the currency distribution, testified how camps that Custer Battles built in Baghdad, Mosul and Basra to house currency distribution workers were poorly constructed. He said that 34 of 36 trucks the company supplied for the job didn't run.

The jury also heard testimony detailing how Custer Battles took forklifts from Baghdad International Airport, painted over the Iraqi Airlines insignia and then billed the U.S. government for them under the currency exchange contract.

Part of the case involving a separate contract that Custer Battles had to provide security at the airport will be tried separately. No trial date has been set, Rhoad said.

Under the law, the jury was allowed to triple the $3 million at issue. The jury also awarded Baldwin $230,000 in back pay because he had been demoted.

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