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Contractor Bilked U.S. on
Iraq Work, Federal Jury Rules
Custer Battles Is Told It Should Pay More Than $10 Million in
Damages
By Charles R. Babcock
Washington
Post Staff Writer
Friday, March 10, 2006; A14
Two Army veterans and their company cheated the U.S. government on a contract to furnish Iraq with a new currency in 2003 and should pay more than $10 million in assorted damages, a federal jury in Alexandria ruled yesterday.
In the first civil fraud verdict arising from the war effort, the eight-member panel decided, after two days of deliberation, in favor of two former workers who claimed in a lawsuit that Custer Battles LLC created phony Cayman Island companies to overcharge the Coalition Provisional Authority that ran Iraq after the U.S.-led invasion in 2003.
"This is a smashing victory for U.S. taxpayers and these whistle-blowers though the Bush administration did nothing to help," said Alan M. Grayson, the attorney for the plaintiffs, Robert Isakson and William Baldwin. Under the federal False Claims Act, citizens can sue on behalf of the government and the Justice Department can then decide whether to join the suit, which it did not in the Custer Battles case.
The company, which had offices in Northern Virginia and Rhode Island, was founded in 2002 by Scott Custer, a former Army Ranger, and Michael Battles, a West Point graduate who also served in the CIA. The war in Iraq brought it meteoric growth, as it picked up CPA contracts to manage security at Baghdad International Airport and help distribute the country's new currency.
The lawsuit named the two co-founders, along with Joseph Morris, who managed the currency contract.
During the three-week trial, Grayson called the company executives "war profiteers," while defense attorneys called the accusers "bounty hunters."
The trial has been complicated by the murky legal status of the CPA and the various sources of money it used to try to rebuild the country. U.S. District Judge T.S. Ellis III told the jury that they could only consider fraud charges on the first $3 million spent on the Custer Battles currency contract -- out of a total of about $20 million -- because that clearly came from the U.S. Treasury.
Attorneys for Custer and Battles did not return calls yesterday seeking comment. Barbara Van Gelder, Morris's attorney, said that because the judge has yet to rule on whether the CPA is a government entity "the impact of the jury's decision is in limbo."
Grayson said yesterday that there are "dozens" of other fraud cases about contracts in Iraq that remain sealed because the department has not decided whether to join them or not. He called such delay "a dereliction of duty." His clients will get 25 to 30 percent of the awarded damages, with the rest going to the U.S. Treasury, he said.
The law allows for triple damages. Grayson said the jury also added another $230,000 in back pay for Baldwin, who said he was demoted for complaining about the company's actions, and more than $400,000 in fines for specific fraudulent acts.
During the trial, retired Brig. Gen. Hugh Tant III told jurors that Custer Battles's performance amounted to "probably the worst I've seen in my 30 years in the Army." Tant had been overseeing the firm's work on the currency conversion contract.
He testified that of the 36 trucks the firm supplied, 34 did not work. When he confronted Battles, he said Battles responded: "You asked for trucks and we complied with our contract and it is immaterial whether the trucks were operational."
Custer and Battles both took the stand to deny that the offshore companies were designed to trick the government into paying more.
Staff writer Griff Witte contributed to this report.
© 2006 The Washington Post Company
March 10, 2006
U.S. Contractor Found Guilty
of $3 Million Fraud in Iraq
By ERIK ECKHOLM
In the first corporate whistle-blower case to emerge from Iraq,
a federal jury in Virginia yesterday found a contractor, Custer
Battles L.L.C., guilty of defrauding the United States by filing
grossly inflated invoices for work in the chaotic year after
the Iraqi invasion.
The civil case is expected to be the first of dozens under the Federal False Claims Act, which allows company insiders to bring suit on behalf of the government and share in damages awarded.
Two former associates accused Custer Battles of faking invoices from shell companies to overcharge the coalition authority, then governing Iraq, by tens of millions of dollars. But the current trial concerned billing of just $3 million under one of several contracts the company garnered in the post-invasion scramble.
After a three-week trial, the jury found that the entire $3 million was gained by fraud. According to the law, the company, which is based in McLean, Va., and its two owners and a former executive must now repay the government triple damages and also pay fines for 37 fraudulent acts.
Of more than $10 million in damages and penalties, most will go to the federal treasury while the whistle-blowers will receive from 25 percent to 30 percent.
"This reward won't make or break my life, but I'm pretty pleased," said one of the former associates, Robert J. Isakson, a construction subcontractor who brought the suit with William D. Baldwin, a former manager in Iraq for Custer Battles.
"I went to the trouble because these guys are crooks," he said. "They defrauded the U.S. government and did it blatantly."
Mr. Baldwin was also awarded $230,000 in damages because he was forced out of his job when he complained of illegal activity.
In one of many examples described at the trial, the company filed a fake invoice saying it had spent $176,000 to build a helipad when it had actually spent $96,000.
Lawyers for Scott Custer and Michael Battles, co-owners of the company, argued that any billing mistakes reflected the duress of war and that the company had billed fairly. The defense lawyers did not respond late yesterday to requests for comment.
Alan Grayson, lead attorney for the plaintiffs, argued that the company had billed the coalition authority for $15 million under the disputed contract when it had actually spent only $7 million. Under the contract, to provide logistical support for the distribution of new currency in Iraq, the company was supposed to be reimbursed for actual costs plus a fee of 25 percent.
The judge in the case, Judge T. S. Ellis III, of the Federal District Court in Alexandria, Va., had previously ruled that the False Claims Act applied only to bills paid directly from the American treasury. As a result, most of the payments to Custer Battles, from Iraqi funds, were not considered.
Mr. Grayson said he was pleased that the jury found the case to be "airtight." But he said he was disturbed that the Justice Department had chosen not to join in the false claims case and that many other similar cases remained under seal.
"It fell upon whistle-blowers not only to bring this case to light but to recover money for taxpayers," Mr. Grayson said in a telephone interview.
The widely reported allegations against Custer Battles have come to symbolize the poorly monitored reconstruction spending in Iraq. In early 2003, Mr. Custer and Mr. Battles, two former Army Rangers in their 30's with limited experience, showed up in Baghdad and soon won a series of security and logistics contracts worth more than $100 million.
Hugh B. Tant, a retired brigadier general who directed the currency exchange project for the coalition authority, said at the trial that Custer Battles' work was "the worst I've ever seen in over 30 years of my time in the Army." At one point, he said, 34 of 36 trucks the company had provided were inoperable.
When he confronted Mr. Battles with his concern over the trucks, General Tant testified, Mr. Battles responded defiantly, "You asked for trucks and we complied with our contract."
Among the most telling evidence presented was a spreadsheet that a Custer Battles official accidentally left behind after a meeting with contract officials in Baghdad. The document listed the company's actual expenses, the higher expenses it was reporting to the coalition and the secret, elevated profit margins for several tasks, including the building of the helipad.
Sharing liability along with Mr. Custer, Mr. Battles and their company are Joseph Morris, a former executive, and several other companies that Mr. Custer and Mr. Battles incorporated to mask as suppliers and provide sham invoices.
Copyright 2006The New York Times Company
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