Contractor Bilked U.S. on Iraq Work, Federal Jury Rules

By Charles R. Babcock
Washington Post Staff Writer
Friday, March 10, 2006

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.

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