The plan was straightforward but effective: A tight team of savvy contractors and government employees allegedly inflated invoices by $20 million, approved them and split the proceeds.

And they lived large — on the taxpayers’ dollar. Porsches, real estate, flat-screen televisions and Cartier watches: The men bought it all with impunity, prosecutors say.

When it became clear that the contract was running out, a second scheme was hatched, authorities say, but it all ended with the early October arrests of four men, including two government employees, on bribery and money-laundering charges.

Recently unsealed court records, a lengthy indictment and interviews with key players provide a rare window into an audacious four-year swindle that prosecutors have called “one of the most brazen” in federal contracting history. The crime went undetected by regulators until federal authorities came across it while investigating an unrelated fraud.

Those charged in the case — Harold F. Babb, 60, a contractor; Kerry F. Khan, 53, and Michael A. Alexander, 55, Army Corps of Engineers program managers; and Khan’s 30-year-old son, Lee — were arrested Oct. 4. They are in jail pending trial at the request of prosecutors who consider them flight risks. All four have pleaded not guilty.

Attorneys for the Khans and Alexander declined to comment. Babb’s attorney, Jeffrey Jacobovitz, said his client denies the allegations.

On Dec. 19, it became public that another key figure — a subcontractor who would become a key FBI informant, even recording meetings and payoffs, according to court papers — had pleaded guilty in the scam. That man, Young N. Cho, 40, of Great Falls, has been detained since early November.

According to court records, Cho, the chief technology officer of a Chantilly-based information technology company, Nova Datacom, and Kerry Khan met in July 2007 and soon launched their first scam. Khan awarded Nova Datacom a contract, and Cho paid the program manager a “portion of the profit” made by his company on that order, prosecutors say.

Within a few months, Khan directed Cho to another Army Corps contract, one worth $1 billion. Called the Technology for Infrastructure, Geospatial and Environmental Requirements, or TIGER, the contract was designed for speed and convenience. It allowed the Army Corps and other government agencies to buy computers, software and information technology services without competitive bidding.

Khan then introduced Cho to Alexander, a Army Corps co-worker, and Babb, the contracting director at EyakTek, a firm with offices in Dulles and Anchorage. Classified as an Alaska native-owned company, or ANC, EyakTek could take advantage of its special status under federal law to obtain contracts of unlimited size without competition.

EyakTek also happened to be the prime contractor on TIGER, and Babb quickly ensured that it began using Nova Datacom as a subcontractor, according to authorities.

EyakTek representatives have declined interview requests. In a statement, President Rod Worl said the company was cooperating with authorities. Babb’s “alleged conduct in no way reflects the operations or corporate culture of The Eyak Corporation or any of our subsidiary companies,” Worl said.

Because EyakTek relied heavily on other firms to perform work under TIGER, it is no surprise that the conspirators turned to Cho to process the orders. From 2008 well into this year, the men conspired to inflate $25 million in invoices by $20 million, an amount the men called “overhead,” prosecutors say.

It worked this way, according to interviews and court papers: Alexander, Khan and Babb ensured that inflated work orders were awarded to Cho, at Nova Datacom, through Eyaktek; Khan certified the work; and the Army Corps paid Eyaktek, which took its cut and passed the balance to Nova Datacom. Cho then paid his co-conspirators.

Checks and wire transfers

Over four years, according to prosecutors, most of the scam’s proceeds were paid out in checks or wire transfers, sometimes for very large amounts. In December 2009, for example, Nova Datacom issued a $3.3 million check to a shell company controlled by Khan, according to court papers.

Other payments were made in person. In the past six months, according to sources, Cho was recorded handing cash to Babb and Alexander. In May, Cho and Alexander met in a car parked within a block of the Army Corps headquarters in the 400 block of G Street NW, prosecutors said.

Alexander was described as wearing sunglasses even though the day was overcast. As Cho handed him $20,000 in cash and a $6,405 watch, Alexander — who had been depositing cash proceeds at his office credit union — ducked his head when a colleague passed, prosecutors said.

“That’s why I’m wearing sunglasses,” he told Cho, according to prosecutors. “So nobody recognizes me.”

The men bought real estate and expensive cars and invested in businesses, prosecutors said. Not all of the money went directly to the men. An associate of Alexander’s was paid about $1 million to buy an Audi and a coffee shop called Seven Monkeys in South Korea, prosecutors said. When agents raided Alexander’s house Oct. 4, prosecutors said, they found $180,000 in cash stuffed into a drawer.

Babb, who lived in Sterling and was paid or promised about $700,000 for his part in the scam, bought first-class airline tickets and a Porsche 911, prosecutors said. When authorities raided his house, prosecutors said, they found $10,000 in cash.

Of the suspects, Khan appears to have been the least discreet, according to authorities. Although bankrupt in the late 1990s, Khan had enough money by 2007 to demolish his red-brick rambler in a working-class neighborhood in Alexandria, erect a 3,765-square foot house on the same lot, and fill its stone-covered driveway with luxury cars, prosecutors and court filings say. At one point, prosecutors say, Khan’s immediate family members owned 10 automobiles.

The next move

This year, prosecutors say, the men began to plot their next move because the TIGER contract was going to expire and be replaced by a similar one worth about $780 million. During meetings in hotel rooms, in cars and at their homes, they allegedly discussed stacking a selection panel to ensure that Nova Datacom was picked for the work.

“Someone we can trust will have to be on the selection board,” Babb typed in an e-mail to Cho on April 4, according to prosecutors. Then he added, “Delete this as soon as you read it.”

It is not clear why the men would have given up on EyakTek as a conduit for such contracts. But prosecutors allege that Alexander and Babb had been promised jobs at Nova Datacom. Alexander was nearing retirement. Babb was disgruntled with his bosses: In a March e-mail to Cho, the EyakTek contract director complained that he had helped the company win a $1 billion contract but had received only a “handshake,” prosecutors said.

“Not going to repeat that mistake,” Babb added in the e-mail.

To make the contract award seem legitimate, Khan suggested to Babb in a July phone call that they allow a gap of two or three months between the solicitation for contractors and the awarding of the contract to Nova Datacom, according to prosecutors. The government employees needed “to show we actually did work on this thing,” Khan allegedly told Babb, adding that they had put together “a sweet plan.”

A few months later, the “sweet plan” was over when federal authorities raided homes and seized property and cars.

In the end, it wasn’t regulators who tripped up the men, but one of their own, authorities say. Last year, federal authorities began scrutinizing Nova Datacom in an unrelated fraud probe, and Cho wasted no time in pointing authorities in the direction of the Army Corps scam, authorities said. By the spring, he was even wearing a wire, records show.