US: Jurors Weigh Custer Battles Fraud Case

In closing arguments, the attorney for two whistleblowers asks for more than $10 million in damages against the Rhode Island-based company accused of war profiteering in Iraq.
Publisher Name: 
The Providence Journal

ALEXANDRIA, Va. -- A lawyer for two whistleblowers demanded more than $10 million in damages and penalties yesterday against the men he called the "war whores" of Custer Battles LLC, the Rhode Island company accused of faking millions of dollars worth of bills for work in Iraq after the U.S. invasion.

"There is a war in Iraq and people are dying," lawyer Alan M. Grayson told the jury at the close of a three-week civil trial in federal court here. If people like former Rhode Islander Michael J. Battles and his partner, Scott Custer, "go there simply to make money, to steal," he said, "it's not like stealing from a bank because people's lives are at stake."

But lawyers for the former Army buddies and their codefendant, in their closing arguments, called the whistleblowers "bounty hunters" whose lawsuit against Custer Battles was driven by a combination of misunderstanding, opportunism and spite after their falling-out with the contractor.

Defense lawyer David Douglass depicted one of the whistleblowers, former Custer Battles manager William D. "Pete" Baldwin, as embittered and bent on getting even after his demotion for poor performance on a crash project to replace Iraq's national currency late in 2003.

"He got mad, he quit, he sued," Douglass said. Baldwin also formed a competing company with the other whistleblower, William J. Isakson, who according to Douglass was upset over the rejection of his overtures to become a Custer Battles partner.

"Honorable men doing an honorable job at a hard time" is how Douglass portrayed Battles, 35, a West Point graduate raised partly in Barrington; Custer, 37, originally from Portsmouth, N.H.; and Joseph Morris, 43, of Connecticut, a key employee on the Iraqi Currency Exchange project late in the summer of 2003.

"There was confusion and chaos in Iraq, but there was no fraud" on the part of the defendants, Douglass said.

The lawsuit, brought under the Civil War-vintage False Claims Act, may have repercussions beyond the young and comparatively small defense contractor because it represents the first allegations of war profiteering in Iraq that have gone to the jury.

The Justice Department passed up an opportunity to join in the case with the whistleblowers, who stand to take a portion of any damage award the jury makes if it accepts their allegations against Custer Battles.

But the federal government would take the large majority of any damage award and all the penalties assessed against the defendants. Moreover, a federal prosecutor and agents for the FBI and the Pentagon's investigative arm were among the most faithful spectators at the trial.

At issue in the case is an advance of $3 million that the U.S.-led Coalition Provisional Authority paid a Custer-Battles unit in the summer of 2003. U.S. District Judge T.S. Ellis III restricted the jury's focus to that sum because it was easily identified as the proceeds of a U.S. Treasuary check. Grayson asked the jury to assess damages in that amount. If the jurors find that false claims cost the government that much in overcharges, the award would automatically be tripled under law to $9 million.

Then a punitive assessment of $11,000 can be made for each of the 45 separate instances of fraud alleged by the whistleblowers.

In addition, Baldwin seeks $280,000 for two years of lost pay because he alleges that his demotion amounted to an effort to force him out of Custer Battles after be began to balk at the phony billing scheme and alerted U.S. officials.

During the trial, the judge allowed Grayson to introduce evidence connected to millions of dollars more in alleged fraud. But because much of that money derived from seized Iraqi assets or oil revenues and non-U.S. sources, the judge told the jury that it must focus only on the $3 million total in the August 2003 advance to Custer Battles.

The closing arguments -- and the complex instructions that the eight-member jury will begin to follow in its deliberations this morning -- centered on the invoices and leases that the accusers cite as phony.

The defense made much of the complexity and number of allegedly false invoices, charging that the whistleblowers, in Douglass' words, tried to "pick facts here and there to suggest that there's something wrong."

Douglass also charged the accusers with a misreading of the terms of the Custer Battles contract. The $3-million advance was properly accounted for in a handful of accounts that Custer Battles submitted to the CPA shortly after finishing the main work of its contract -- the construction of three camps as staging grounds for the currency exchange.

Douglass asserted that the jury should essentially ignore all the rest of the dozens of leases and invoices that Grayson listed as violations because they did not have to be submitted under the terms of their contract. While acknowledging that some leases and billings were backdated or contained forged signatures of a Custer Battles employee and a subcontractor, the defense said the defendants had nothing to do with them.

Grayson, by contrast, argued that most of the 40-odd billing documents were manufactured and backdated weeks after the mid-September completion of the camp construction because the CPA insisted on a more extensive and detailed accounting for the entire job -- which eventually approached $20 million in costs.

Grayson also ridiculed the defense's argument that even the admittedly backdated and forged documents were irrelevant because they appeared after the completion of the work.

Grayson referred to the testimony of Custer Battles' Rhode Island accountant that he had reconciled more than 10,000 receipts with the electronic entries that the company kept as its log of expenses to be charged to the CPA.

Why then, demanded Grayson, did the Custer Battles defense fail to produce a single one of those receipts as evidence -- or submit any to the CPA?

AMP Section Name:War & Disaster Profiteers Campaign
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