US: Private Security Cofounder Denies Bilking Government

ALEXANDRIA, Va. -- The cofounder of Custer Battles LLC yesterday denied charges of false billings for millions of dollars in contracts as the last of the evidence was heard in the first trial of profiteering charges from the war in Iraq.

Custer Battles co-owner Scott Custer portrayed the company, which was partly based in Rhode Island, as performing well under dangerous and "extremely difficult" conditions during the summer and fall after the United States invaded Iraq in 2003.

Custer also denied a new allegation that his partner, former Rhode Islander Michael J. Battles, was once "drummed out of the CIA for misconduct," in the words of Alan M. Grayson, the lawyer for two former Custer Battles business associates who filed the civil allegations against the company.

"That's absolutely not true," Custer said.

With the jury scheduled to hear final arguments today, three weeks after the trial began, Custer added new details to the defense's case that much of

the blame for the firm's accounting problems in Iraq lay with one of the whistleblowers, William J. "Pete" Baldwin.

Custer testified, for example, that he demoted Baldwin in early 2004 for poor performance. In mid-September 2003, Custer said, the firm had just finished building and outfitting three camps that were to serve as bases for a crash program to replace Iraq's entire currency system. Then Baldwin took over what remained of the currency exchange, Custer said, and the problems began.

Custer repeated earlier charges by Battles that Baldwin took on extensive new work for the currency exchange without proper authorization. Custer depicted the resulting expenditures as the root of the investigation by the U.S.-led Coalition Provisional Authority of Custer Battles billing procedures.

Custer also said that he rebuffed Baldwin's overture to become an equity partner in Custer Battles, which in little over a year had grown from a tiny shop of perhaps 4 employees into a $70-million concern with 1,000 workers.

Early in 2004, Custer said, Baldwin resigned rather than begin his new, lower-level assignment. Custer said that Baldwin moved to a new job with a competing company and that several Custer Battles employees went to the new firm the day Baldwin left.

Custer's testimony left the jury with two conflicting versions of the same event. Baldwin, who testified briefly in rebuttal yesterday, maintains that he left Custer Battles because its two co-owners and another employee, co-defendant Joseph Morris, had embarked on a scheme to defraud the CPA with millions of dollars worth of fake invoices produced by offshore subsidiaries.

Baldwin said he blew the whistle on Battles and Custer rather than go along with the fraud. Battles and Custer have asserted that Baldwin and fellow whistleblower Robert J. Isakson filed their false claims suit in order to win a slice of any damages awarded to the government.

During a jury recess yesterday, U.S. District Judge T.S. Ellis III gave the accusers permission to probe one new charge against the defendants but excluded others.

Ellis excluded questions alleging that one business associate of Custer Battles in Iraq stole $14 million worth of new Iraqi dinars from the currency exchange program. Ellis ruled that the charge -- for which the accusers were not allowed to offer any evidence -- was not relevant to the narrower charge against the defendants, that they presented false claims for up to $3 million in payments from the U.S. government.

But Ellis did let Grayson, the lawyer for the accusers, call into question assertions from earlier in the trial that Battles cut short his career in the Central Intelligence Agency in order to return to Rhode Island to help care for an ailing grandmother. However, Ellis excluded any specific evidence about the circumstances of Battles' departure from the CIA, which he joined after resigning his commission in the Army.

Custer, 37, and Battles, 35, became friends as Army officers in the 1990s.

• 174 War & Disaster Profiteers Campaign