Bloomberg News

Army Corps Officials Charged in $20 Million Fraud Conspiracy

October 04, 2011

(Updates with details of indictment starting in second paragraph.)

Oct. 4 (Bloomberg) -- Two U.S. Army Corps of Engineers contracting officials were charged with taking $20 million of bribes and kickbacks and plotting to steer $780 million of government business to a favored company.

An indictment unsealed today in Washington alleges the government employees, Kerry F. Khan, 53, of Alexandria, Virginia, and Michael A. Alexander, 55, of Woodbridge, Virginia, funneled more than $45 million to the company through a contract they were in charge of. Also charged was Harold Babb, the director of contracts for Eyak Technology LLC in Dulles, Virginia. Kerry Khan’s son, Lee, a consultant, is the fourth defendant.

The four pleaded not guilty in federal court in Washington and are being held without bond until a detention hearing on Oct. 6. Prosecutors said in court they were all a flight risk and that the Khans had threatened a potential witness.

The scheme was “one of the most brazen federal procurement scandals in our nation’s history,” U.S. Attorney Ronald Machen said at a news conference in Washington. “This scheme is staggering in scope. I think it surprised all of us.”

In addition to the arrests, the government seized 29 bank accounts, three luxury cars and is seeking forfeiture of 16 properties financed at least in part through the alleged scheme, Machen said in a statement. Federal agents executed search warrants at an Army Corps’s office in Washington this morning, prosecutors said.

Five-Year Contract

The four were involved in a scheme that reaped $20 million through a five-year contract with the Army Corps under the TIGER program, the indictment alleged. Government agencies, including Homeland Security, NASA and the Coast Guard, use the TIGER contract to acquire information-technology services and physical and infrastructure security.

Eyak Technology is a unit of Anchorage, Alaska-based Eyak Corp., which has received more than $1.9 billion in government contracts since the fiscal year that began October 2001, according to data compiled by Bloomberg Government.

Eyak qualifies for preferential treatment through a program that reserves some contracts for small companies owned by disadvantaged minorities.

Hostile Takeover

Melissa Zelinger, a spokeswoman for Eyak, said the company “is cooperating with the investigation.” The company attempted a hostile takeover of GTSI Corp., based in Herndon, Virginia, in September 2010. The deal was terminated last October.

The alleged scheme was made possible by Kerry Khan’s position as a program director in the Army Corps’s directorate of operations, which administers the TIGER contract, prosecutors said. He had authority to place orders through TIGER that don’t require competitive bidding.

EyakTek was the prime contractor, subcontracting many orders from the Army Corps.

Khan, Alexander and Babb allegedly directed orders to a Virginia-based company identified in the indictment as “Company A.” The company’s chief technology officer, an unindicted co- conspirator, submitted fraudulently inflated invoices then paid the $20 million in kickbacks to the three, the indictment alleges.

At the same time, the defendants conspired to steer as much as $780 million in contracts for CORES, a planned replacement for TIGER, to “Company A,” prosecutors said.

Money Laundering

All four defendants were charged with one count of conspiracy to commit bribery and wire fraud, as well as one count of conspiracy to commit money laundering.

Kerry Khan and Alexander also were accused of one count of receipt of a bribe by a public official, and Babb was indicted on one count of unlawful kickbacks. If convicted, Kerry Khan and Alexander face as many as 40 years in prison. Babb faces as long as 35 years, and Lee Khan faces a sentence of up to 25 years, according to the statement.

The arrests mark the third time since July that Army Corps employees were linked to allegation of contracting fraud.

Last month, a former Army Corps employee based in Iraq pleaded guilty to accepting bribes from Iraqi contractors. In July, three former employees of the agency and two other men were indicted in Newark, New Jersey in an alleged kickback scheme involving more than $50 million in contracts in Iraq.

Press officers for the U.S. Army Corps of Engineers didn’t immediately respond to requests for comment about the involvement of its employees or the search of its headquarters.

The case is U.S. v. Khan, 1:11-cr-00276, U.S. District Court, District of Columbia (Washington).

--With assistance from Kathleen Miller, Nishad Majmudar and Michael Riley in Washington. Editors: Fred Strasser, Jon Morgan

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net. Jon Morgan at jmorgan97@bloomberg.net


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