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US: Attorney Pursues Iraq Contractor Fraud

Lawyer uses Civil War-era law to go after firms for corruption, but Bush administration won't help.

by Yochi J. DreazenThe Wall Street Journal
April 19th, 2006

ORLANDO, Fla. -- From his home office in a pink-painted mansion here, lawyer Alan Grayson is waging a one-man war against contractor fraud in Iraq.

Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq. But it also highlighted the limits of the broader efforts to stem contractor abuses there.

The False Claims Act that Mr. Grayson used in the Custer Battles case is a Civil War-era statute allowing whistle-blowers to sue contractors suspected of defrauding the government and then keep a chunk of any recovered money. There are an estimated 50 such cases pending against Iraq contractors, including large firms like Halliburton Co.'s Kellogg Brown and Root subsidiary. A technicality in the statute, however, has allowed the Bush administration to prevent the other lawsuits from moving forward. Cases filed under the statute are automatically sealed, which means that they can't proceed to trial -- or even be publicly disclosed -- until the administration makes a formal decision about whether to join them.

The law says such decisions are supposed to be made within 60 days, but with the exception of the Custer Battles case, which it declined to join, the administration has yet to take a position on any of the suits, some of which were filed more than two years ago. The law allows the Justice Department to ask for extensions, which are almost always granted, for as long as it sees fit. The department has kept the other False Claims Act cases from proceeding by repeatedly asking for extensions in each one.

That has left the cases in legal limbo, with lawyers like Mr. Grayson unable to bring them to trial or detail them publicly.

Contracting experts say previous administrations often declined to join in False Claims Act lawsuits but that the Bush administration's refusal to unseal the cases is unprecedented. Justice Department spokesman Charles Wilson says he can't discuss sealed cases or comment on why the department has yet to act on them. "All of the cases are examined on their merits," Mr. Wilson says. With the Bush administration sitting on the sidelines, primary responsibility for pursuing the Iraq fraud cases rests with plaintiffs' lawyers like Mr. Grayson, a Harvard-educated lawyer who began his career defending federal contractors but now makes his living going after them.

"With the sheriff asleep in the office, the only way you get justice is with private lawyers like Alan Grayson willing to step up and take down these fraudulent companies," says Patrick Burns, the spokesman for the advocacy group Taxpayers Against Fraud. "Alan Grayson showed that you can do that even without help from the government."

Though it is unclear when the cases will proceed to trial, Mr. Grayson is continuing to press ahead as best he can. He and other lawyers in his firm travel the country taking depositions, gathering documents and interviewing prospective witnesses for the dozens of currently pending lawsuits. Mr. Grayson says he also regularly passes information to the federal investigators probing the cases and the prosecutors deciding whether the government will participate in them.

A fierce critic of the war in Iraq, Mr. Grayson drives an aging Cadillac emblazoned with antiadministration bumper stickers such as "Bush Lied, People Died." He says the administration's botched handling of Iraq opened the door for corrupt contractors to improperly reap fortunes there. At a hearing in February 2005 held by Democratic senators, Mr. Grayson asserted that the administration had "not lifted a finger to recover tens of millions of dollars our whistle-blowers allege was stolen from the government."

His opinions on the matter haven't shifted since. "The Bush administration has made a conscious decision to sweep the cases under the rug for as long as possible," he says today. "And the more bad news that comes out of Iraq, the more motivation they have to do so."

For the contractors in his cross hairs, Mr. Grayson, 48, is a formidable opponent. He received his undergraduate, master's and law degrees from Harvard. He made millions during a two-year stint as the president of IDT Corp., a start-up that has since grown into one of the nation's largest providers of discount telecommunications services. Mr. Grayson says he has poured hundreds of thousands of dollars of personal funds into his small eight-person law firm to help defray the costs of pursuing Iraq fraud cases that may not make it to trial for years. "I have deep enough pockets to subsidize the legal work," he says.

If he prevails, he might fill those deep pockets. Whistle-blowers generally receive 30% of any penalty, although the exact portion of every award is set by the judge in each case. Lawyers like Mr. Grayson, in turn, receive 30% to 50% of whatever the whistle-blowers get. "It's really a financial crapshoot," he says.

Mr. Grayson's firm switched its focus from working for contractors to representing individual whistle-blowers shortly after U.S. forces swept into Iraq in March 2003. He says the firm made the move because they began to be contacted by whistle-blowers who were referred by former clients and others.

Two of his first clients were William D. Baldwin, a former manager for Custer Battles, and Robert J. Isakson, a construction subcontractor who had worked with the firm. The company, run by a pair of politically connected military veterans, had won security contracts in Iraq worth more than $100 million. But the two men told Mr. Grayson that they had evidence the firm was substantially overcharging the U.S. occupation authority.

Mr. Grayson filed suit against the company under the False Claims Act in February 2004, but it languished under seal until that fall, when the Justice Department formally declined to join the case. The government never explained its decision. The case finally went before a judge in February.

After a contentious three-week trial, a federal jury on March 9 found the company's two founders, along with a business partner, guilty of using fake invoices from shell companies to overcharge the authorities by millions of dollars. The jury ordered the men to pay $10 million in penalties, with Mr. Grayson's clients standing to receive about $3 million of the money. Mr. Grayson declined to say how much money he will be paid. David Douglass, a lawyer for Custer Battles, says the company has appealed the verdict.

While waiting for the government to act on the other lawsuits, Mr. Grayson is weighing a career change. His congressional district is represented by a conservative Republican, and Mr. Grayson is strongly considering seeking the Democratic nomination to oppose him. He says his campaign, if he chooses to run, would center on the war in Iraq.





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