Custer Battles accused of killing innocent civilians, bilking millions and running wild in Iraq

His career in Baghdad was brief. And it ended badly.

On a blistering July afternoon, three MP5 submachine guns were pointed at Robert Isakson. The men carrying the weapons wanted his money and his security pass.

As Isakson tells it, they also wanted his guns, leaving him unarmed in a mess of a country and banned from its safest haven.

"We were defenseless," says the former cop and FBI agent. He had come to Iraq to help rebuild the devastated country, accompanied by his 14-year-old son, Bobby. Now, after less than a month, they were being expelled at gunpoint.

By Americans.

The gunmen and Isakson all worked for Custer Battles LLC, a Rhode Island-based contracting firm now mired in lawsuits and a criminal investigation by the Pentagon. Isakson claims company employees ordered him out because he refused to help defraud the U.S. government.

It is one allegation on a long list.

Custer Battles security guards have also been accused of firing at unarmed civilians. They have been accused of crushing a car filled with Iraqi children and adults. They have been accused of unleashing a hail of bullets in a Baghdad hotel, only to discover, when the dust literally settled, that they had been shooting at each other.

The company is under investigation by the Department of Defense for allegedly overcharging the government millions by making up invoices for work never done, equipment never received, and guards who didn’t exist.

In September 2004, the company was banned from receiving government contracts after Air Force investigators determined it "conspired to defraud the CPA," the Coalition Provisional Authority.

Isakson and William "Pete" Baldwin, the former Iraq country manager for Custer Battles, filed a federal whistle-blower suit last year, accusing the company of war profiteering and defrauding the government of at least $50 million.

The company rejects those claims. "Custer Battles strongly denies that any of its corporate management or officers knowingly engaged in any improper conduct," the firm said, responding to a list of detailed questions e-mailed by The Associated Press. The suit, it says, is the work of disgruntled employees.

Scott Custer and Michael Battles got their first government contract by sheer bravado. Sure, they could provide armed guards and security screeners at Baghdad International Airport. Absolutely, they could transport equipment and vehicles there. Sure, they could do it all in three weeks.

No matter that they had no experience. No matter that other established Pentagon contractors said the deadline was impossible. No matter that this was Iraq, just after the devastated country had fallen to invading coalition forces.

But the CPA, mandated to run Iraq on an interim basis, wanted the airport open pronto.

Calling themselves Custer Battles, the ex-Army Rangers formed a limited liability corporation before the invasion and let it be known in Washington, D.C., that they were looking to snap up rebuilding contracts.

Battles, who ran unsuccessfully for Congress in 2002 as a Rhode Island Republican, was a former CIA case worker who claimed White House connections.

Mutual friends introduced the entrepreneurs to Isakson, an Alabama businessman specializing in wartime and disaster-relief contracts. But less than a month after securing the $16.8 million airport contract, Isakson says he was forced to leave.

Custer Battles is one of at least 60 private firms, collectively employing more than 20,000, living in a war zone. They have their own arms, their own vehicles, their own body armor. Some even have their own helicopters. Their security ranks include an assortment of aging warriors who believe they can still laugh at death.

At its apex, Custer Battles employed more than 700 people in Iraq working on projects worth at least $100 million.

But Custer Battles gained a certain reputation in Iraq.

"Probably as gunslingers," a retired lieutenant colonel working for the firm told Chicago public radio last year. For security reasons, he gave his name only as Hank.

He described a Baghdad hotel gunfight that erupted not long after Custer Battles security agents landed. It was started by a rocket-propelled grenade attack. When the smoke cleared, the guards - who’d leaned out windows and fired more than 3,000 rounds in the middle of a residential neighborhood - realized they had been shooting at each other.

Earlier this year, four former employees, all military veterans, said they quit after witnessing Custer Battles security escorts shooting indiscriminately at civilians, including gunning down a teenager walking along a road. The men also said guards in a truck drove over a car containing children and adults while trying to make their way through a traffic jam.

Custer Battles found "no evidence" to support the claims, the company responded in its e-mail to the AP.

The company’s financial exploits, according to a memo from the Air Force probe and the whistle-blower suit, included fake invoices, shell companies and forgery.

The Air Force investigated a $21 million contract awarded in August 2003 to provide security for the CPA and its massive effort to exchange near-worthless Iraqi money for 2,400 tons of new, stable currency.

It was a dangerous undertaking. Convoys trucking $4 billion worth of Iraqi cash had to deliver it to three distribution centers on unsafe roads in a country engulfed by chaos. Custer Battles was to provide trucks, armed guards and temporary housing.

But CPA officials soon complained that promised trucks never showed up. Others broke down. A convoy carrying prefabricated cabins got lost for a week.

Pete Baldwin was in charge of the project. He, too, complained - first to his Custer Battles bosses, then to the military, and finally to Pentagon investigators and the FBI.

He accused his employers of fraud. He said the owners - and other company officials - concocted a scheme to overcharge the coalition by submitting bills from leasing companies that were drastically inflated. Those companies were really "shells" owned by Custer Battles, Baldwin said.

Isakson also said he was recruited to participate in such schemes. When he refused, he claims Custer Battles employees held him at gunpoint with his teenage son and took their security passes, his weapons and other property.

Isakson said he hightailed it across northern Iraq to Jordan, driving his SUV at 120 mph.

The company denies the allegations, and says Isakson’s decision to leave was his own.

Baldwin, in a phone interview from Iraq, said he went to military officials in November 2003 and said, "There’s a problem here."

He told Defense Criminal Investigation Service officials that Custer Battles was using forged and fake invoices, and was billing the coalition for services it never provided, including a nonexistent security detail for the caravan that got lost.

Since then, Baldwin said he has been interviewed by FBI agents and DCIS investigators, who are conducting a joint investigation of the company. The Pentagon and the FBI declined comment.

The Air Force memo states Custer Battles "fraudulently increased profits by inflating its claimed costs."

It cites a spreadsheet entitled accidentally left behind by Custer Battles employees after a tense meeting with CPA officials who were questioning the firm’s invoices.

The spreadsheet showed Custer Battles had charged more than $9.8 million for work that actually cost the company about $3.7 million - a markup of more than 162 percent when the maximum allowed profit was 25 percent, the memo said.

The spreadsheet also noted a December 2003 invoice charging the coalition $157,000 for building a helicopter pad in the northern Iraqi city of Mosul. The actual cost to Custer Battles was $95,000.

An astounding allegation in the whistle-blowers’ suit says Custer Battles took forklifts abandoned by Iraqi Airways, painted them to cover the airline’s name, and then charged the coalition thousands of dollars on fake invoices, claiming it was "leasing" the equipment.

Franklin Willis, a senior official with the CPA, testified in February before a U.S. Senate committee investigating waste and inefficiency during the coalition’s 13-month existence. He used Custer Battles as an example of both.

He described Iraq as the "Wild West," a place where cash and chaos were everywhere. More than $3 billion - in new, shrink-wrapped $100 bills - had been confiscated by coalition forces. It was stored in a vault in the basement of coalition headquarters, Willis said.

The money was simply handed out to eager contractors converging on Baghdad. "We called Mike Battles in and said, ’Bring a bag,’" Willis told the senators. Coalition officials filled a duffel with $2 million, which Custer Battles used as startup capital for the airport contract.

Willis, who served in the state and the transportation departments under President Reagan, worked for the CPA as an aviation and communications adviser. For security reasons, the airport never accepted scheduled civilian traffic during the life of the CPA.

"Custer Battles interpreted their obligations solely by themselves and continued collecting on the $16 million," Willis testified, even though "the reason for the Custer Battles contract had disappeared."

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