Custer Battle lost $1.4 million, he says, after its top manager in Iraq "lost control of the [currency] project."

01:00 AM EST on Tuesday, February 28, 2006

BY JOHN E. MULLIGAN
Journal Washington Bureau

ALEXANDRIA, Va. -- Rhode Island-based Custer Battles LLC spent about $1.4 million more than it was ever paid for its work on the project at the heart of the war-profiteering charges against the company, one of its cofounders testified in federal court yesterday.

"I have personally added up all the different buckets of information and I know exactly how much was spent on this project and it was millions of dollars more than we were paid," Scott Custer testified as the trial of the case against his company entered its ninth day in U.S. District Court here.

Custer denied any fraud in the Custer Battles accounting for a project to replace Iraq's national currency. The lawsuit alleging millions of dollars worth of such fraud was brought by two whistleblowers -- a former employee and a former business associate of the defendants.

Custer echoed last week's testimony by the co-owner of the firm -- former Rhode Islander Michael J. Battles -- that the two had little day-to-day involvement in the firm's billings to the U.S.-led Coalition Provisional Authority, which awarded several multimillion-dollar contracts to Custer Battles.

Custer said he "managed the people who managed the people who managed the contracts." Among such managers, Custer testified that one former employee, William D. "Pete" Baldwin, was largely to blame for what Custer portrayed as an unauthorized expansion of the key contract that led to the unauthorized spending that caught the eye of U.S. investigators in Iraq. Baldwin is one of the whistleblowers whom the defendants have portrayed as embittered former associates who stand to profit from the lawsuit.

As the Iraqi Currency Exchange project was going awry in the fall of 2003, Custer testified, "My role was trying to juggle 1,000 balls at a time" as one of the two owners of a company "with a 7,000-percent growth rate at the time."

Custer also said, "I constantly beat up Mr. Baldwin," over what he described as Baldwin's failure to stay in close communication with the home office.

Specifically, Custer charged Baldwin with sometimes "going dark for three, four, five days" when he was the only ranking company official in Iraq with responsibility for the project, and Custer and Battles were in the United States, often at their Rhode Island offices. "We didn't know what was happening. We didn't know if people were getting killed. We didn't know anything."

Between mid-September and early November of 2003, Custer said Baldwin "lost control of the project," permitting its unauthorized expansion and the unauthorized expenditure of sums that later became the source of accounting disagreements, an investigation by Pentagon agents and the current lawsuit.

Custer said the company spent about $13 million on the project, but was paid only $11.6 million by the CPA.

His testimony contrasted with his repeated praise for Baldwin, documented in e-mails.

Custer said he praised Baldwin "to try to pump him up." He said his criticisms were verbal, rather than written.

jmulligan@belo-dc.com / (202) 661-8423