Two Army Corps of Engineers employees and a third man charged in a $20 million bribery, money laundering and kickback scheme will remain in jail as they await trial, a federal magistrate ruled Thursday, as prosecutors argued the defendants posed flight risks because they could face decades-long prison sentences if convicted.
A fourth man will also remain at least temporarily in jail pending additional arguments on Tuesday.
The four were arrested Tuesday in what federal prosecutors describe as one of the largest federal contracting scams in the nation's history. The indictment, unsealed Tuesday, has prompted calls for investigation from several members of Congress who want to know how the alleged scam _ which spanned four years _ could have gone undetected and whether better controls and oversight are needed.
The defendants are accused in a plot to direct government work to an information technology subcontractor in exchange for kickbacks that prosecutors say paid for real estate, sports cars, fancy watches and clothing and first-class airline tickets. They appeared in U.S. District Court Thursday in orange prison jumpsuits, but did not address the judge.
Kerry F. Khan, an Army Corps of Engineers program manager with authority to certify work orders and order products and services through agency contracts, waived his right to a detention hearing and agreed to remain locked up. U.S. Magistrate Judge Deborah Robinson ordered detained Khan's son, Lee A. Khan, and another Army Corps employee, Michael A. Alexander. A fourth defendant, Harold F. Babb, will remain held until at least Tuesday after his lawyer requested additional time to review the case and prepare arguments..
Prosecutors say the case against the four men is overwhelming and argued they had the assets and incentives to flee. Alexander has traveled abroad at least 23 times in the last decade, including 19 trips to South Korea, where prosecutors say he had a mistress. Federal agents searching his home on Tuesday found more than $180,000 in cash, said prosecutor Michael Atkinson. Because the investigation is continuing and involves other "corrupt government contractors," Atkinson said, there are government witnesses with incentive to help Alexander flee.
Alexander's lawyer, Christopher Davis, argued that his client's wife was ill with cancer and that the government had plenty of ways to ensure Alexander's future court appearances and to insulate him from government witnesses.
"She needs him, and I don't think the United States needs him in the D.C. jail as much as she needs him right now," Davis said.
Lee Khan, prosecutors say, poses a risk to the community because he was recorded threatening to kill his brother _ who was imprisoned in a felony drug trafficking case _ after his brother threatened to snitch on his family if he didn't get a cut of the proceeds. He was ultimately paid nearly $400,000 to buy his silence, court papers allege.
"If Mr. Lee Khan is a threat to a family member, his own brother, it's reasonable for the court to conclude that he would be a similar threat to other government witnesses," Atkinson said.
Khan's lawyer, Edward Sussman, called the threat a "quick reaction to a volatile situation" and said there was no indication any step was taken to carry out the treat.
Prosecutors say Babb, who had been director of contractors for Eyak Technology LLC, tried to conceal the scheme by transferring $2 million of the proceeds to the Bahamas and $218,000 to Panama. He also had $10,000 in his home when agents searched it, prosecutors say.
Eyak Technology is a subsidiary of an Alaska Native Corporation with Virginia operations. It was the prime contractor for a five-year, $1 billion contract administered by the Army Corps of Engineers. The indictment says the chief technology officer of a Virginia-based subcontractor on that contract _ identified in the indictment only as Company A _ submitted phony and inflated quotes for its services to EyakTek, which passed on the invoices to the government. EyakTek subtracted its profit margin and then paid the remainder to Company A, and $20 million in falsely inflated invoices were funneled back to the four defendants, the indictment says.
EyakTek says it has cooperated with the investigation, and that Babb has been fired.
Critics say the charges illustrate unfair procurement advantages enjoyed by Alaska Native Corporations in obtaining lucrative federal contracts. U.S. Sen. Claire McCaskill, a Missouri Democrat who chairs a Senate subcommittee on contracting oversight, introduced a bill last year that would strip the corporations of an edge. In an interview with The Associated Press on Thursday, McCaskill said the amount of money in these contracts is "enough to make you dizzy."
"It is scandalous that we have not been able to put a stop to this," she said.
McCaskill said she'd rather see the federal prosecutions take its course than call for another hearing on Capitol Hill. But on Wednesday, two House Democrats, Reps. Tim Bishop and Edward Markey, called for congressional investigations or hearings into the allegations.