Prosecutors detail alleged federal contract scheme

Story highlights

  • Defendants allegedly planned to try to steer a $780 million government contract
  • Two defendants are employees of the U.S. Army Corps of Engineers
  • Judge turns down bail request for two
Prosecutors on Thursday provided new details about an alleged scheme by four men to skim $20 million off of government contracts -- including a purported threat by one of the suspects to kill his own brother if he squealed.
In a federal court hearing Thursday, prosecutors argued against allowing the suspects out on bail, contending that they were a flight risk, and might have hidden enough cash to flee. They alleged that $180,000 in cash was found this week in a bag at the home of Michael Alexander, an employee of the U.S. Army Corps of Engineers responsible for awarding contracts.
The suspects include two longtime Corps employees charged in an alleged conspiracy involving more than $20 million in bribes and kickbacks, as well as a plan to try to steer a $780 million contract to a favored contractor, the U.S. Justice Department reported.
The prosecutors provided transcripts of a phone call they said was wiretapped by investigators, between another Army Corps contracts manager, Kerry Khan, and his son Lee Khan, who does not work for the Corps.
In it, according to the transcripts, Lee Khan said he was worried that his brother would betray their scheme, even though he had allegedly already been paid around $400,000 in hush money. That brother is in jail on unrelated charges.
"If anything like that happens, you are losing a son, because I will kill that (expletive) myself," Lee Khan allegedly told his father in August. "He makes a (expletive) peep, he's going down. If I have to find somebody locked up to (expletive) shank him in there, he's going down."
Lee Khan's defense attorney said Thursday that if such threatening words were ever spoken, in a heated moment, they should not be held against the man if he took no action.
Lee Khan and Michael Alexander, the only two who asked Thursday to be released on bail, were turned down by the judge.
Prosecutors allege that Alexander and the Khans, along with Harold Babb at the contracting firm EyakTek, skimmed $20 million in kickbacks off of a $45 million contract for technology services, by padding invoices. In addition, they were planning to land a $780 million contract at the time of their arrest, a federal indictment alleges.
The indictment claims the proceeds went toward the purchase of more than a dozen properties, valued as high as half a million dollars, as well as plane tickets, furniture, Cartier and Rolex watches, and two Porsches and an Audi costing around $60,000 apiece. In addition, according to prosecutors, Alexander spent $1 million on a coffee shop for his former mistress in Seoul, South Korea.
All four men, who remain in jail, have pleaded not guilty.
They were indicted on charges of conspiracy to commit bribery and wire fraud, conspiracy to commit money laundering, and aiding and abetting, according to a Justice Department statement.
"It's important to keep in mind that we've heard one side of the story -- we've heard the government's version of the facts," said Jeff Jacobovitz, an attorney for Babb, after Thursday's hearing. "Obviously, there are two sides to the story."
The contract in question was awarded without competing bids, under special rules for Native Alaskan companies. Sen. Claire McCaskill (D-Missouri), chair of the Senate Contracting Oversight Committee, said no-bid contracts are particularly vulnerable to fraud.
"This is the kind of stuff that happens, she said, "when you allow giant no-bid contracts to very tiny companies, that then hire someone on the back end to actually do the work."
But defenders of the rules for Native Alaskan companies argue that they help bring contracting jobs to disadvantaged tribes who were treated poorly in the past.
In a statement, a spokesman for the Corps of Engineers said, "USACE takes these allegations and the integrity of the contracting process very seriously and we hold all of our employees to the highest standards of conduct."
Rod Worl, the CEO of parent company Eyak, said the suspected employee was fired immediately, and that "Eyak and its shareholders will not tolerate this type of conduct by anyone employed by or associated with an Eyak company."
Both organizations said they are cooperating with investigators.