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$30 million bid-rigging scam at Army Corps

Apr. 1, 2013 - 05:11AM   |  
The Alexandria, Va., home of Kerry Khan, an ex-Army Corps of Engineers contracting official whom prosecutors call the mastermind of the biggest bid-rigging scheme in government history.
The Alexandria, Va., home of Kerry Khan, an ex-Army Corps of Engineers contracting official whom prosecutors call the mastermind of the biggest bid-rigging scheme in government history. (Thomas Brown / Staff)
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Until recently, Army Corps of Engineers program manager Kerry Khan had millions of dollars, mistresses in three states and lavishly fed his appetite for high-end cars and liquor, according to court records.

He was, as prosecutors put it, the mastermind of the largest bid-rigging scam in the history of federal contracting.

Two summers ago, Khan got a scare — federal agents paid a visit to his opulent Alexandria, Va., home — and he considered retiring after nearly two decades in the federal government.

But he opted against quitting his job because he was worried he would lose his accrued annual leave, according to one investigator in the case.

Khan, 55, now has bigger worries.

After pleading guilty in May 2012 to charges of bribery and bid-rigging, among other things, Khan is awaiting sentencing in July. Under federal guidelines, he could expect at least 21 years in prison. However, citing “substantial assistance” from Khan after his arrest, prosecutors are recommending he serve less — a little more than 15 years — and pay $32.5 million in restitution. Khan's attorney declined to comment.

Sentencing memos and other documents, as well as recent charges filed against other contractors, provide fresh details about the unprecedented corruption scandal in Washington Army Corps offices where Khan worked.

In all, Khan and his associates had illegally pocketed more than $30 million in kickbacks and bribes over almost five years. When authorities arrested Khan in October 2011, he had been planning an even bigger scheme to steer a nearly $1 billion federal contract.

“It came to law enforcement's attention, and we moved pretty quickly,” said Ronald C. Machen Jr., U.S. Attorney for the District of Columbia.

Machen declined to say how law enforcement officials were tipped off, but he said the investigation remains active.

‘Khan Incorporated'

While authorities portray Khan as the ringleader, they say he had lots of help.

(Page 2 of 4)

Michael Alexander, a program manager who worked with Khan at the Army Corps of Engineers, had a perfect resume. He was a Boy Scout leader, a retired colonel and an Army War College graduate hailed for his “unquestionable loyalty” in one 2008 performance review, court papers show.

At the Army Corps, he managed a $50 million-plus annual budget to provide engineering support for military and relief operations around the world.

But even as he received the Legion of Merit in 2009, authorities say Alexander had been working with Khan to steer Army Corps contracts to favored contractors in exchange for kickbacks, including to one company where Alexander hoped to land a job.

Alexander, recently sentenced to six years in federal prison, is one of a dozen people who have pleaded guilty in the case. His lawyer declined to comment, but in court papers, he called Alexander a “proud man, a family man, until his recent very public breakdown.”

In March, in a related case, prosecutors filed bribery charges against a company, Nova DataCom, and its president, Min Jung Cho. Both are expected to plead guilty, according to court papers.

Barbara Ann Van Gelder, an attorney for Cho and Nova DataCom, said neither she nor her clients would comment. The company's chief technology officer, Alex Cho, also is awaiting sentencing. Court records show he helped investigators by wearing a recording device during the probe's undercover stages.

Other contractors — some real, others little more than front organizations — were involved, too, according to court records.

Harold Babb, former director of contracts for Eyak Technology, has received more than seven years in prison for his dealings with Nova DataCom and Khan.

Here is how it generally worked: Contractors involved in the scheme submitted bogus invoices, which the Army Corps — with Khan's help — paid. In exchange, the money from those invoices went to payoffs and kickbacks through various businesses, records show.

(Page 3 of 4)

The kickback scheme involved a big Army Corps contract known as TIGER, for Technology for Infrastructure, Geospatial and Environmental Requirements. Until their arrests in 2011, Khan and others planned to steer another nearly $1 billion contract known as CORES, for Contingency Operations Readiness Engineering and Support, prosecutors said.

During an early court hearing, Michael Atkinson, an assistant U.S. attorney, said the operation centered on an informal holding company, which he called “Khan Incorporated.”

“Of course, the public did not know that it was investing in Khan Incorporated, since the money that was used to fund Khan Incorporated was stolen,” he said.

Among others who pleaded guilty were Khan's brother, Nazim Khan, and son, Lee Khan.

In 2005, Nazim Khan was talking to a regular customer of his auto shop, Robert McKinney, who owned a company that was looking for federal contracting work, according to court papers. Kerry Khan helped steer contract work to McKinney's company. Uneasy with the increasing kickback demands, McKinney quit dealing with Khan when his contract ended, court papers show.

Cellphone discussions

By summer 2011, authorities had begun monitoring Khan's cellphone. They heard him discussing plans to make a $56,105 payment for a 2012 BMW 650i for a co-worker, who had agreed to chair a contract selection panel on a nearly $1 billion procurement Khan aimed to steer to Nova DataCom, according to records.

Prosecutors recently disclosed another exchange in court papers pertaining to Khan's character.

In late June 2011, prosecutors said, investigators were monitoring text and phone conversations between Khan and a man in the Philippines known only as “Arnee.” The two discussed Khan's plans to travel to the country to “engage in prostitution with a girl represented to him to be 15 years old,” according to the sentencing memo, which included a transcript of more than two dozen text messages.

Authorities said investigators didn't want Khan going overseas, and they also didn't want to blow their undercover operation.

(Page 4 of 4)

Using a pretext, authorities said two investigators — one from the FBI, the other from the Defense Criminal Investigative Services — visited Khan at his house in Alexandria and convinced him to delay the trip. After the meeting, Khan changed his cellphone number, stopped communicating with Arnee and moved ahead with plans to leave his job at the Army Corps, according to prosecutors.

In a statement, Khan expressed remorse about the bribery scheme.

“I cannot begin to tell you the embarrassment and shame I feel for being in the situation I put myself in,” Khan said in the statement, which was cited in his defense sentencing memo. “After a lifetime as a hard worker and a family man, I am now a convicted felon. I have caused embarrassment and shame to my family, my friends, my country and to myself.”

Arguing for a sentence of no more than 10 years in prison, defense lawyers filed court papers citing letters from relatives showing a different side of Khan, whose sister called him a “loving and caring individual.”

But none of the documents shed light on how such a scam could have grown so big, so fast, without anyone noticing.

Army Corps spokesman Doug Garman said the agency doesn't comment on ongoing investigations. But, he added in an email, “The Army Corps of Engineers, based on information obtained from this case, is reviewing policy and procedures related to the acquisition process.”

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