Probe sought in Army Corps of Engineers bribe case

By ERIC TUCKER | October 5, 2011 | 9:50 PM EDT

WASHINGTON (AP) — At least two House Democrats on Wednesday called for an investigation into accusations of a $20 million government contracting fraud involving two employees of the U.S. Army Corps of Engineers.

Rep. Tim Bishop, D-N.Y., the top Democrat on the subcommittee with oversight of the Army Corps of Engineers, sought the investigation, as did Rep. Edward Markey, a Massachusetts Democrat.

The calls came a day after the unsealing of an indictment charging the two employees, Kerry F. Khan and Michael A. Alexander, and two other men with a scheme to steer contracts to an information technology subcontractor in exchange for millions of dollars in kickbacks. Prosecutors say those kickbacks helped pay for more than a dozen properties, expensive watches, clothing and cars and first-class airline tickets. The indictment includes charges of conspiracy to commit bribery and wire fraud, unlawful kickbacks and receipt of a bribe.

"I think it's absolutely imperative that we conduct hearings as soon as possible to a) learn more about this particular situation and, b) determine what kinds of safeguards need to be put in place that obviously are not now to prevent this kind of thing from ever happening again," Bishop told The Associated Press. He called the allegations "tremendously alarming."

Also charged are Khan's son, Lee A. Khan, who prosecutors say controlled a consulting company with his father and also benefited from the scheme, and Harold F. Babb, the director of contracts for Eyak Technology LLC. 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.

Markey is the top Democrat on the House Natural Resources Committee, which has oversight of Alaska Native Corporations. The corporations have certain procurement advantages that enable them to obtain billions of dollars in federal contracts through a Small Business Administration program. Critics, including Sen. Claire McCaskill, a Missouri Democrat, say the corporations enjoy loopholes that too often lead to fraud and waste.

Markey, in a letter to committee chairman Rep. Doc Hastings, R-Wash., called for a hearing to assess whether Eyak Technology has sufficient internal controls to "protect against bribery or other malfeasance by company employees, and whether additional protections are needed."

Rod Worl, the chief executive officer of the Eyak Corporation and president of Eyak Technology LLC, said the company was cooperating with the investigation and that Babb had been fired.

"Eyak and its shareholders will not tolerate this type of conduct by anyone employed by or associated with an Eyak company," Worl said in a statement.

The defendants are due in U.S. District Court in Washington on Thursday for a hearing to determine if they'll remain in jail before trial.

The indictment accuses Khan and Alexander of directing government work to an unidentified Virginia subcontractor referred to in the indictment as Company A. The chief technology officer for the company, identified in court papers as a co-conspirator, submitted to EyakTek inflated and phony quotes for its work, which were used to create bogus invoices for the Army Corps of Engineers, according to court papers. Prosecutors say the money was then funneled back to the defendants.

Eyaktek was the prime contractor on a $1 billion contract administered by the Army Corps of Engineers, while Company A was a subcontractor.

Prosecutors said in court papers filed Wednesday that the evidence against the defendants, which includes dozens of recorded conversations between them and the unnamed co-conspirator, was overwhelming. They also provide new details about threats of violence they allege were made by one of the men against a family member.

They say Lee Khan's brother, imprisoned for a federal drug trafficking crime, threatened to snitch on his family members unless he was paid off. The brother was sent $400,000, prosecutors say, but Lee and Kerry Khan remained concerned that their relative would cooperate with law enforcement regardless.

"If anything like that happens, you are losing a son, because I will kill that (expletive) myself. That's all there is to it," Lee Khan told his father, according to court papers. He also threatened to have a fellow inmate kill his brother.