The verdict, awarded in March against Fairfax-based Custer Battles LLC, had been the first civil fraud verdict arising from the Iraq war. Custer Battles based most of its operations in Rhode Island.
A former Custer Battles employee filed the lawsuit under a whistleblower statute, alleging that Custer Battles used shell companies and false invoices to vastly overstate its expenses on a $3 million contract to assist in establishing a new currency to replace the old Iraqi dinar used during Saddam Hussein's regime.
The verdict reached $10 million because the law calls for triple damages, plus penalties fines and legal costs.
But U.S. District Judge T.S. Ellis III, in a ruling made public Friday, ruled that Custer Battles' accusers failed to prove that the U.S. government was ever defrauded. Any fraud that occurred was perpetrated instead against the Coalition Provisional Authority, formed shortly after the war to run Iraq during the occupation until an Iraqi government was established.
Ellis ruled that the trial evidence failed to show that the U.S. government was the actual victim, even though U.S. taxpayers ultimately footed the bill.
Alan Grayson, lawyer for whistleblowers Robert Isakson and William Baldwin, said he will appeal the ruling. He faulted the Bush administration for creating the CPA in a manner that essentially allowed it to act as a money launderer for unscrupulous military contractors.