Former executives of Custer Battles (search) — an American firm accused of stealing millions from Iraq reconstruction projects and banned from further government contracts — have continued doing contracting work and have formed new companies to bid on such projects, The Associated Press has learned.

This may or may not be illegal, military officials say; Custer Battles officials deny any wrongdoing.

The new companies (there are at least three) are all headed by Rob Roy Trumble (search), who previously was operations chief for Custer Battles, according to state records.

The fledgling firms have different names but all are housed in the same office as Custer Battles — Suite 100 on Hammerlund Way in Middletown, R.I., 3,000 square feet on the ground floor of a squat building in an industrial park.

Meanwhile, Custer Battles' former chief financial officer Joseph Morris (search), accused of submitting fake invoices to the government, has been working for another American contractor in Iraq, according to interviews.

The military was not aware of either the new companies or Morris' new employment, a Pentagon official said, speaking only on condition of anonymity. Military investigators would have to decide whether these actions violate the suspension order.

Morris did not return phone messages or e-mail sent to his company and private addresses.

By itself, Custer Battles is already in a great deal of trouble. It is under investigation by the Pentagon for allegedly cheating the U.S. government out of tens of millions during the chaotic months following the Iraq invasion. In September 2004, the military banned Custer Battles and 15 of its subsidiaries and officials, including Morris, from obtaining government contracts while the criminal probe proceeds.

Custer Battles employees have also been accused of firing on unarmed Iraqi civilians, of using fake offshore companies to pad invoices by as much as 400 percent, and of using forgery and fraud to bilk the American government. Two former associates have filed a federal whistle-blower suit, accusing top managers of swindling at least $50 million.

Former Army Rangers Mike Battles and Scott Custer formed a limited liability corporation before the Iraq invasion to seek rebuilding contracts. Battles, a GOP campaign contributor and a former CIA case worker, ran unsuccessfully for Congress in 2002 as a Rhode Island Republican.

The actions of Morris, their chief financial officer, were among the worst, according to the military's suspension order and the federal lawsuit. The order cites "serious improper conduct" by Morris which required immediate suspension, so he could not be "awarded new public contracts in Iraq and elsewhere."

But Morris has worked on subsequent reconstruction contracts, for an American firm called Sallyport Global Holdings. Executive John DeBlasio said Morris worked as a contracts consultant "off and on," for the past six months. "We employed him for that, for his expertise," DeBlasio said. "He's got a lot of knowledge about Iraq."

He didn't know Morris had been suspended, DeBlasio said.

DeBlasio is a former adviser to the Coalition Provisional Authority, which ran Iraq and awarded reconstruction contracts for 13 months following the country's invasion. Custer Battles was one of the first CPA contractors.

The suspension order, and the ongoing criminal investigation, have been reported for months in the national and international media. The government maintains a Web site that lists all parties banned from contracting work.

After DeBlasio talked with the AP, a lawyer representing Sallyport e-mailed the AP saying Morris had signed a one-year contract with Sallyport in April 2004, before the suspension order was issued, and that work already underway was exempt.

"All government contracts that Mr. Morris had any involvement in while under contract with Sallyport were in effect prior to Mr. Morris being placed on the [suspension] list," wrote Washington, D.C. attorney David Cohen. Sallyport will not renew Morris' contract, Cohen said.

But a subcontractor now working in Iraq said Morris was a project manager for Sallyport from May until October, when word got out about his military suspension, and that Morris was involved with new contracts after his suspension.

"I asked him about it because I saw his name on the [government] Web site," said Nate Hill, a former Custer Battles midlevel manager who says he quit more than a year ago after becoming exasperated with management practices. "He told me he was a federal witness and had been exonerated."

According to federal regulations, individuals suspended by the military are banned from acting as principals on subsequent government contracts. Principals are defined as "officers, directors, owners, partners, and persons having primary management or supervisory responsibilities." Whether Morris' position was equivalent to those descriptions would have to be determined by military investigators.

Rob Roy Trumble, the former Custer Battles executive who heads the new companies, is not on the suspension list.

It is not a simple thing to track the ownership of two of his businesses, Emergent Business Services and Tarheel Training LLC.

They are affiliated with a Romanian company called Danubia Global Inc. Danubia, in turn, is owned by Security Ventures International Ltd., a British Virgin Islands firm, according to Bucharest incorporation records. Trumble cut short an interview with the AP, after saying he had "no idea" who owned Danubia. The web sites of his new companies are linked to Danubia's. Emergent's site says it is Danubia's employment recruiter and lists several contracting jobs open in Iraq.

Battles and Custer, through a spokesman, said they sold the remaining Iraqi assets of Custer Battles — including vehicles, computers and intellectual properties — to Danubia early this year. Several former Custer Battles employees have joined the Romanian firm. But the contractors refused to name the employees, or to identify Danubia's owners.

Trumble said his new companies "have nothing to do with Custer Battles" — though they share the same office. A Custer Battles e-mail, obtained by the AP, shows the recipient was instructed in January to send future Internet correspondence to Emergent, though the phone number and street address remained the same.

Emergent has bid on at least one government contract, according to federal records.

Tarheel Training was the name of North Carolina business development proposed by Custer Battles. In January, the deal to build a security training facility fell through amid growing controversy surrounding the contractor. That same month, Tarheel Training LLC was incorporated in Delaware and North Carolina with Trumble listed as manager.

Trumble denied he was the manager of Tarheel and said the 5-month-old company was going out of business because "they haven't been able to sign any contracts."

But the company's web site says the firm is more than a year old and has attracted more than 100 customers.

"We've been working with the specialists in Emergent Business Services for well over a year and they have provided comprehensive, professional services," says the web site, quoting Tarheel Chief Executive Officer Jack Donovan.

Donovan is a retired military colonel who told a North Carolina newspaper in November that Scott Custer "was one of my best soldiers. I got him a commission." He also is a former Custer Battles official.

"They're like mushrooms, they just keep sprouting up," said Franklin Willis, a former CPA official and Reagan administration member who testified in Washington that Custer Battles had defied government control and did what it wanted in Iraq.

"They are extremely clever. They are extremely brazen. They've never let truth get in the way of their economic ambitions."