ATLANTA – The federal case against a Kuwait-based food supplier accused of defrauding the U.S. government of $68 million was dealt a stinging setback after a judge moved to block the charges.
U.S. Magistrate Judge Alan Baverman recommended that fraud charges against the Public Warehousing Co. not go forward because the indictment had not been properly served. A federal judge must now sign off on the move.
Prosecutors then asked Friday to have remaining charges dropped against the company's U.S.-based subsidiary, Agility DGS Holdings. Prosecutor Barbara Nelan said she didn't want the subsidiary to be a "straw man" that took the fall for its parent company's wrongdoing.
The moves aren't likely to be the end of the case. Nelan said that investigators are still gathering details on the company's contracts and she did not rule out a new indictment for the companies.
"This investigation is broadening every day," she said.
The food supplier's attorneys, too, are bracing for new charges. Tom Bever, who represents Agility DGS Holdings, urged the judge to order prosecutors to hand over more than 15 million pages of discovery, even if the case is dismissed, so they can prepare for a new round of charges.
Prosecutors in November unveiled the indictment charging the Kuwaiti company with manipulating a complex funding formula to defraud the U.S. government of at least $68 million in contracts to supply troops in Iraq, Kuwait and Jordan.
But since then, federal authorities have been locked in a legal battle with the Kuwaiti company's attorneys over whether the company was properly served with the charges.
Baverman sided with the supplier in a 91-page filing Thursday, finding that attempts to serve the Kuwaiti parent company with indictments were "insufficient."
The indictment claimed that the Kuwaiti company provided false invoices and statements to a logistics center and knowingly inflated prices since 2003. And it said the company received rebates and discounts from vendors that it did not pass on to the government as required by the contract.
The company was also charged with inflating fees by asking vendors to manipulate the way the products were packed, enabling it to bill the government twice as much as it should have.
Agility said in a statement that it welcomed the judge's findings, and that it hopes to resolve the dispute outside of the courtroom but it is prepared to "defend itself vigorously if that dialogue is not fruitful."
"The company continues to believe this case involves a civil contract dispute and should not be a criminal matter," it said.