Posted : Tuesday Apr 13, 2010 8:00:49 EDT

ATLANTA — Prosecutors have expanded their case against a company that was paid billions to supply food for the U.S. military in Kuwait and Iraq by charging two of the company’s subsidiaries with inflating prices and defrauding the U.S. government.

The charges, which were unsealed Monday, target Kuwaiti logistics firm Public Warehousing Co.’s subsidiaries in Kuwait and the U.S. The parent company was charged in November with making false statements, submitting false claims and committing wire fraud.

The company, also known as Agility, has received more than $8.5 billion in food supply contracts and said it has been the military’s chief food supplier in Kuwait and Iraq since 2003. Federal prosecutors say its contract with the government is still in effect and scheduled to expire in December.

The firm, which has vowed to vigorously fight the charges in court, said in a statement Monday the decision to extend charges to its subsidiaries is “regrettable.”

“This move serves only to taint PWC subsidiaries that have a strong record of on-the-job performance and compliance with U.S. law and federal acquisition regulations,” it said. The company said that its work on the food contract has been “timely, reliable and cost effective.”

The government’s six-count federal indictment claimed the company manipulated a complex funding formula to defraud the U.S. government of at least $68 million while supplying soldiers in Kuwait, Iraq and Jordan. Prosecutors say pegging a total dollar amount on the scheme is premature as the investigation is ongoing.

The indictment said the company provided false invoices and statements to a logistics center, bought high-priced food items and then knowingly inflated prices. And it said the company received rebates and discounts from vendors that it did not pass to the government as required by the contract.

The company also inflated 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, prosecutors said. And they said the firm encouraged a vendor in the state of Georgia to conceal fees that should have been paid to the company, leading to inflated prices.

The case’s progress has slowed in the months since federal prosecutors announced the charges.

Several court hearings have been delayed as the company worked to reach a settlement with prosecutors. And the firm’s lawyers have argued that prosecutors failed to properly serve the company because it sent the indictment to the company’s U.S. subsidiaries instead of through diplomatic channels in Kuwait.