Re-branding of Blackwater claims highest-level casualties yet

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/US/03/02/blackwater.prince/art.prince.afp.gi.jpg caption="Blackwater founder Erik Prince testifies at a congressional hearing in October 2007."]

Suzanne Kelly Simons
CNN Executive Producer, Author

The man who built private security contractor Blackwater into a global force is stepping down, as controversy continues to swirl about the company's conduct in Iraq. CEO Erik Prince is ending his day to day involvement in running the company, and his long-trusted President Gary Jackson is going with him. Company sources say a federal investigation into some of its activities is underway; the Justice Department won't comment.

Last month, the State Department announced it would not be renewing Blackwater's lucrative contract in Iraq. Soon afterwards the company changed its name to Xe in an attempt to distance itself from a disastrous bout of publicity that began one September afternoon in Baghdad back in 2007. That was when a Blackwater team shot and killed at least 14 Iraqis in a traffic circle, some of the Blackwater men saying they had come under what they believed was enemy fire.

Responding to public outrage, the Iraqi government called for the company's immediate expulsion. The State Department scrambled to cope with the fallout; the truth on the ground was that it wasn't equipped to handle security without Blackwater. But some saw the company as damaged goods. Five of the Blackwater men on that team in the traffic circle were indicted on charges of manslaughter and attempted manslaughter. All have pled not guilty. Another guard decided to cooperate with investigators. There were no charges filed against the company itself, but it would continue to be haunted by the incident. Early this year, the Iraqi government very publicly announced that Blackwater would not be granted a license to operate in the country.

Just a few months back, Jackson told me that the only way he would ever leave the sprawling training complex in North Carolina where his office is located, is if they carried him off the property. He's been with Prince since the early days, when Blackwater was nothing more than a shooting range looking to attract special forces clients. But with the Iraq war, an overstretched military, and a State Department that had essentially never operated in a war zone, demands for the company's services grew fast and furiously.

The 2007 incident was not the first to thrust the company into the headlines. Four Blackwater men were killed in Fallujah, Iraq in 2004. The horrific scenes of two of their bodies strung from a bridge that spans the Euphrates burned a familiar image of horror into the international psyche. The families of those men eventually sued the company, claiming they had cut corners resulting in the loss of their loved ones that day. The company countered and the case has since been turned over to arbitration, the families have been slapped with a gag order.

It would be tough to imagine things getting worse for the company or the duo that built it., but they might.

Two sources, including one inside the company, say Jackson has received a letter from federal investigators; one source says it includes allegations of serious wrongdoing. The sources claim the accusations are politically-motivated. Blackwater has certainly had its share of unwelcome attention in Congress. When he was head of the House Committee on Oversight and Government Reform, Rep. Henry Waxman questioned whether Blackwater was acting with adequate supervision in carrying out its contracted duties. Senator John Kerry and (before she became Secretary of State) Hillary Clinton were also critical of the company's operations.

I sat down with Prince last summer in Gary Jackson's office at Blackwater's sprawling training complex in North Carolina, and asked him how much longer he could hold on to the company already feeling the weight of mounting bad headlines. "It depends on how well we execute," he told me, "as long as we don't stand still, cause they're aiming at us. You know the story of the lion and the gazelle, right?. The lion wakes up in the morning, he knows he has to outrun the gazelle or he's gonna starve, the gazelle wakes up and knows he has to outrun the lion, or he's gonna be eaten. The moral of the story is whether you're the lion or the gazelle, when you wake up, you'd better be running."

Prince says he's turning his sights on developing a private equity fund, something he's thought about for a while now, something that despite the tanking economy, might offer less risk than private security contracting for him. It's not a move he takes lightly. He's angry at a government he sometimes sees as ungrateful and a media he sees as left-leaning, digging for the dirt and disregarding the rest. So what does a former billion-dollar CEO do on the day he gives up control of the company he's driven for more than a decade? Despite the gathering snowstorm over Virginia, he went running.

Suzanne Simons is an Executive Producer with CNN, and author of the book Master of war :Blackwater's Erik Prince and the global business of war. (HarperCollins June, 2009)