WASHINGTON — A former manager for a Halliburton subsidiary and an alleged accomplice in Kuwait defrauded the U.S. government out of nearly $4 million by inflating the price of supplying fuel tankers for military operations in Kuwait in 2003, prosecutors said yesterday.

The 10-count indictment, returned Wednesday by a federal grand jury in Illinois, is believed to be the first criminal case of contracting fraud stemming from the war in Iraq, officials said. Halliburton, which Vice President Dick Cheney headed from 1995 to 2000, is one of the government's largest contractors there.

Jan Paul Miller, the U.S. attorney for the Central District of Illinois, said the investigation began about a year ago after Kellogg Brown & Root, which holds a giant logistics contract to supply military needs in the Middle East, informed the government it had suspicions of wrongdoing.

According to the indictment, Jeff Alex Mazon, 36, who worked for KBR in Kuwait, schemed with Ali Hijazi, of La Nouvelle General Trading & Contracting, to assure La Nouvelle would win a contract for storing and dispensing fuel at a military airport in Kuwait. KBR had estimated the work would cost about $685,000, and La Nouvelle bid $1.67 million, the government said. Mazon then allegedly inflated that and another bid by a factor of 3.3 and awarded the contract to Hijazi's firm for $5.5 million — nearly $4 million more than the company's original bid.

Around September 2003, soon after Mazon left KBR, Hijazi allegedly gave Mazon a $1 million check for his favorable treatment of La Nouvelle.

Each man was charged with four counts of fraud and six counts of wire fraud.

Mazon, who was arrested Wednesday in Georgia, appeared in court yesterday in Atlanta before being sent to Illinois for an arraignment hearing, according to a spokeswoman for Miller's office. Hijazi hasn't been arrested.

Democrats in Congress have criticized Halliburton's work in Iraq, especially a separate $2.5 billion no-bid contract to repair oil fields. Auditors turned up $1.8 billion in "unsupported costs" in the $10.5 billion logistics contract cited in the indictment, which KBR won on a competitive bid. Despite those findings and a recommendation to withhold some of the payments, the Army decided last month to continue paying Halliburton in full, plus performance bonuses.