The district wants more than $720,000 in damages and restitution from the co-founders of Peaceoholics, a non-profit anti-violence group that provides services to at-risk youth.
But the organization's co-founders deny any intentional wrongdoing. They're planning a counter-suit.
"The question is, did the Peaceoholics steal, purposely divert or enrich themselves, and I say unequivocally no," says Peaceoholics co-founder Ron Moten.
Outside the district court house, Moten and Jauhar Abraham vigorously defended their non-profit organization and accused D.C. Mayor Vincent Gray, half the city council and D.C. Attorney General Irv Nathan of conspiring against them.
"It should be clear to the people of D.C. who the real frauds are, and if Irv Nathan is serious about what he said in his comments on Friday, he should have started with the person who hired him, Vince Gray, because that's where the corruption started," Abraham says.
The attorney general has filed a lawsuit accusing the men of obtaining $178,000 in D.C. funds by under-reporting their salaries in a grant application.
They're also accused of unlawfully using district grant money to buy two luxury sports utility vehicles in Abraham's name.
In a statement Friday, Nathan said, "all entities that receive money from the district treasury must be on notice that we demand integrity in the expenditure of public money, for the benefit of all district residents."
But Peaceoholics members say those SUVs were used to transport youth around the city and to college.
Because Moten was closely aligned with former mayor Adrian Fenty, Moten alleges that there are political motives behind the attorney general's lawsuit.
"It's clear, he works for Vince Gray," Moten says. "And that's the way the ball is rolling. Whatever Vince Gray says, it's clear that he's gonna go with it."
The attorney general's office says this is not a political case, that the mayor's office had nothing to do with it.
Meanwhile, the mayor's office says the same, that mayor gray had no role in the investigation.
The Peaceoholics say they're hiring a lawyer and setting up a legal fund. They're planning a countersuit for slander, defamation and $900,000 in unpaid invoices.