E-Rate Probes Target Texas Vendor

Federal agents are investigating the E-Rate activities of value-added reseller Micro System Enterprises Inc. of Houston.

The flap over how MSE and the Houston and Dallas school districts may or may not have abused the E-Rate program shows the pattern of the civil and criminal cases due to emerge over the coming months.

MSE’s contracts with school districts in Dallas and Houston have prompted controversy in both cities, with charges flying in the media about abuses. The fracas has attracted the attention of federal investigators and prompted at least one whistleblower, or qui tam, investigation that is still under seal.

Federal investigators have issued subpoenas to the Dallas Independent School District for documents related to a $125 million E-Rate contract the school system signed with MSE and a consortium of other vendors in December 2003.

MSE denies that it is involved in any type of improper conduct, and stated that it has provided services to the school district on time and under budget.

In an e-mail statement to GCN, the company said, “MSE denies all allegations of waste, fraud and abuse.”

Donnie Claxton, spokesman for the Dallas school system, confirmed the investigation.

“We will cooperate with whoever makes such a request,” he said, referring to reports that the school district has turned over documents subpoenaed by the FCC. “We are cooperating and providing [the investigation by the FBI and the FCC] with the information that is requested.”

FCC officials declined to comment on the investigation.

The Dallas Morning News has described instances of officials receiving incentives such as frequent trips on a lavish, 59-foot fishing boat owned by MSE.

Last August, MSE issued a statement rejecting the Dallas Morning News allegations, charging that the articles were factually incorrect, and stating that the articles unfairly ignored the benefits the E-Rate program affords to the city’s schoolchildren.

An FBI special agent in Houston said, “We are aware of the E-Rate program, and we are aware of the allegations in the news about the program. We have concerns about how the program is administered.”

On a separate front, MSE faces at least one sealed investigation under the Federal False Claims Act involving E-Rate fraud charges. Qui tam investigations typically take several months to complete.

MSE said it was not aware of the qui tam investigation and requested details about it.

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