Justice settles three tech fraud cases

Indiana commission bilked E-Rate program out of $8.3M

The Justice Department has recovered more than $13 million from two companies and one state as a part of a settlement of technology fraud cases against the federal government under the Federal Civil False Claims Act.

The settlements involved one case concerning the FCC’s troubled E-Rate program, another about overbilling for telephone service and a third involving sales of allegedly shoddy electronics packaging.

In each of the agreements, together amounting to $13.8 million, the parties provided payment without admitting guilt.

In the largest case, Indiana paid $8.3 million to settle charges that its shuttered Intel-enet Commission had defrauded the E-Rate program, Justice said in a June 27 statement.

Justice held that “Intelenet and the state of Indiana provided false information to the E-Rate program and ... violated the program’s requirements, including charging inflated prices for services provided to Indiana schools and libraries, falsifying invoices, disregarding the requirement that schools and libraries make co-payments for the expenses charged to the E-Rate program for the services and engaging in noncompetitive bidding practices.”

Indiana’s catalog of E-Rate wrongdoing included many of the same violations committed by other individuals and agencies that have cheated the program.

Indiana adopted legislation closing the Intelenet Commission and reassigning its duties to other agencies. The Indiana Technology Office now operates the state’s WAN and Web portal, while the Education Department runs the state’s E-Rate program, according to Chris Cotterill, the technology office’s general counsel.

The Hoosier E-Rate fraud continued from 1996 to 2004, Cotterill said.

“We have cleaned house,” he said. “It was a case of gross mismanagement.” He added that Justice and the state had not found evidence that any individual had taken the improperly spent funds.

The Justice Department’s civil division worked with the U.S. attorney’s office for the Southern District of Indiana to resolve the case.

Peter D. Keisler, assistant attorney general for the Civil Division, emphasized that partly because the E-Rate program helps the nation’s poorest schools and libraries get Internet access, “False claims to this very important federal program will not be tolerated.”

In a separate case, AT&T Corp. paid $2.9 million to settle a lawsuit filed under seal in February 2004 that alleged overcharging under the FTS 2000 telecommunications services contract administered by the General Services Administration.


Justice’s complaint against AT&T charged that the company’s AT&T Communications-East Inc. subsidiary had knowingly overbilled for fees known as “presubscribed interexchange carrier charges.

Justice said AT&T billed for PICC charges that exceeded the fees it paid local phone companies for access to their lines. The overbilling occurred between December 1998 and December 2001, Justice said.

An AT&T spokesman stated in an e-mail that the matter was “an old case involving issues prior to AT&T’s merger with SBC Communications. The company felt it was more important to focus on the future and not spend money litigating issues that arose more than seven years ago.”

The AT&T settlement called for the whistleblower in the case, consultants JA Russo and Associates of Escondido, Calif., to receive up to 25 percent of the sum Justice recovered.

In the third case, Honeywell International Inc. paid $2.6 million to settle Justice charges that it did not properly test protective sheets used to package electronic parts. The Honeywell settlement provided for the whistleblower in the case, Caltex Plastics Inc. of Vernon, Calif., and its president, Jim Higgs, to receive $393,750.

A Honeywell spokesman said, “We believe this is a fair and equitable settlement of this issue with the Justice Department and we consider this matter closed.”

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