WASHINGTON-The Department of Justice Thursday announced the biggest guilty plea yet in a two-year investigation of fraud and abuse of the E-rate program, which uses telephone taxes to connect schools and libraries to the Internet.
NEC Business Network Solutions agreed to pay $20.6 million in fines and restitution and plead guilty to one count of wire fraud and one antitrust violation in a court settlement filed in federal court in San Francisco.
“We made mistakes with E-rate. We’ve acknowledged and accepted responsibility for those mistakes, cooperated fully with the government and taken action to ensure that these problems can’t happen again,” said Gerald Kenney, general counsel of NEC America.
The Justice Department said NEC rigged bids for E-rate projects at five different school districts in Michigan, Wisconsin, Arkansas and South Carolina.
“The conduct deprived the E-rate program of fair and competitive prices, caused the program to pay for unnecessary and ineligible items, and as a result, prevented the funding of projects at other needy schools,” said R. Hewitt Pate, assistant attorney general of the DOJ antitrust division.
The fraud was brought to light by Arlene Ackerman, superintendent of the San Francisco Unified School District.
“To expose these widespread illegal business practices was the right thing to do because our students were being robbed of the much-needed funds they deserve,” said Ackerman.
The E-rate was created by Congress as part of the Telecommunications Act of 1996. It allocated $2.25 billion per year to schools and libraries to bring them into the information age. Conservatives have often criticized the program, and investigations into fraud and abuse have been conducted by Congress, the Federal Communications Commission and the Justice Department.
FCC Chairman Michael Powell recently commented that while the E-rate has been largely successful in its objectives, if it were created now, it would not be used for wiring buildings, but rather for creating wireless systems.
