WASHINGTON-The Justice Department asked U.S. District Judge Paul Crotty to join the spectrum auction fraud lawsuit against Wall Street telecom magnate Mario Gabelli, upping the stakes of the litigation at a time when federal regulators are scrambling to enact reforms that could ban national wireless carriers and others from partnering with small firms eligible for bidding discounts during June’s sale of advanced wireless services licenses.
Charles Miller, a Justice Department spokesman, said a formal motion requesting to intervene in the five-year-old case will be made by March 20. Gabelli’s attorneys would reply by April 3. The government is scheduled to respond to Gabelli by April 10.
“The government’s entry into this case was essential to protect our ability to recover taxpayer funds in the event fraud is proven. Given the evidence, this was the right decision,” said Jonathan Adelstein, a Democratic Federal Communications Commission member.
Adelstein and FCC Commissioner Michael Copps, the other Democrat on the Republican-controlled FCC, have been outspoken in closing what they see as huge loopholes in rules governing 25-percent small business bidding discounts in wireless license auctions. Both FCC members also have been critical of the agency’s delay in launching a rulemaking to tighten small business, or “designated entity,” auction rules. The FCC agreed Feb. 3 to consider changes to the DE program, some seven months after FCC Chairman Kevin Martin agreed to do so.
The new development played out yesterday when Crotty held a status conference in Manhattan on the False Claims Act lawsuit filed by Russell Taylor in February 2001 against Lynch Interactive Corp. Taylor alleges Gabelli and his affiliates were illegal fronts for small business auction applicants who successfully bid on wireless licenses and later sold them for many millions of dollars more than their cost.
Gabelli, who has denied any wrongdoing in the small-business mobile phone auction of 1996 or in subsequent auctions, was not immediately available for comment. But on the Lynch Web site, Gabelli again defended himself.
“Our roles in these auctions were those of a service provider as well as an investor. We are considering entering Auction 66 in similar capacities for others as well as for our own account,” the site stated. Auction 66 is the AWS auction, scheduled to begin June 29.
Lanny Breuer, a lawyer for Gabelli and a former Clinton administration special counsel, said Gabelli’s relationship to DE bidders was explicitly disclosed to the FCC on applications and the agency approved all sales of DE licenses.
“What notion that this [Gabelli’s participation] is some surprise in ludicrous,” said Breuer.
Breuer said the FCC and Justice Department have dragged their feet in turning over documents that he said shows telecom regulators grappled with the very issues raised in the lawsuit, but ultimately did not object to Gabelli’s association with DE applicants. Breuer said he also suspects FCC documents he is seeking have been destroyed.
The FCC did not return a call for comment.
