Previous Story: Walmart.com follows Amazon with outages
Next Story: Vodafone aims for second place in Japan's mobile market

Arizona vendor to pay US$8.71 million E-Rate fine
By Grant Gross

Inter-Tel Technologies Inc. has agreed to plead guilty and to pay fines totaling US$8.71 million on charges of bid rigging and wire fraud in connection with a program intended to connect schools and libraries to the Internet.

The company, a subsidiary of telecommunications vendor Inter-Tel Inc., was accused of submitting rigged bids to schools in Michigan and California as part of the U.S. Federal Communications Commission's (FCC's) E-Rate program, according to the U.S. Department of Justice (DOJ).

The E-Rate program has been under fire in the U.S. Congress this year due to allegations of widespread waste and abuse, and the Inter-Tel guilty plea was the third related to E-Rate announced by the DOJ since late May.

Inter-Tel was charged with one count of allocating contracts and submitting rigged bids for E-Rate projects at the two school districts, in a two-count felony charge unsealed Wednesday in U.S. District Court in San Francisco, according to the DOJ.

Inter-Tel also was charged with one count of wire fraud and aiding and abetting by willfully entering into a scheme to defraud the E-Rate program in San Francisco by inflating bids, agreeing to submit false and fraudulent documents to hide the planned installation of ineligible items, and submitting false and fraudulent documents to defeat inquiry into the legitimacy of the funding request.

Inter-Tel released a statement Wednesday saying it was pleased to reach the settlement. The settlement will cost the company a total of $9.5 million, including uncompensated E-Rate work, accounts receivable forgiveness, and related remaining attorneys' fees and other expenses, according to the company.

Inter-Tel's negotiated resolution in the case, if approved by the court, would require the company to pay $1.71 million in criminal fines and $7 million in restitution and civil settlement. The plea hearing and sentencing for Inter-Tel was scheduled for late Wednesday.

"While the employees directly involved with the matters in question are no longer associated with Inter-Tel in any form, we take full responsibility for their actions," Inter-Tel Chairman and Chief Executive Officer Steven G. Mihaylo said in a statement. "We have begun to implement and will expand to a more rigorous compliance program including review of current and future government contracts. We will not tolerate any conduct that causes anyone to question the integrity of our company."

Fraud and waste in the E-Rate program, with an annual budget of $2.25 billion, has been the subject of several hearings in the U.S. Congress this year. In May, NEC-Business Network Solutions Inc. pleaded guilty to defrauding the E-Rate program and agreed to pay $20.6 million in fines and restitution. Earlier this year, SBC Communications Inc. agreed to return $8.8 million to the FCC after equipment was not installed in Chicago schools.

Posted December 9, 2004 01:45 AM |