Six firms charged with eRate fraud

Six more companies–and at least five individuals associated with these firms–have been indicted on allegations of defrauding the eRate, the $2.25 billion-a-year federal program that subsidizes internet access in the nation’s schools and libraries.

Some of these companies and individuals are accused of submitting fraudulent documents to the government and being overcompensated for equipment headed to school districts in Arkansas, California, Michigan, New York, Pennsylvania, South Carolina, and Wisconsin. Others are accused of rigging bids and conspiring toward that goal, and of charging the government for goods, such as video equipment, that are not covered by the program.

The indicted include Howe Electric Inc. of Fresno, Calif.; Sema4 Inc. of San Juan Capistrano, Calif.; Digital Connect Communications of San Juan Capistrano; Expedition Networks Ltd. of North Hills, Calif.; and ADJ Consultants Inc. of Temecula, Calif., and its owners, Allan and Judy Green.

Also indicted were Video Network Communications Inc. of Portsmouth, N.H., and its former sales representative George Marchelos and two other individuals.

Howe’s attorney, Michael Molfetta, told the Associated Press (AP): “The allegations paint a broad brush based on the assertions of a lot of people who are either making assumptions or are flat out misrepresenting what occurred.”

Tauren Clark, Expedition Networks’ attorney, said the company got mixed up with the wrong people, never had any intention of defrauding the government, and made no money from the eRate program. He said the company will try to settle the charges.

Attorneys for the other defendants did not return phone calls from AP.

“This indictment sends a strong signal that defrauding federal programs, and thereby jeopardizing future funding for schools, will lead to criminal charges,” Kevin Ryan, the U.S. attorney in San Francisco, said in a statement.

The 22-count indictment did not say how much eRate funding was involved in the alleged wrongdoing. The Justice Department declined to address that topic.

The indictments stem from a federal grand jury probing the nationwide internet-access funding program the Federal Communications Commission (FCC) inspector general has said is beset by poor design and is susceptible to abuse by those selling the equipment to the schools.

The April 7 indictments follow similar allegations levied last year against Inter-Tel Technologies Inc. of Arizona and NEC Business Network Solutions Inc., part of Japanese electronics maker NEC Corp.

Financed through phone charges, the eRate provides discounted telecommunications services, internet access, and internal connections gear such as wiring and adaptors–all obtained from the private sector through a bidding process. The FCC inspector general said last year that, of 122 audits of the eRate performed that year, about a third revealed substantial violations.

The case is United States v. Video Network Communications, 05-0208.


eRate program

Howe Electric Inc.

Digital Connect Communications

Expedition Networks Ltd.

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