U.S.: HP's partners cheated Texas schoolkids

The "E-Rate" is a fund built from small fees on phone users that's supposed to help schools and libraries acquire technology and Internet access - to bridge the "digital divide" between the nation's rich and poor.  But according to the FCC and Justice Department, contractors working for Hewlett-Packard and other companies lavished gifts on Texas school personnel - "including trips on a yacht and tickets to the 2004 Super Bowl" - to game an E-Rate process that was supposed to be based on competitive bids.

The Federal Communications Commission, which administers the E-Rate, said today that Hewlett-Packard had agreed to pay $16.25 million to settle two lawsuits making the allegations, initially filed by individual whistleblowers, and that most of the money would be returned to the E-Rate fund:

The Department of Justice today announced a civil settlement with Hewlett-Packard Company (HP) for alleged E-rate fraud, following an extensive investigation by the Federal Communications Commission and DOJ. The E-rate program, which funds Internet connections in schools and libraries, has brought Internet connectivity to virtually every classroom in the country.

Acting on tips from whistleblowers, the FCC and the DOJ investigated allegations that contractors working with HP and other companies lavished gifts on Dallas Independent School District and Houston Independent School District personnel in order to get contracts that included some $17 million in HP equipment. Meals and entertainment -- including trips on a yacht and tickets to the 2004 Super Bowl -- were provided by the contractors to get inside information and win contracts that were supposed to be awarded through a competitive bidding process.

"Broadband is key to our children's 21st century education," said FCC Chairman Julius Genachowski. "That's why one of the FCC's top priorities is making sure E-rate works to benefit students and libraries. Today's settlement shows the extensive efforts of the FCC and DOJ to protect the E-rate program from waste, fraud, and abuse, and to deter misconduct in the future."

As part of the settlement, HP has agreed to pay the government $16.25 million, most of which will be returned to the E-rate program. In addition, the FCC has negotiated and will oversee a compliance agreement with HP that will ensure that the company plays by the rules in the future.

"The FCC's compliance agreement with HP ensures that HP will train its employees thoroughly on the FCC's gift and other E-Rate rules, and provides for audits of HP's E-Rate business," said Austin Schlick, General Counsel of the FCC. "If HP fails to monitor its E-Rate activities closely and abide by E-Rate Program requirements, it will face substantial penalties."

The FCC has already taken steps to guard against misconduct of this nature. In September the FCC adopted an Order that bolsters and clarifies the agency's prohibition against E-rate applicants soliciting or receiving gifts, and against service providers offering or providing gifts. The FCC also codified additional rules to ensure a fair and competitive bidding process.

"We continue to be vigilant in our management and oversight to prevent any activities that undermine the integrity of the E-rate program" said Sharon Gillett, Chief of the FCC's Wireline Bureau. "The FCC will do all it can to ensure that E-rate funds are not diverted from their purpose of increasing educational opportunities."

The Justice Department said the two lawsuits were filed under the False Claims Act’s whistleblower provisions, which permit individuals to sue on behalf of the United States and share in a recovery.  The department's announcement said it had intervened in the suits, which were filed against two of HP’s former business partners, Micro Systems Engineering (MSE) and Analytical Computer Services (ACS), "as well as against several individuals." Justice said:

The first lawsuit was filed in Dallas by Dan Cain and Pamela Tingley. The United States is intervening in that lawsuit against MSE; Ruben Bohuchot, the former chief technology officer of the Dallas Independent School District; and Frankie Wong, the former chief executive officer of MSE. The second lawsuit was filed in Houston by Dave Richardson and Dave Gillis. The United States is intervening in the second lawsuit against ACS.


Both lawsuits allege that the defendants provided illegal gratuities and inducements to school officials, such as the use of several yachts and tickets to sporting events, including the 2004 Super Bowl, while the companies were bidding on school district contracts funded by the E-Rate Program. From the settlement with HP announced today, relators Cain and Tingley will receive $1,424,969, while Richardson and Gillis will receive $796,280.


The United States has elected to intervene in both lawsuits, under the authority of the False Claims Act which allows the government to intervene in and take over any whistleblower action filed. The United States’ notices of intervention stated that the United States expects to file its own complaint in each case within 45 days.


“The E-Rate Program provides much-needed funding that allows underprivileged students to access the Internet,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. “We will continue to pursue those who use improper inducements to undermine the integrity of this important program.”


In July 2008, both Wong and Bohuchot were found guilty of bribery in U.S. District Court in Dallas for their conduct relating to the Dallas Independent School District and sentenced to more than 10 years in prison. In addition, the United States previously settled related claims against the Dallas Independent School District for a payment of $750,000 and against the Houston Independent School District for a payment of $850,000. Both school districts also agreed not to seek payment for pending claims.