NEC pleads guilty to fraud in connection to E-Rate program

NEC Business Network Solutions has agreed to plead guilty in federal district court in San Francisco (CA) to federal wire fraud and antitrust violations and to pay fines and restitution in the amount of $20.7 million in connection with a federal investigation into waste and corruption in the E-Rate program. E-Rate provides funding to bring Internet access to poor schools and libraries. San Francisco Unified School District (SFUSD) tipped off federal prosecutors to the fraud and will receive $3.3 million as the whistleblower. According to Eric R. Havian, an attorney representing SFUSD, "This is just one piece of a nationwide scheme that is all coming to light. There are many school districts that were victimized." Prosecutors charged NEC with persuading SFUSD to stock individual classrooms with powerful computer servers, when the district needed just a handful of servers to manage the entire system. Mr. Havian said NEC then billed the Universal Services Administrative Company (USAC), the quasi-governmental agency that administers E-Rate, for tens of millions of dollars more than the actual cost of the equipment. He said that in addition to SFUSD, the scheme affected two districts in Michigan and one each in South Carolina, Arkansas, and Wisconsin. The settlement calls for NEC to pay a $4.7 million criminal fine and $16 million, including $5.6 million in equipment and services, to settle the civil suit brought by SFUSD. "Congress established the E-Rate program to help educate the underprivileged," said U.S. Attorney Kevin V. Ryan, who prosecuted the case. "This criminal attempt to steal funds from the program comes at the expense of children across the country, and is totally unacceptable."

[Editor’s Note: The Schools and Libraries Division of the USAC provides online compliance and bidding recommendations, as well as a "Whistleblower Hotline," below. For more background on E-Rate fraud against schools and oversight, see also NSBA’s BoardBuzz.]