HP Settles E-Rate Fraud Case With Feds for $16M

Computing giant agrees to pay $16.25 million to settle fraud allegations that included lavishing city officials with gifts such as yacht trips and Super Bowl tickets in exchange for sales contracts under a federal telecom subsidy program.
Posted November 11, 2010

Kenneth Corbin

Computing heavyweight HP has reached a settlement with federal authorities investigating allegations that the firm offered gifts to city officials in Dallas and Houston to win contracts under a federal subsidy program that provides Internet service and equipment to schools and libraries.

Under the agreement, HP (NYSE: HPQ) will pay $16.25 million to settle the charges, which stemmed from two whistleblower lawsuits describing abuse of the E-Rate program, administered by the Federal Communications Commission.

"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," the FCC said on Wednesday.

The FCC and Department of Justice began jointly investigating the allegations of fraud after receiving tips from whistleblowers.

In the Dallas case, the DoJ alleged that Micro Systems Engineering (MSE), then an HP contractor, bribed school officials for contracts under the E-Rate program. The DoJ is intervening in lawsuits against MSE, its former CEO, Frankie Wong, and Ruben Bohuchot, the former CTO of the Dallas Independent School District.

Wong and Bohuchot were both found guilty of bribery charges in U.S. District Court in 2008, and sentenced to 10 and 11 years, respectively. Those charges were part of a broader probe beyond MSE's relationship associated with HP, a company representative told InternetNews.com.

In the Houston case, the DoJ took over a lawsuit against Analytical Computer Services (ACS), another former business partner of HP accused of defrauding the E-Rate program.

Additionally, the DoJ said it is pursuing legal action against several individuals involved in the fraud cases.

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

HP took pains to distance itself from the case, noting that it has severed ties with MSE and ACS and fired the employees linked to the fraudulent activity.

"HP requires that all employees and partners adhere to lawful and ethical business practices," the company said in a statement e-mailed to InternetNews.com. "The activities at the center of this investigation occurred more than five years ago, the partner relationships have been terminated and the employees involved are no longer with the company. HP fully cooperated with the authorities and the matter is now resolved."

The company said it learned of the allegations when it received a subpoena from the Justice Department in 2005, and subsequently launched an internal investigation.

Under the agreement, HP will submit to an audit of its E-Rate activities conducted by the FCC, which will also oversee a compliance program covering areas such as employee training to "ensure that the company plays by the rules in the future."

In August, HP settled a separate case with the DoJ involving allegations of kickbacks and price gouging related to government contracts.

Kenneth Corbin is an associate editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

Tags: telecom, lawsuits, FCC, HP, DOJ

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