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NEC-Business Network Solutions to Pay $20.6 Million on E-rate-Related Charges

The Justice Department announced May 27 that NEC-Business Network Solutions Inc. has agreed to plead guilty and pay a total $20.6 million criminal fine, civil settlement and restitution relating to charges of collusion and wire fraud in…

The U.S. Department of Justice announced May 27 that NEC-Business Network Solutions Inc., a subsidiary of NEC America Inc., has agreed to plead guilty and pay a total $20.6 million criminal fine, civil settlement and restitution relating to charges of collusion and wire fraud in the E-rate program.

In court papers unsealed in U.S. District Court in San Francisco, the Irving, Texas-based company was charged with allocating contracts and rigging bids for E-rate projects at five school districts in Michigan, Wisconsin, Arkansas and South Carolina in violation of the Sherman Anti-Trust Act. The company was also charged with wire fraud by entering into a scheme to defraud the E-rate program and the San Francisco Unified School District by inflating bids, agreeing to submit false and fraudulent documents to hide the fact that it planned on installing ineligible items, agreeing to donate "free" items for which it planned to bill the E-rate program and submitting false and fraudulent documents to defeat inquiries into the legitimacy of the funding requests. The plea agreement calls for a $4.7 million criminal fine for bid rigging and wire fraud.

The company also entered a civil settlement in an action filed by the San Francisco school district under the qui tam provisions of the False Claims Act, a Civil War-era law that provides for whistleblowers to share in any proceeds from government action against parties seeking to defraud the government. The civil settlement requires NEC/BNS to pay $10.3 million in cash and provide $5.6 million in goods and services to designated school districts as a condition of a three-year probation. Under the terms of the agreement, the company has and will continue to cooperate in the government's ongoing investigation and will enter into a comprehensive Corporate Compliance Program as a special condition of its probation.

Shortly after arriving in the district in 2000, San Francisco Superintendent Arlene Ackerman learned of the contracts in question and eventually announced that the district would forego about $50 million in previously approved funding commitments for the 2000 funding year because of concerns over how the projects had been planned and contracts awarded. In the wake of the settlement, San Francisco City Attorney Dennis Herrera said it "represents an excellent outcome for San Francisco public schools and a remarkable achievement for a whistleblower action that provide decisive in uncovering and stopping a nationwide scheme to defraud underfunded school districts."

Superintendent Ackerman said, "This is a victory for the children and I am pleased that justice was served. To expose these widespread illegal business practices was the right thing to do because our students were being robbed of the much needed funds they deserve."

According to E-rate information compiled by Funds For Learning, applicants have sought a total of $216. 4 million worth of funding commitments in the name of NEC-Business Network Solutions since the start of the E-rate program, but only $42.2 million in commitments have been approved. Requests peaked in 2000 at $116 million, of which $24.4 million were funded. Funding requests declined to $22.5 million in 2002 (only $59,222 was funded that year). In 2003, applicants requested $11.5 million in the company's name and another $591,000 in 2004. No commitments have been approved yet for 2003 or 2004.

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