7 Sentenced in N.Y. Fraud Case for Misusing Federal E-rate Funds

Seven defendants who pleaded guilty to defrauding the federal E-rate program, designed to provide information technology to underprivileged schools, were sentenced for their conspiracy to commit wire fraud, said Damian Williams, U.S. attorney for the Southern District of New York Tuesday. The Rockland County, New York, defendants created “elaborate schemes” with “complete disregard” for the intended use of the funds -- to provide technology for economically disadvantaged children to further their education, it said. Educational institutions are supposed to use an open bidding process to select vendors for the program and can employ a consultant, if the consultant is independent of vendors competing for equipment and services. Defendants in the case who identified as independent consultants working for the schools in truth worked for and were paid by other defendants who controlled vendor companies, and they awarded E-rate contracts to companies owned by several defendants, DOJ said. The schools at issue in the case never received millions of dollars’ worth of IT products and services the defendants billed the program for, and in some cases, the defendants requested hundreds of thousands of dollars of “sophisticated technology that served no real purpose for the student population,” it said. A day care center serving toddlers requested over $700,000, nearly $500,000 of which was ultimately funded for videoconferencing and distance learning, a sophisticated 23-line telecommunications system and high-speed internet for companies controlled by certain defendants, DOJ said. In other instances, the schools received requested equipment and services but defendants “materially overbilled” the E-rate program “to enrich themselves,” it said. Certain schools and their officials received various “improper” benefits, including a percentage of funds obtained by E-rate, such as cell phones for school employees’ personal use, plus alarm systems and security equipment. In total, defendants were ordered to forfeit $3.77 million and pay restitution in the same amount.