NEC Pays $21 Million for Effort to Defraud San Francisco Schools
Jun 1st, 2004 • Posted in: NewsSAN FRANCISCO
A subsidiary of computer giant NEC last week agreed to pay nearly $21 million in criminal fines and penalties for trying to con San Francisco’s schools into overpaying for a useless computer system.
NEC Business Network Solutions, a Texas subsidiary of NEC, was sued in 2002 for allegedly using bribes and inflated bills to rig a computer contract that would have left the San Francisco Unified School District with an incomplete and inoperable computer system, according to the city attorney.
The contract was part of the federal E-Rate program, which hits the nation’s phone users with a small surcharge used to fund Internet access and computer technology for poor and rural schools.
Under the supervision of a quasi-governmental nonprofit, tech companies bid on such contracts, with school districts anteing up additional funds — in San Francisco’s case, an estimated $10 million, reported the San Francisco Chronicle.
Critics say the multibillion-dollar E-Rate program, launched in 1996, long has been marred by fraud and inadequate oversight. More than 40 criminal investigations into alleged abuse are under way, noted the New York Times.
NEC’s settlement last week included guilty pleas to felonies of wire fraud and antitrust violation. Monetary penalties include $16 million for the federal government and a $4.7 million criminal fine.
Desmond McQuoid, a school district supervisor implicated in the scam, pleaded guilty to mail fraud last year and was sentenced to 21 months in prison, according to the Times.
“Congress established the E-Rate program to help educate the underprivileged,” U.S. attorney Kevin Ryan said last week. “This criminal attempt to steal funds from the program comes at the expense of children across the country, and is totally unacceptable.”
George Cothran, an investigator for the city of San Francisco, said similar violations by NEC alone have been found in Arkansas, Illinois, Michigan, Mississippi, South Carolina, and Wisconsin.
“This is a big deal — a nationwide scam that had been running three years by the time we caught up with it,” Cothran told the Chronicle. “It looks like we’re going to put an end to this.”
“We made mistakes with E-Rate,” NEC America general counsel Gerald Kenney, said in a statement. “We’ve acknowledged and accepted responsibility for those mistakes, cooperated fully with the government, and taken action to ensure that these problems can’t happen again.”
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