Six electronics companies and five individuals were indicted Thursday on charges of defrauding a federal program that gives money to help poor schools and libraries connect to the Internet.
The indictments by the Justice Department stem from a federal grand jury probing the nationwide Internet-access funding program the Federal Communications Commission inspector general has said is beset by poor design and susceptible to abuse by those selling the equipment to the schools.
Some of the companies and individuals are accused of submitting fraudulent documents to the government and being overcompensated for equipment headed to school districts in California, Arkansas, Michigan, New York, Pennsylvania, South Carolina and Wisconsin. Others are accused of rigging bids and conspiring toward that goal, and of charging the government for goods, such as video equipment, that are not covered by the program.
Financed through phone charges, the $2.25-billion-a-year program, known as E-Rate, provides discounted Internet access and internal connection gear such as wiring and adaptors -- all obtained from the private sector through a bidding process. The FCC inspector general said last year that, of 122 audits of the E-Rate program performed that year, about a third revealed substantial violations.
"This indictment sends a strong signal that defrauding federal programs and thereby jeopardizing future funding for schools will lead to criminal charges," said Kevin Ryan, the U.S. attorney in San Francisco.
The indicted include Howe Electric Inc. of Fresno; Sema4 Inc. of San Juan Capistrano; Digital Connect Communications of San Juan Capistrano; Expedition Networks Ltd. of North Hills; and ADJ Consultants Inc. of Temecula and owners Allan Green and Judy Green.
Also indicted are Video Network Communications Inc. of Portsmouth, N.H., and its former sales representative George Marchelos of Saratoga, Calif., and two other individuals.
"The allegations paint a broad brush based on the assertions of a lot of people who are either making assumptions or are flat-out misrepresenting what occurred," said Howe's attorney, Michael Molfetta.
Tauren Clark, Expedition Networks' attorney, said the company got mixed up with the wrong people, never had any intention of defrauding the government and made no money from the E-Rate program.
"We were taken advantage of," Clark said. He said the company would try to settle the charges.
Attorneys for the other defendants did not return phone calls seeking comment.
The 22-count indictment did not say how much the E-Rate program was bilked because of the alleged wrongdoing. The Justice Department declined to address that topic.