NEC unit pleads guilty to defrauding schools

NEC-Business Network Solutions has pleaded guilty to defrauding a US government program for school Internet connections, settling criminal and civil cases against the company through a $US20.6 million plea agreement.

Judge Charles Breyer of the US District Court for the Northern District of California approved the proposed plea agreement with only minor changes in wording, according to an NEC/BNS spokesperson who did not wish to be named.

The company, an Irving, Texas-based system integration division of NEC America, pleaded guilty to one count of wire fraud and one count of violating the Sherman Antitrust Act. Under the plea agreement, it will pay $US4.7 million in fines. As part of a three-year probation and a civil settlement, it also will provide restitution in the form of $US10.3 million cash and $US5.6 million in goods and services, according to a statement by the US Department of Justice (DOJ).

NEC/BNS was charged with defrauding the Federal Communications Commission's E-Rate program, under which schools with needy students can apply for funds to cover cabling, equipment and monthly fees for Internet connections. The program is supported by telecommunications user fees.

According to the government's charges, NEC/BNS and two sales consultants hired by a videoconferencing switch company devised a scheme to defraud the San Francisco Unified School District and the nonprofit Universal Services Administrative Company (USAC), which administers the E-Rate program.

The crimes took place at least between December 1999 and March 2001 and involved filing false and fraudulent documents, fabricating names of parts to hide ineligible equipment and pretending to donate goods that were included in inflated bids.

It also filed false and fraudulent documents to stifle inquiry into the legitimacy of a funding request, the government charged. In addition, between at least December 1999 and the end of 2000, NEC/BNS allocated contracts and rigged bids in violation of the Sherman Antitrust Act at school districts in Michigan, Wisconsin, Arkansas and South Carolina, according to the charges.

The case against NEC/BNS ends with this agreement and will not involve prosecution of individuals involved in the case, the NEC/BNS spokesperson said.

The company was now assisting the DOJ in an investigation of other companies accused of defrauding E-Rate, he said.

The US Attorney's Office declined to comment on any ongoing investigation.

The E-Rate sales team involved in the case has been dissolved, according to a NEC/BNS statement.

The company had also provided additional ethics training for employees, appointed an ethics officer and a compliance officer, set up an anonymous hot line for employees to report ethical concerns, and taken other steps to prevent future violations, president and chief executive officer of NEC Unified Solutions and NEC/BNS. Tom Burger, said.

"We made some mistakes with this E-Rate program," he said. "The important thing is that we have accepted responsibility for those mistakes and we have cooperated with the government."

The violations involved one small sales team out of an NEC/BNS work force of about 1000, and E-Rate produced less than 3 per cent of NEC/BNS revenue during that time, according to a company statement.

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