Stiff Liability For Bid Rigging Under Federal Education Funding Program For Internet Connectivity

The Ninth Circuit stated the issue right up front in United States v. Green: “Depending on whose version of this case you hear, defendant Judy Green is either a dedicated public schoolteacher who spent the years before her conviction working to help impoverished schools across the country, or the mastermind of a massive fraudulent scheme that bilked the federal government out of almost $60 million.” What happened?

Judy Green worked as a consultant to secure federal funds for needy school districts so they could be “wired up” to the Internet and/or have other telecommunication access. The federal program in question is commonly referred to as “E-rate,” and is designed to assist low-income, rural, high-cost or other underserved communities. (47 USC § 254.) The money provided to school districts is intended to pay for the infrastructure necessary to enable educators and students to participate in Internet and telecommunication connectivity at school. But there are two key limitations to the program. First, the recipients of federal funds are not supposed to use the money to purchase “end user” equipment such as computers, telephones or fax machines. Federal funding under the E-rate program is only used for infrastructure connections (wiring, routers, and other equipment necessary to make the connection to the Internet or telephone/fax line). Second, the federal government does not underwrite all costs; it only pays a percentage of the total cost. Recipient school districts must “partner” with the federal government by paying a portion of the costs, and the co-pay percentage varies depending upon various factors such as the wealth of the district (poorer districts are eligible to receive a greater percentage of federal funding, with 90% being the highest level under the program). A school district applying for an E-rate grant must demonstrate not only that it has the funds to make the co-payment, but also that it has the resources to acquire the “end user” equipment that will make the connection usable (thus, the recipient district must show that it has the wherewithal to acquire the computers, modems, fax machines, telephones and other items required to actually use the connection). In Green’s case, most of the district’s she represented were poor and they qualified for 90% federal funding. And in each case, Green represented to the federal government that the districts in question would be able to make their co-payment and also purchase the necessary end user equipment. Green got into trouble when she arranged to rig bids so firms agreeing to connect school districts were guaranteed contracts; as part of the arrangement, Green manipulated the program so the contractors would overcharge for their services and still be selected by the local school districts; under this scheme, once the federal government paid the inflated charges, Green made sure the “extra” money was channeled back to the school districts so they could, in turn, make their co-payments to the federal government. In addition, Green made sure the overcharging contractors provided a “bonus” by supplying end user equipment so the districts would have no out of pocket costs when it came time to actually acquire the computers, fax machines and telephones needed to use the connection. Green was convicted of 22 separate crimes: Eleven counts of wire fraud (18 USC § 1343); nine counts of bid rigging (15 USC § 1) and two conspiracy counts (18 USC § 371). The essential problem was that Green defrauded the federal government into thinking it was paying for only a percentage of the connectivity costs, while she rigged the entire process so the government was really paying 100% of the costs and funding the purchase of end user equipment as well. While Green may have had noble intentions, she committed a serious federal crime when she manipulated the E-rate program. She was sentenced to 90 months imprisonment, and the conviction and sentence were upheld on appeal. A copy of the court’s decision is attached.

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