Former school official indicted for E-Rate fraud

A former South Carolina school official has been indicted on mail and wire fraud charges in connection with a U.S. government program intended to bring the Internet to schools and libraries in poor areas, the U.S. Department of Justice (DOJ) announced Thursday.

The charges stem from alleged fraudulent applications for funding under the E-Rate program that former technology director Cynthia K. Ayer submitted on behalf of Bamberg County School District One in South Carolina, the DOJ said. The E-Rate program, administered by the private Universal Service Administrative Co., has come under fire in the U.S. Congress in recent years after numerous reports of fraud and abuse.

The federal grand jury in Columbia, South Carolina, returned a 12-count indictment against Ayer Wednesday. The charges include 10 counts of mail fraud and two counts of wire fraud.

Between April 1999 and February 2003, Ayer used her position as the school district’s technology director to award technology contracts to her company, Go Between Communications, according to the indictment. Ayer is charged with submitting fraudulent applications for E-Rate funding of more than US$3.5 million without a competitive bidding process. Ayer fraudulently obtained $468,496 in E-Rate payments, the indictment said.

Including the charges against Ayer, 11 people and 10 companies have been charged as part of the DOJ Antitrust Division’s ongoing investigation into fraud and anticompetitive conduct in the E-Rate program, DOJ said. Six companies and three people have either pleaded guilty, agreed to plead guilty or have entered civil settlements. The defendants have agreed to pay criminal fines and restitution totaling more than $40 million.

Two of the defendants have each been sentenced to serve six years in prison.

In May 2004, NEC-Business Network Solutions Inc. pleaded guilty to defrauding the E-Rate program and settled criminal and civil cases through a $20.6 million plea agreement. The company pleaded guilty to one count of wire fraud and one count of violating the Sherman Antitrust Act. In December 2004, Inter-Tel Technologies Inc. agreed to plead guilty and pay fines of $8.71 million on charges of bid rigging and wire fraud.

The E-Rate program, sometimes called the “Gore tax” after E-Rate champion and former Vice President Al Gore, subsidizes Internet access, telecommunications services and internal communications networks, to schools and libraries in poor areas. The program was created by Congress in the Telecommunications Act of 1996, and its $1.9 billion annual budget is funded by telecommunications carriers through the federal Universal Service Fund.

The mail fraud charges against Ayer carry a maximum penalty per count of five years in jail for violations committed before July 30, 2002, or 20 years in jail for violations committed after that date. She also faces a fine of $250,000 plus restitution on each mail fraud charge.

The wire fraud charges carry a maximum penalty per count of 20 years in jail, plus a $250,000 fine.

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