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KEVIN V. RYAN (CSBN 118321)
United States Attorney

R. HEWITT PATE (DCBN 473598)
Assistant Attorney General

ORIGINAL FILED

04 DEC-6 PM 1:21

RICHARD W. WIEKING
CLERK U.S. DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA

 

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION


SEALED
BY COURT ORDER

UNITED STATES OF AMERICA,    

                  Plaintiff,

                  v.

INTER-TEL TECHNOLOGIES, INC.,    

                  Defendant.


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CR No. 04 0399 JSW

VIOLATIONS: 18 U.S.C. §§ 1341 and 2-
Mail Fraud and Aiding and Abetting; 15
U.S.C. § 1 -Sherman Antitrust Act

SAN FRANCISCO VENUE

Filed Under Seal [12/6/04]
Seal Lifted [12/8/04]


INFORMATION

The United States Attorney and the Antitrust Division charge:

INTRODUCTION

At all times relevant to this Information:

1. Inter-Tel Technologies, Inc. ("Inter-Tel") was an Arizona corporation with its principal place of business in Tempe, Arizona.

2. Inter-Tel manufactured, sold and installed telecommunications equipment, including PBX (Private Branch Exchange) systems. Inter-Tel provided maintenance and other services as needed for the equipment they supplied.

3. E-Rate is a program created by Congress in the Telecommunication Act of 1996 and operated under the auspices of the Federal Communications Commission ("FCC") to provide funding to connect schools and libraries to the Internet. The FCC designated the Universal Services Administrative Company ("USAC"), a non-profit corporation, to administer the E-Rate program.

4. The E-Rate program was designed to ensure that the neediest schools received the most financial help. All participating school districts were required to fund a percentage of the cost of the equipment and services acquired under the E-Rate program. That percentage, however, was determined based on the number of students in the district qualifying for the United States Department of Agriculture's school lunch program, with the neediest school districts eligible for the highest percentage of funding.

5. School district applications for E-Rate funding far exceeded the funding available. To ensure that E-Rate funding was distributed to the widest applicable number of applicants, USAC required all applicants to comply with various rules and procedures, including: (1) only USAC-approved equipment, services and supplies would be eligible for funding; and (2) local school districts were required to follow competitive bidding procedures in accordance with local and state law to ensure that the school districts got the lowest possible prices from the responsive bidders.

6. On or about December 15, 1999, the defendant and a company that manufactured and installed video-teleconferencing switches (hereinafter VX Company) entered into an agreement under which the defendant agreed to pay VX Company a fee for all business opportunities VX Company brought to the defendant that the defendant subsequently obtained. The defendant also agreed to include VX Company's equipment in its E-Rate proposals and bids.

7. VX Company employed two employees (Consultant One and Consultant Two) to work as sales representatives. Consultants One and Two specialized in marketing VX Company products to educational institutions, including local school districts.

8. Consultants One and Two also acted as consultants to school districts in designing computer networks, identifying potential government-sponsored funding sources (including the E-Rate program), applying for those funds, and selecting vendors to supply the specified equipment and services funded by those programs.

SCHEME TO DEFRAUD

9. Between in or before December 1999 and March 2001, both dates being approximate and inclusive, the defendant and others devised and intended to devise a scheme to defraud USAC and the San Francisco Unified School District ("SFUSD"), and to obtain money by means of false and fraudulent pretenses, representations and promises by submitting false documents in support of a SFUSD E-Rate application. In particular:

  1. The defendant participated in the SFUSD's bidding process knowing that VX Company's Consultants One and Two were advising the SFUSD both in creating the Request for Proposal (RFP) for equipment and services to be funded by E-Rate and in selecting the winning bidders, and also that the defendant would utilize VX Company's video teleconferencing equipment if the defendant was selected as one of the winning bidders; and

  2. The defendant assisted Consultants One and Two in fabricating the names of equipment parts in documents submitted to USAC to hide ineligible VX Company equipment.

10. It was a further part of the scheme to defraud that on or about January 13, 2000, Inter-Tel submitted its bid on the SFUSD E-Rate project. Together with an SFUSD Official, Consultant One opened and reviewed the bids. Consultant One then declared that a data company had submitted the winning bid for the data equipment portion of the project, that a local computer company had submitted the low bid on the server portion of the project, that a local cabling contractor had submitted the low bid on the cabling portion of the project, and that the defendant had submitted the low bid on the PBX portion of the project. On January 13 or 14, 2000, Consultants One and Two and the SFUSD Official all decided to make the data company the prime contractor and to have the local computer company and the local cabling company act as subcontractors to the data company. The defendant was given the PBX portion of the project.

11. It was a further part of the scheme to defraud that on or about January 15 through 18, 2000, Consultants One and Two and the data company employees all met to prepare false and inflated USAC Application Form 471 for the SFUSD and other school districts. The Form 471 is a school district's application for E-Rate funding. It is supposed to set out the selected vendors' bid amounts, memorialized in contracts, for the equipment and services called for by the district's RFP. In this case, however,

  1. Consultant One told the data company employees the total prices she wanted to submit to USAC on the Form 471s, and she then directed them to prepare spreadsheets justifying those prices;

  2. With the data company employee's assistance, Consultant One prepared the SFUSD Form 471 with inflated prices; and

  3. On or about January 19, 2000, Consultant Two delivered the false and inflated Form 471 to USAC.

12. It was further part of the scheme to defraud that in or about late January 2000 the defendant learned that the Form 471 had been submitted to USAC with inflated prices and did nothing to inform USAC that the Form 471 prices had been inflated above the amounts originally bid for the project. The combined 471 prices for the SFUSD project were approximately $26 million greater than the amounts the vendors had bid for the project. Specifically,

  1. The data equipment price was increased from $19,776,318 to $22,987,223;

  2. The server prices were increased from $9,275,880 to $21,987,223. The cabling price was increased from $13,697,838 to $21,875,698;

  3. Finally, The defendant's PBX price was increased from $19,403,732 to $21,409,369; and

  4. The number of schools to be covered by the project was reduced from 50 to 46.

In addition, defendant had assisted Consultants One and Two in falsely describing the actual equipment to be supplied to the SFUSD. This included hiding VX Company video-conferencing equipment in the funding proposal sent to USAC, in order to have the E-Rate program pay for equipment that would otherwise not have been eligible for funding under the E-Rate program.

13. It was a further part of the scheme to defraud that in late May or early June 2000, USAC's Schools and Libraries Division ("SLD") began a review of the SFUSD Form 471 submitted in January 2000. As part of that review, the SLD asked the SFUSD to supply certain information to the SLD to justify certain parts of the project. Consultant One, and others acting under her direction, submitted spreadsheets to the SLD which contained false information concerning the bidding process, the bidding participants, the winning bids, and the bid amounts. Based in part on these false representations, on September 21, 2000, the SLD approved funding for the SFUSD E-Rate project in part as follows: $15,731,613.33 for data, $18,156,829.34 for cabling, and $17,820,886 for PBX, including the required 17% co-pay to be paid by the SFUSD. The SLD specifically denied any E-Rate funding for computer servers.

14. At no time did the defendant disclose to the SFUSD superintendent or the SFUSD Board that the funding requests to USAC had been increased over the original bid amounts or that there were any inflated estimates contained in the bid documents.

15. For the purpose of executing its scheme, the defendant caused the SLD to mail a letter dated September 22, 2000 to the SFUSD in which the SLD agreed to make a funding commitment based on the false and fraudulent information submitted in support of the SFUSD E-Rate Project.

COUNT ONE: 18 U.S.C. §§ 1341 and 2 (Mail Fraud and Aiding and Abetting)

16. Paragraphs One through Fifteen are realleged as if fully set forth here.

17. On or about September 22, 2000, in the Northern District of California and elsewhere, defendant

INTER-TEL TECHNOLOGIES, INC.,

and others, having knowingly and intentionally devised and intended to devise a scheme and artifice to defraud the USAC and the SFUSD, and to obtain money and property by means of false and fraudulent pretenses, representations, and promises, for the purpose of executing that scheme, knowingly caused to be delivered by mail through the United States Postal Service, a letter from the Schools and Library Division of USAC to the San Francisco Unified School District confirming that USAC had agreed to fund portions of the SFUSD E-Rate 471 Application.

All in violation of Title 18, United States Code, Sections 1341 and 2.

COUNT TWO: 15 U.S.C. § 1 (Sherman Antitrust Act)

DESCRIPTION OF THE OFFENSE

18. Paragraphs One through Eight are realleged as if fully set forth here.

19. Beginning at least as early as December 1, 1999, and continuing at least through December 31, 2000, the exact dates being unknown to the United States, in the Northern District of California and elsewhere, the defendant

INTER-TEL TECHNOLOGIES, INC.

and its co-conspirators entered into and engaged in a combination and conspiracy to suppress and eliminate competition for E-Rate subsidized projects in Michigan and California by allocating contracts for equipment and services relating to telecommunications, Internet access, and/or internal connections. The charged combination and conspiracy unreasonably restrained interstate trade and commerce in violation of Section 1 of the Sherman Act (15 U.S.C. § 1).

20. The charged combination and conspiracy consisted of a continuing agreement, understanding, and concert of action among the defendant and co-conspirators, the substantial terms of which were:

  1. to allocate among the defendant and co-conspirators contracts for E-Rate funded projects;

  2. to submit collusive, noncompetitive, and rigged bids for the E-Rate funded projects; and

  3. to provide equipment and services for E-Rate funded projects and receive payment from USAC as a result of the allocation and collusive bidding.

MEANS AND METHODS OF THE CONSPIRACY

21. For the purpose of forming and carrying out the charged combination and conspiracy, the defendant and co-conspirators, each aware of the others' existence and ability to compete with the others, did the following things, among others:

  1. discussed with co-conspirators prospective bids for E-Rate projects;

  2. agreed with co-conspirators who would be the lead contractor on the project and who would participate on the project as subcontractors to the designated lead contractor;

  3. submitted fraudulent and non-competitive bids in accordance with the conspiratorial agreement;

  4. engaged Consultants One and Two, described in Paragraph 7, who did the following:

    1. Consultants One and Two took steps to ensure the success of the conspiracy by eliminating and disqualifying bids from non-conspirators and either directly awarding the contracts or using their best efforts to persuade the school district officials to award contracts to the designated lead contractors;

    2. Consultants One and Two successively caused to be awarded E-Rate project contracts to the defendant. In return, the defendant agreed to pay and paid Consultants One and Two's employer, the VX Company, a fee and agreed to purchase and purchased and installed VX Company equipment on those E-Rate Projects.

DEFENDANT AND CO-CONSPIRATORS

22. Various individuals and corporations, not made defendants in this Information, participated as co-conspirators in the charged combination and conspiracy and performed acts and made statements in furtherance of it.

23. Whenever this Information refers to any act, deed, or transaction of any corporation, it means that the corporation engaged in the act, deed, or transaction by or through its officers, directors, employees, agents, or other representatives while they were actively engaged in the management, direction, control, or transaction of its business or affairs.

TRADE AND COMMERCE

24. In accordance with the E-Rate project contracts obtained through the conspiracy by the defendant and its co-conspirators, during the relevant period, equipment and services were delivered and payments for such equipment and services were received that traveled in interstate commerce.

25. The activities of the defendant that are the subject of this Information were within the flow of, and substantially affected, interstate trade and commerce.

All in violation of Title 15, United States Code, Section 1.

DATED:




_______________/s/________________
R. HEWITT PATE
Assistant Attorney General

_______________/s/________________
SCOTT D. HAMMOND
Director of Criminal Enforcement

(Approved as to form:

_______________/s/________________
MICHAEL F. WOOD
Attorney Antitrust Division

KEVIN V.RYAN
United States Attorney

_______________/s/________________
EUMI L. CHOI
Acting Chief, Criminal Division

(Approved as to form:

_______________/s/________________
JEFFREY L. BORNSTEIN
Assistant U.S. Attorney