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Mario Gabelli & Affiliate Companies Pay U.S. $130 Million for Allegedly Defrauding FCC

WASHINGTON – The Justice Department, on behalf of the Federal Communications Commission (FCC), has reached a settlement of $130 million with Wall Street money manager Mario Gabelli and affiliated entities and individuals to resolve civil allegations of fraud in connection with the wireless spectrum license auctions conducted by the FCC, Peter D. Keisler, Assistant Attorney General for the Justice Department’s Civil Division; and Michael J. Garcia, the United States Attorney for the Southern District of New York, announced today. The settlement was approved by U.S. District Judge Paul A. Crotty in Manhattan federal court.

The government’s civil complaint names Gabelli and 38 other entities or individuals that participated in the alleged scheme over the course of eight FCC auctions from 1995 to 2000. According to the complaint, the FCC established rules for certain auctions that, depending on the auction, permitted only “small” or “very small” businesses to participate in the auction or to qualify for bidding credits and favorable financing.

The United States alleges that Gabelli and his affiliated companies did not qualify as small or very small businesses in these auctions. In order to participate in the auctions, the complaint alleges that various friends and relatives of Gabelli were recruited to serve as officers of bogus small or very small businesses that existed only on paper, solely to certify that they met the FCC’s eligibility rules. The government alleges that these purported telecommunications entrepreneurs included a former aerobics instructor, the caretaker of Gabelli’s vacation home, a retired professional basketball player and a relative of Gabelli who did not know the meaning of “spectrum” or what FCC stood for, and that none of these individuals possessed any relevant telecommunications experience or knowledge. The complaint further charges that the supposed small or very small businesses were never controlled by these individuals, but that control always remained with Gabelli and his affiliated companies. As the complaint details, on several occasions, the licenses were ultimately transferred to third parties at a substantial profit.

The government’s complaint charges that the defendants violated the False Claims Act and were unjustly enriched by submitting false certifications of eligibility to the FCC to participate in the auctions, to obtain bidding credits and/or favorable governmental financing, and to obtain the FCC’s approval to transfer licenses to third parties.

"The FCC and all government agencies should be able to trust companies which certify information about eligibility to participate in government programs,” said Assistant Attorney General Keisler. “This settlement is an example of the government’s determination to ensure that valuable federal resources are protected from fraud and abuse."

The lawsuit was originally filed by R.C. Taylor III under the whistleblower provisions of the False Claims Act. Under the qui tam or whistleblower provisions of the False Claims Act, a private party can file an action on behalf of the United States and receive a portion of the settlement if the government takes over the case and prosecutes it successfully. As a result of the government’s intervention in the suit and settlement of the claims against the defendants, Taylor will be entitled to $32.2 million of the recovery.

“The public airwaves are a scarce and valuable resource. This settlement protects the integrity of the FCC auction program, and reminds all those who seek to benefit from the use of public resources that they must turn square corners when dealing with the government,” said U.S. Attorney Garcia. “ Mr. Taylor performed a true public service by blowing the whistle here.”

The case is entitled U.S. ex rel. Taylor v. Gabelli, No. 03 Civ 8762 (PAC) (S.D. N.Y.)