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NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
The United States Attorney and the Antitrust Division charge:
At all times relevant to this Information:
1. Premio, Inc. (formerly known as Premio Computer, Inc., and hereafter, "defendant") was an Illinois corporation with its principal place of business in the City of Industry, California.
2. The defendant made computers and sold its computers, software and computer peripheral equipment to wholesale, commercial and government clients.
3. E-Rate is a program created by Congress in the Telecommunications Act of 1996 and operated under the auspices of the Federal Communications Commission ("FCC") to provide funding to connect schools and libraries to and utilize the Internet. The FCC designated the Universal Service Administrative Company ("USAC"), a nonprofit 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. During the charged period, 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; (2) 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; (3) service providers or their agents could not participate in the vendor selection process or in the completion of forms necessary for the schools to receive E-Rate funding in order to avoid a conflict of interest or even the appearance of a conflict of interest; and (4) school districts were required to enter into contracts with the lowest, most responsive bidder prior to making application for funds from USAC.
6. Prior to December 1, 1998, the defendant established a relationship with a company that manufactured and installed video conferencing switches and related equipment (hereafter "VX Company") and had installed VX Company equipment on E-Rate funded projects.
7. During the charged period the VX Company contracted with two persons (Consultant One and Consultant Two) to work as sales representatives. Consultants One and Two specialized in marketing VX Company products to educational institutions, including school districts.
8. During the charged period 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.
COUNT ONE: 15 U.S.C. § 1 (Sherman Antitrust Act)
DESCRIPTION OF THE OFFENSE
9. Paragraphs One through Eight are realleged as if fully set forth here.
10. Beginning at least as early as December 1, 1998, and continuing at least through December 31, 1999, ("the charged period") the exact dates being unknown to the United States, the defendant,
PREMIO, INC., f/k/a PREMIO COMPUTER, INC.,
and co-conspirators entered into and engaged in a combination and conspiracy to suppress and eliminate competition for an E-Rate subsidized project at the West Fresno Elementary School District in Fresno, California ("the project") in unreasonable restraint of interstate trade and commerce, in violation of the Sherman Act, Title 15, United States Code, Section 1 by allocating contracts for equipment and services relating to telecommunications, Internet access, and/or internal connections.
11. 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:
MEANS AND METHODS OF THE CONSPIRACY
12. 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:
DEFENDANT AND CO-CONSPIRATORS
13. 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.
14. 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
15. In accordance with the 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.
16. The activities of the defendant that are the subject of this Information were within the flow of, and substantially affected, interstate trade and commerce.
JURISDICTION AND VENUE
17. The combination and conspiracy charged in this Information was carried out, in part, within the Central District of California.
All in violation of Title 15, United States Code, Section 1.
COUNT TWO: 18 U.S.C. §§ 1341 and 2 (Mail Fraud and Aiding and Abetting)
18. Paragraphs One through Eight are realleged as if fully set forth here.
SCHEME TO DEFRAUD
19. Beginning at least as early as December 1, 1998, and continuing at least through December 31, 2000, ("the charged period") the exact dates being unknown to the United States, in the Central District of California and elsewhere, the defendant,
PREMIO, INC., f/k/a PREMIO COMPUTER, INC.,
and others, did knowingly and intentionally devise and intend to devise a scheme and artifice to defraud the FCC and USAC as to a material matter and to obtain money and property by means of materially false and fraudulent pretenses, representations and promises, related to the E-Rate project ("the project") for the Highland Park School District located in Highland Park, Michigan ("Highland Park"). In particular, the defendant participated in Highland Park's bidding process knowing that VX Company's Consultants One and Two were advising Highland Park both in creating the Request for Proposal ("RFP") for equipment and services to be funded by E-Rate and in selecting the winning bidders.
20. It was a further part of the scheme to defraud that, on or about February 23, 1999, the defendant submitted its bid on the project. Consultant One ran the bid opening proceedings, and, together with a Highland Park Official, opened and reviewed the bids. Consultant One then declared the defendant the winner of the telecommunication server portion of the Highland Park bid.
21. It was a further part of the scheme that, on or about March 31, 1999, Consultant One prepared and submitted the USAC Application Form 471 for Highland Park. 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. The Highland Park 471 included an application for $1.4 million of telecommunication servers to be provided by the defendant under Service Provider Information Number ("SPIN") 143008583. After review of the Highland Park 471 application, on or about November 2, 1999, USAC's Schools and Libraries Division ("SLD") approved approximately $1.2 million in funding to the defendant for the defendant's provision of telecommunication servers and related installation and maintenance at Highland Park.
22. It was a further part of the scheme that, on or about May 5, 2000, Consultants One and Two directed a Highland Park Official to write a letter to the defendant requesting the substitution of the ineligible video conferencing equipment for the approved servers, when in fact the letter was merely an attempt to hide the ineligible substitution from the SLD's scrutiny.
23. It was further part of the scheme that a now former employee of the defendant met with Consultant One and agreed to have the defendant purchase ineligible video conferencing equipment from VX Company with the E-Rate funds that had been appropriated for servers and provide that ineligible equipment to Highland Park instead of providing telecommunication servers as approved by the SLD.
24. During the charged period, the defendant purchased the ineligible video conferencing equipment from VX Company and delivered that equipment to Highland Park in lieu of the telecommunication servers for which funding had been approved under the defendant's SPIN 143008583.
25. The defendant knowingly invoiced the SLD for approximately $1.2 million for telecommunication servers despite having delivered the ineligible video conferencing equipment to Highland Park.
26. At no time during the charged period did the defendant disclose to the SLD that it had impermissibly substituted VX Company's ineligible video conferencing equipment for the telecommunication servers that had been approved under the defendant's SPIN 143008583.
27. During the charged period, for the purpose of executing its scheme, the defendant caused an invoice dated April 20, 2000 to be mailed from California to the SLD in Kansas seeking payment of $379,400 purportedly for telecommunication servers delivered to Highland Park, when ineligible video conferencing equipment was actually delivered.
28. On or about the date set forth below, in the Central District of California and elsewhere, the defendant,
PREMIO INC., f/k/a PREMIO COMPUTER, INC.,
and others, did knowingly and intentionally devise and intend to devise a scheme and artifice to defraud the FCC and USAC as to a material matter and to obtain money and property by means of materially false and fraudulent pretenses, representations and promises, related to the E-Rate project for the Highland Park School District located in Highland Park, Michigan, and, for the purpose of executing that scheme, knowingly mailed and caused to be mailed Invoice No. MI-041900 through the United States Postal Service:
All in violation of Title 18, United States Code, Sections 1341 and 2.