HP to pay $16M to settle E-Rate fraud charges

Payout the final chapter in bribery case involving two yachts and a Super Bowl game

Hewlett-Packard will pay $16.25 million to settle a case that resulted in jail time for a school district's former chief technology officer and computer reseller of HP equipment, the U.S. Federal Communications Commission said on Wednesday.

The case, triggered by a whistleblower, involves bribery and passing along insider knowledge on contracting needs to win school district contracts that included $17 million in HP equipment, the FCC said.

It was a scheme with some colorful elements to it, including the purchase of a 46-foot fishing yacht that cost $305,000, called "Sir Verza" and then a second larger yacht, named "Sir Verza II," a 58-foot vessel costing $800,000.

There were trips and 2004 Super Bowl tickets, played in Houston that year between the New England Patriots and the Carolina Panthers, with the Patriots winning 32 to 29.

The ultimate cost of the fishing and football was for Ruben Bohuchot, former CTO at the Dallas Independent School District. His sentence: 11 years in federal prison. The reseller, Frankie Logyang Wong, of Houston, received 10 years.

The case involved the FCC's E-Rate program, which aimed to help fund broadband at schools and libraries. The FCC said that most of the money that HP is paying to settle will go into that fund.

"The FCC's compliance agreement with HP ensures that HP will train its employees thoroughly on the FCC's gift and other E-Rate rules, and provides for audits of HP's E-Rate business," said Austin Schlick, General Counsel of the FCC, in a statement.

"If HP fails to monitor its E-Rate activities closely and abide by E-Rate Program requirements, it will face substantial penalties," he said.

FCC Chairman Julius Genachowski said in a statement, "Broadband is key to our children's 21st century education. That's why one of the FCC's top priorities is making sure E-rate works to benefit students and libraries. Today's settlement shows the extensive efforts of the FCC and DOJ to protect the E-Rate program from waste, fraud, and abuse, and to deter misconduct in the future."

HP said in response to the settlement, "HP requires that all employees and partners adhere to lawful and ethical business practices. The activities at the center of this investigation occurred more than five years ago, the partner relationships have been terminated and the employees involved are no longer with the company. HP fully cooperated with the authorities and the matter is now resolved."

Whistleblowers filed two related lawsuits under the U.S. False Claims Act, which permits private parties to sue for false claims on behalf of the U.S. government and share in any recovery.

In one case, the DOJ has joined the lawsuit against contractor MSE, its former CEO and a former CTO in the Dallas school district. The DOJ has joined the second lawsuit against contractor ACS.

With today's HP settlement, the two whistleblowers in the Dallas case will share more than $1.4 million. The two whistleblowers in the Houston case will share nearly $800,000.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at  @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

IDG News Service's Grant Gross contributed to this report.

Copyright © 2010 IDG Communications, Inc.

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