A Tempe-based company has agreed to plead guilty to charges of bid rigging and mail fraud and is expected to pay an $8.71 million fine as a result of an ongoing Department of Justice investigation into fraudulent activities in a federal program aimed at equipping needy schools and libraries with Internet connections, justice officials said Wednesday.
Called the E-Rate program and run by the Federal Communications Commission, the project allows schools to apply for money to pay for the installation and hardware needed for Internet connections as well as monthly Internet connection fees.
Leaders with Inter-Tel Technologies, a wholly-owned subsidiary of Inter-Tel, agreed Wednesday to pay $7 million in restitution as part of a civil settlement and $1.71 million in criminal fines related to the Department of Justice’s investigation into fraud in the program, justice officials said.
In a statement release by the company, Inter-Tel’s chairman and chief executive officer, Steven G. Mihaylo, said the firm is taking "full responsibility" for the actions of employees who are "no longer associated with Inter-Tel in any form."
An Inter-Tel spokesman did not return a phone message left Wednesday.
The Department of Justice said the company was secretly indicted Dec. 6 in a U.S. District Court in San Francisco on one count of allocating contracts and submitting rigged bids to a school districts in Michigan and California
The indictment, unsealed Wednesday, also carried a count of mail fraud in connection with inflated bids at the San Francisco Unified School District.
The indictment alleges that Inter-Tel, along with two unnamed computer consultants and a second unnamed firm, inflated equipment prices in bids and also falsified the names of equipment, so that previously ineligible equipment would qualify for reimbursement through the program.
The computer consultants worked for the unnamed firm as well as school districts, helping them select appropriate computer equipment and systems. According to the indictment, Inter-Tel agreed to use some of the second firm’s products in its Internet installations and would pay the second firm a fee for business directed to its company. In addition, the indictment contends that the computer consultants steered the bids to Inter-Tel.
The guilty plea and fines were expe cted to be reviewed by a federal judge.
The Department of Justice contended the company’s actions "unreasonably restrained interstate commerce" and it was indicted for violating the Sherman Act, which carries a maximum penalty of $10 million. The mail fraud charge carries a maximum penalty of $500,000 and requires restitution to victims.