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How the False Claims Act May Be Used to Pursue Fraud in the Sale of Technology to Schools

Posted December 2nd, 2020 by Inayat Hemani in Whistleblower Law.

A recent False Claims Act settlement against a charter school demonstrates that schools and tech companies may violate the law if they engage in bid rigging and kickbacks during the procurement process.

Concept Schools, NFP, a charter school company based in Illinois, agreed to pay $4.5 million to settle claims by the Government that Concept Schools rigged the bidding for its technology vendor contracts and selected its vendors without a meaningful, fair and open bidding process.

The Government was able to pursue Charter Schools for this conduct because the contracts were funded through a federal program known as the E-Rate program. The E-Rate program, administered by the Federal Communications Commission, provides discounts for telecommunications, Internet access, and internal connections to eligible schools and libraries. Each year, the program provides approximately $4 billion in funding for schools and libraries.

This is not the first time the Government has used the False Claims Act to enforce the program’s requirements. Because the E-Rate program funds telecommunication supplies for schools and libraries, fraud on the program may generally be actionable under the False Claims Act.

In 2009, the Government settled claims with the Dallas Independent School District for engaging in non-competitive bidding practices, and “contended that school district officials improperly received gratuities from technology vendors, including trips, meals, golfing and the free use of a yacht.”

That same year, the Government settled a False Claims Act lawsuit against AT&T Missouri alleging that the company “colluded with officials in the Kansas City, Mo., School District to award contracts to the company, extended contracts in violation of E-Rate rules and provided meals and other inducements to school district employees.”

However, courts have come to different opinions on whether fraud in the E-Rate program is enforceable under the False Claims Act. The Fifth Circuit has ruled that fraud on the E-Rate program is not actionable under the False Claims Act in part because it found that the E-Rate program is funded by a mandated contribution from private entities, not from the Government Treasury. [1]

However, courts in the Seventh and Eighth circuits have disagreed with the Fifth Circuit and ruled that fraud under the program is actionable. Therefore, when bringing a case based upon fraud on the E-Rate program, it is especially important to be mindful of where the case is filed.

If you believe that you may have knowledge of fraud on the E-Rate program, contact a whistleblower lawyer at our firm.

Footnotes

[1] The Fifth Circuit was interpreting a prior version of the False Claims Act.

Inayat Ali Hemani is a Senior Litigation Counsel in the NY office who works primarily on whistleblower/qui tam cases.
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