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Texas Businessman Settles Allegations of E-Rate Program Fraud for $400,000

College classroomOn Tuesday, the U.S. Department of Justice announced a $400,000 settlement with Texas businessman Larry Lehmann to resolve allegations that he violated the federal False Claims Act in connection with the Federal Communications Commission’s E-rate Program while acting as the CEO and managing partner of Acclaim Professional Services (“Acclaim”).

The Schools and Libraries Program of the Universal Service Fund is commonly known as the E-rate Program and was created by Congress as part of the Telecommunications Act of 1996. The program helps schools and libraries in the United States obtain affordable Internet access and internal networking by subsidizing eligible equipment and services. The Houston Independent School District (“HISD”) applied for and received E-rate subsidies for two years, from 2004 until 2006. Over this two-year period, Acclaim partnered with other companies to provide E-rate funded equipment and services to HISD.

United States ex rel. Richardson and Gillis v. Lehmann was initiated by two whistleblowers that had previously bid for contracts with HISD and the Dallas Independent School District (“DISD”). The government intervened in the suit and alleged that Lehmann violated the E-rate program’s competitive bidding requirements and HISD’s procurement rules by providing gifts such as tickets to sporting events to school district employees, and loans totaling $66,750 to an employee of the school district that was involved in the procurement and administration of HISD’s E-rate projects. The suit additionally alleged that Lehmann developed a scheme where HISD outsourced some of its employees to Acclaim, allowing them to continue to work for the school district while passing the cost on to the E-rate Program. Acclaim then allegedly disguised the cost of these employees by billing them as eligible goods and services in its E-rate program invoices.

The whistleblowers (also known as realtors) in this case originally filed their complaint on behalf of the United States under the qui tam provisions of the False Claims Act. The statute dates back to 1863 and allows a private party to bring suit on behalf of the government for fraudulent claims made by others for the receipt of government money or property. If the qui tam suit is successful, the defendant is liable for a civil penalty of between $5,500 and $11,000 for each individual false claim as well as three times the amount of damages sustained by the government. Relators are entitled to between 15% and 30% of any final judgment or settlement and considerable protection from employer retaliation. The relators’ share of the settlement in this case has not yet been determined. The settlement with Lehmann is, however, part of a broad investigation by the United States into E-rate program funding requests submitted by Texas school districts. The government has previously recovered $16.25 million from Hewlett-Packard, $850,000 from HISD, and $750,000 from DISD.