Opinion
George D. Niespolo Defendant Organization's Attorney.
JUDGMENT IN A CRIMINAL CASE
CHARLES BREYER, District Judge.
THE DEFENDANT ORGANIZATION:
[x] pleaded guilty to count(s): 1 and 2 of the Information.
[] pleaded nolo contendere to count(s) __ which was accepted by the court.
[] was found guilty on count(s) __ after a plea of not guilty.
ACCORDINGLY, the court has adjudicated that the defendant is guilty of the following offense(s).
Date Offense Count Title & Section Nature of Offense Concluded Number(s) 18 U.S.C. § 1343 Wire Fraud and Aiding and Abetting 115 U.S.C. § 1 Conspiracy to Suppress and Eliminate Competition 2 in Violation of the Sherman Antitrust Act
The defendant organization is sentenced as provided in pages 2 through 6 of this judgment. The sentence is imposed pursuant to the Sentencing Reform Act of 1984.
[] The defendant organization has been found not guilty on count(s) ___.
[] Count(s) __ (is)(are) dismissed on the motion of the United States.
IT IS FURTHER ORDERED that the defendant organization shall notify the United States Attorney for this district within 30 days of any change of name, residence, or mailing address until all fines, restitution, costs, and special assessments imposed by this judgment are fully paid. If ordered to pay restitution, the defendant organization shall notify the court and United States attorney of any material change in the organization's economic circumstances.
PROBATION
The defendant organization is hereby placed on probation for a term of three (3) years as to count 1 and 2; each term to run concurrent for a total term of three (3) years.
The defendant organization shall not commit another federal, state, or local crime.
If the judgment imposed a fine or a restitution obligation, it shall be a condition of probation that the defendant organization pay any such fine or restitution in accordance with any Schedule of Payments set forth in the Criminal Monetary Penalties sheet of this judgment.
The defendant organization shall comply with the standard conditions that have been adopted by this court (set forth below). The defendant organization shall also comply with the additional conditions on the attached page (if indicated below).
See attached page.
STANDARD CONDITIONS OF SUPERVISION
It is the order of the Court that the defendant organization shall comply with the following standard conditions:
1) Within thirty days from the date of this judgment, the defendant organization shall designate an official of the organization to act as the organizations's representative and to be the primary contact with the probation officer;
2) The defendant organization shall answer truthfully all inquiries by the probation officer and follow the instructions of the probation officer;
3) The defendant organization shall notify the probation officer ten days prior to any change in principal business or mailing address;
4) The defendant organization shall permit a probation officer to visit the organization at any of its operating business sites;
5) The defendant organization shall notify the probation officer within seventy-two hours of any criminal prosecution, major civil litigation, or administrative proceeding against the organization;
6) The defendant organization shall not dissolve, change its name, or change the name under which it does business unless this judgment and all criminal monetary penalties imposed by this court are either fully satisfied or are equally enforceable against the defendant's successors or assignees;
7) The defendant organization shall not waste, nor without permission of the probation officer, sell, assign, or transfer its assets.
SPECIAL CONDITIONS OF PROBATION
See attached Special Conditions of Probation
SPECIAL CONDITIONS OF PROBATION
The defendant, NEC-Business Network Solutions, Inc. ("NEC/BNS" or "defendant"), a corporation organized under the laws of Delaware with its principal place of business in Irving, Texas, has sold, installed and continues to sell and install telecommunications and data equipment, including computers, computer servers, routers, switches and related telecommunications equipment, and renders ancillary maintenance and other services (the "products and services"). The defendant offered and sold the products and services to schools within the United States pursuant to a program operated under the auspices of the Federal Communications Commission (the "FCC") and administered by the Universal Services Administrative Company ("USAC"). The program, commonly referred to as the E-Rate Program, was created by Congress to permit schools and libraries to acquire the needed technology to access and utilize the internet. The defendant became the subject of a grand jury investigation arising out of doing business related to the E-Rate Program. After having cooperated in the investigation and seeking a mutually agreeable settlement of all claims related thereto, the defendant has entered into a Plea Agreement with the United States in which the defendant pleaded guilty to a two-count felony information charging the defendant with wire fraud in violation of 18 U.S.C. § 1343 and conspiracy to suppress and eliminate competition in violation of the Sherman Antitrust Act, 15 U.S.C. § 1, by, conspiring with others to frustrate the public bidding process under the E-Rate Program and submitting false and misleading information to the SLD in order to receive funding for products and services not authorized under the E-Rate program. To address the issues raised in the Plea Agreement concerning its conduct, and having determined that the following conditions will constitute reasonable and necessary steps to avoid the re-occurrence of the conduct which was the subject of the Plea Agreement, the defendant agrees, and the Court hereby imposes, that the defendant will do the following as a special condition of probation for the entire three year term of probation:
1. Within sixty (60) days of acceptance of the Plea Agreement by the Court, the defendant shall formally adopt a comprehensive Anti-Fraud and Antitrust Compliance Policy (the "Compliance Policy") and shall provide copies of said policy to the Probation Officer, FCC Enforcement Bureau and FCC-OIG. At a minimum, the Compliance Policy will address the following:
a. Creating an internal structure requiring high level management oversight of all government and public entity business;
b. Creating an internal system of monitoring and audits to include steps to be taken if any employee suspects that any bid, proposal or other company conduct is not in accordance with the company's Compliance Policy and/or applicable law;
c. Ensuring that there are regular reports to the CEO and Board of Directors and at least annual reports to the FCC Enforcement Bureau and FCC-OIG of Compliance Policy activities; and
d. Educating and training all responsible employees of their obligations including governmental procurement laws, regulations and procedures including criminal and civil penalties for mail fraud, wire fraud, false statements, obstruction of justice, false claims and other related conduct and the requirements for adherence to the antitrust laws.
2. Within sixty (60) days of acceptance of the Plea Agreement by the Court, the defendant shall designate an officer of the defendant to be the Compliance Officer (the "Compliance Officer") responsible for the enforcement of the Anti-Fraud and Antitrust Compliance Policy. This shall include:
a. Creating and overseeing internal policies and procedures to ensure that all company activities involving government sponsored or funded programs or any other business with any public entities is conducted in accordance with applicable law.
b. Ensuring that either the Compliance Officer personally or someone under his/her direct supervision is an experienced contract manager knowledgeable about governmental laws and regulations relating to public sector procurement;
c. Requiring the Compliance Officer and those under his/her direct supervision to oversee the enforcement of the Anti-Fraud and Antitrust Compliance Policy as it applies to all company activities involving government sponsored or funded programs or any other business with any public entities;
d. Creating and overseeing an ongoing mandatory education and training program for all officers, directors, sales, technical staff and other employees directly involved in the preparation of bid and related contractual materials for any government sponsored or funded programs or any other business with any public entities to apprise them of all governmental laws and regulations relating to public sector procurement and the requirements of the Compliance Policy. The Compliance Officer shall ensure and certify under penalty of perjury that all affected individuals have received such training on at least a yearly basis and shall provide the certification to the Probation Officer, FCC enforcement Bureau and FCC-OIG.
3. The Compliance Officer shall be the central point of contact for (a) documenting and distributing E-Rate program requirements throughout the company; (b) monitoring changes in the E-Rate rules and regulations to ensure the documentation and distribution of such changes; (c) ensuring that all employees who are involved with the E-Rate program receive training; (d) arranging monthly meetings with key company executives to ensure consistent implementation of the E-Rate rules and regulations across the company.
4. The Compliance Officer's salary and other compensation, as well as the salary and other compensation of any employees under the Compliance Officer's supervision, shall be independent of any contracts or other government sponsored or funded programs or other public entity business;
5. The Compliance Officer shall create and oversee an internal auditing program in which all public sector contracts shall be audited to ensure compliance with the Compliance Program to include that bids, prices and design specifications are appropriate and that there are no hidden terms, side agreements or other undisclosed arrangements and that all bids and pricing have been done in accordance with all applicable laws and procedures.
6. The Compliance Officer shall create, oversee and promote an internal voicemail or email hotline system in which all employees are encouraged to report on an anonymous basis, any believed violation of law by any officer or employee.
7. The Compliance Officer and the defendant's General Counsel shall be responsible for monitoring the internal hotline system and undertaking all reasonable and necessary investigations arising from any reported matter(s).
8. The General Counsel and the Compliance Officer shall, on at least a quarterly basis, report to the defendant's CEO and Audit Committee as to the enforcement of the Compliance Policy and the various measures called for herein including the status of any anonymous complaints or reports received from any employees.
9. On at least an annual basis, the Compliance Officer shall make a report to the full Board of Directors and to the Probation Officer, FCC Enforcement Bureau and FCC-OIG as to the status of the Compliance Policy and the various measures called for herein.
10. Within sixty (60) days of acceptance of the Plea Agreement by the Court:
a. The Compliance Officer shall prepare and distribute a written training program to be used in formal training of NEC/BNS employees involved in the E-Rate program, including employees involved in accounting, finance, sales, marketing, and installations. Among other things, this training program shall cover the following subject matters: the application process, competitive bidding, eligible services, service provider role and responsibilities, discounts, service substitutions and equipment transfers, billing SLD for services, document retention requirements, and risks of non-compliance. Within 120 days of acceptance of the Plea Agreement by the court, all employees who are involved in the E-Rate program must certify their completion of the training program. All future employees involved with the E-Rate program shall receive such training and shall certify completion of the training program within 14 days of the date on which such individuals are appointed or hired to such positions. These employee certifications must be collected and maintained by the Compliance Officer for a period of 5 years.
b. The Compliance Officer shall establish an E-Rate Code of Conduct ("Code"), which will conform to this Corporate Compliance Plan and which will be signed by all employees involved with the E-Rate program. All subject employees shall reaffirm annually, in writing that they have reviewed, fully understand, and will adhere to the Code.
c. The Compliance Officer shall inform all employees involved with the E-Rate program that any violation of E-Rate Code shall be grounds for disciplinary action to include warning, censure, reprimand, suspension, loss of pay and firing depending on the severity of the violation and the repetitive nature of the misconduct.
11. The Compliance Officer shall meet regularly (at least monthly) with key executives in the following business units to ensure compliance with all applicable internal company rules and regulations and all E-Rate or other telecommunications program requirements: accounting, finance, installations (i.e., service technicians), legal, marketing, and sales.
12. The Compliance Officer shall review all company bids in response to Form 471 Applications. For each bid, the Compliance Officer will certify that all E-Rate rules and regulations were followed in preparing the bid and all related contractual materials. Such certifications must be maintained by the Compliance Officer for a period of 5 years.
13. The Compliance Officer shall collect Form 471 Applications from each customer or prospective customer. The Compliance Officer or his/her designee shall perform a reconciliation of each Form 471 Application to the company's responsive bid and to the resulting contract or business agreement. The Compliance Officer shall keep a copy of the resulting reconciliation worksheet for each application and shall update it as necessary to show any exchanges, substitutions, or cancellations. The Compliance Officer shall maintain these reconciliation worksheets for a period of 5 years.
14. The company shall separate all E-Rate eligible and ineligible products and services onto separate customer contracts per installation.
15. The defendant agrees that should it fail to provide the reports required herein on a timely basis, it shall be responsible for liquidated damages to the United States in the amount of $25,000 per day until the report is received by the FCC Enforcement Bureau and FCC-OIG. The FCC Enforcement Bureau and FCC-OIG may require the defendant to provide additional information as necessary concerning any incidents or other activities contained in the annual report. If the defendant materials fails to provide such information within the time requested or 10 days of such request, whichever is longer, the defendant agrees that it will continue to be liable for liquidated damages in the amount of $25,000 per day until such information is provided to the satisfaction of the FCC Enforcement Bureau and FCC-OIG.
16. In addition to any applicable FCC regulation or program requirement, and as a condition of any future participation in the E-Rate Program or other government sponsored or funded telecommunication programs, the defendant agrees that the FCC Enforcement Bureau and FCC-OIG, acting directly or through its agents, may, on an annual basis, audit defendant's compliance with applicable laws and regulations relating to the E-Rate or other government sponsored or funded telecommunication programs to assure adherence to the terms and conditions of those programs. Defendant shall bear all ordinary and reasonable costs of any such audit(s).
17. On at least annual basis, within 30 days after the close of defendant's fiscal year, the defendant shall file a report signed under the penalty of perjury by the CEO with the FCC Enforcement Bureau and FCC-OIG concerning the defendant's compliance with the Compliance Policy. This report shall certify that all required oversight, training and educational activities have been undertaken in accordance with the requirements of the Compliance Policy. In the alternative, the report shall detail any shortcomings in following the Compliance Policy and the steps taken, and those that will be taken, to ensure compliance. This report shall also include a detailed description of any violations that were found during the applicable period, the steps taken to cure the violations and any subsequent steps taken to ensure future compliance.
18. The defendant agrees that should it materially fail to provide the reports required herein on a timely basis, it shall be responsible for liquidated damages to the United States in the amount of $25,000 per day until the report is received by the FCC Enforcement Bureau and FCC-OIG. The FCC Enforcement Bureau and FCC-OIG may require the defendant to provide additional information as necessary concerning any incidents or other activities contained in the annual report. If the defendant materially fails to provide such information within the time requested or 10 days of such request, whichever is longer, the defendant agrees that it will continue to be liable for liquidated damages in the amount of $25,000 per day until such information is provided.
19. If all or substantially all of the defendant's assets are transferred to a successor organization, that entity shall, as a condition of purchase and by operation of law, become subject to the terms of these special conditions of probation. Prior to any sale, dissolution, reorganization, assignment, merger, acquisition or other action that would result in a successor or assign for provision of the company's E-Rate-related services, the company will furnish a copy of this compliance plan to such prospective successors or assigns and advise same of their duties and obligations under this compliance plan.
IT IS SO ORDERED.
CRIMINAL MONETARY PENALTIES
The defendant organization shall pay the following total criminal monetary penalties in accordance with the schedule of payments set forth in this judgment.
Assessment Fine Restitution Totals: $ 800.00 $ 4, 700, 000. $ 15, 985, 263.
[ ] The determination of restitution is deferred until _. An Amended Judgment in a Criminal Case (AO 245C) will be entered after such determination.
[x] The defendant shall make restitution (including community restitution) to the following payees in the amounts listed below.
If the defendant organization makes a partial payment, each payee shall receive an approximately proportional payment unless specified otherwise in the priority order or percentage payment column below. However, pursuant to 18 U.S.C. § 3664(i), all nonfederal victims must be paid in full prior to the United States receiving payment.
Total Amount of Priority Order or Name of Payee Amount of Loss Restitution Ordered Percentage of Payment Financial Litigation Unit by FEDWIRE $15,985,263. $15,985,263. United States Attorney's Office Northern District of California Totals: $15,985,253. $15,985,263. **Civil Settlement and Restitution (includes $10,300,000. in cash and $5,685,263, in-kind products and services). This money shall be distributed in accordance with the civil settlement agreement which is attached as Exhibit B of the Plea Agreement.
Findings for the total amount of losses are required under Chapters 109A, 110, 110A, and 113A of Title 18 United States Code for offenses committed on or after September 13, 1994, but before April 23, 1996.
[x] If applicable, restitution amount ordered pursuant to plea agreement $ 15, 985, 253.
[x] The defendant organization shall pay interest on any fine or restitution of more than $2,500, unless the fine or restitution is paid in full before the fifteenth day after the date of the judgment, pursuant to 18 U.S.C. § 3612(f). All of the payment options on the Schedule of Payment Page, Part B may be subject to penalties for delinquency and default, pursuant to 18 U.S.C. § 3612(g).
[] The court determined that the defendant organization does not have the ability to pay interest, and it is ordered that:
[] the interest requirement is waived for the [] fine and/or [] restitution.
[] the interest requirement for the [] fine and/or [] restitution is modified as follows:
SCHEDULE OF PAYMENTS
Having assessed the organization's ability to pay, payment of the total criminal monetary penalties shall be due as follows:
A [x] Lump sum payment of $800.00 due immediately.
[] not later than ____, or
[] in accordance with () C, () D, or () E below; or
B [] Payment to begin immediately (may be combined with () C, () D, or () E below); or
C [] Payment in ____ (e.g. equal, weekly, monthly, quarterly) installments of $ _ over a period of __ (e.g., months or year(s)), to commence _ (e.g., 30 or 60 days) after the date of this judgment; or
D [] Payment in ____ (e.g. equal, weekly, monthly, quarterly) installments of $ _ over a period of __ (e.g., months or year(s)), to commence _ (e.g., 30 or 60 days) after release from imprisonment to a term of supervision; or
E [x] Special instructions regarding the payment of criminal monetary penalties: Within five (5) days of the date the plea agreement is accepted and sentence is imposed (May 27, 2004), NEC/BNS shall pay a civil settlement (including partial restitution) in the amount of $10,300,000 in cash to the Financial Litigation Unit, United States Attorney's Office, Northern District of CA, by FEDWIRE.
All criminal monetary penalties are made to the clerk of court, unless otherwise directed by the court, the probation officer, or the United States attorney.
The defendant organization shall receive credit for all payments previously made toward any criminal monetary penalties imposed.
[] Joint and Several
Case Number Joint and Several (including Defendant Defendant Name Amount Number)
[] The defendant organization shall pay the cost of prosecution.
[] The defendant organization shall pay the following court cost(s):
[] The defendant organization shall forfeit the defendant organization's interest in the following property to the United States:
Payments shall be applied in the following order: (1) assessment, (2) restitution principal, (3) restitution interest, (4) fine principal, (5) community restitution, (6) fine interest, (7) penalties, (8) costs, including cost of prosecution and court costs.