The U.S. Supreme Court handed down a unanimous ruling on Friday, reinforcing the federal government’s power to pursue fraud claims against telecoms accused of overcharging schools and libraries under the FCC’s E-Rate program. E-Rate helps schools and libraries obtain affordable internet access.
The decision upholds the Seventh Circuit’s ruling that funds from the E-Rate program are subject to the False Claims Act (FCA), because they originate from the U.S. Treasury. The case, Wisconsin Bell Inc. v. United States ex rel. Todd Heath, case number 23-1127, now heads back to lower courts. There, the next battle will be over whether Wisconsin Bell defrauded the government and how much it may owe, reports USAHerald.
At the heart of the dispute was Wisconsin Bell, an AT&T (NYSE: T) subsidiary, which had sought to escape liability by arguing that E-Rate funds are privately collected fees, rather than government funds. The company contended that since the FCC-mandated fees are collected and distributed by the Universal Service Administrative Co., a private entity, the False Claims Act lawsuits should not apply.
But the justices disagreed. They explained that funds collected through taxes, fines, or fees are routinely funneled into Treasury accounts before being distributed, reinforcing their governmental nature, reports USAHerald.
The decision allows Todd Heath, a school district auditor, to move forward with his FCA lawsuit, originally filed in 2008. Heath claims that Wisconsin Bell manipulated billing practices, securing inflated reimbursements from the E-Rate program.
The False Claims Act, an anti-fraud law, enables whistleblowers to sue on behalf of the government and claim a share of the recovered funds. With the high court’s ruling, Heath’s case is now set to proceed to trial.
The ruling has implications for telecoms participating in federal subsidy programs. It expands the reach of the False Claims Act, making it clear that companies cannot shield themselves by arguing that federally managed funds are private simply because they pass through third parties, according to USAHerald.
Representatives for Wisconsin Bell and the FCC declined to comment on the decision.
By Leslie Stimson, Inside Towers Washington Bureau Chief
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