Friday, January 22, 2010

U.S. v. Green (9th Cir. - Jan. 22, 2010)

I think that Judge Tashima's introductory paragraph in this one is pretty darn apt:

"Depending on whose version of this case you hear, defendant Judy Green is either a dedicated public schoolteacher who spent the years before her conviction working to help impoverished schools across the country, or the mastermind of a massive fraudulent scheme that bilked the federal government out of almost $60 million. The government takes the latter view, and charged Green with defrauding E-Rate, a Federal Communications Commission (“FCC”) program that funds technology projects at schools and libraries. Green insists the former is true, maintaining that she is guilty of nothing more than helping schools maximize their federal funding by exploiting loopholes in the E-Rate rules and regulations."

The jury thought she was a fraudster. The Ninth Circuit affirmed. And that seems right to me too.

It's actually a pretty good scam. The Feds reimburse schools up to 90% for various computer stuff, so Green would pitch low-income school districts and essentially make the following offer: "You buy equipment, the U.S. will pay 90%, and I'll get bids from contractors who (A) won't make you pay the remaining 10%, and (B) will throw in for free lots of extra 'goodies' that aren't eligible for reimbursement under the program." To which lots of the school districts said, not surprisingly, "Sure."

Of course, all this has a price. The contractors are willing to do this only if they inflate the bids. Which they do, charging up to three or four times what they normally charge. But the districts choose those bids since the Feds are paying, not them, and the districts get the goodies and don't have to pay a dime. Only the U.S. takes the hit.

So, again, a nice little trick. Green calls it "exploiting a loophole". But the jury saw it (as I do) as fraud. Getting bids that you know have got to be inflated, and then covering the thing up in the various ways Green did, is a pretty good sign that it's not merely a "loophole".

That said, if anyone else reading this has come up with a way to score $60 million with a system that's similarly arguably legal, please let me know. Maybe it's worth rolling the dice.

(To be clear: I'm kidding. But lots of other people wouldn't be.)