The former head of FCC Chairman Ajit Pai’s Broadband Deployment Advisory Committee (BDAC) was sentenced to five years in prison for defrauding investors.
Elizabeth Ann Pierce was CEO of Quintillion, an Alaskan telecom company, when she lied to two investment firms in New York in order to raise $270 million to build a fiber network.
She also defrauded two individual investors out of $365,000 and used a large chunk of that money for personal expenses.
Pierce, 55, pleaded guilty and last week was given the five-year prison sentence in US District Court for the Southern District of New York, US Attorney Geoffrey Berman announced. Pierce was also “ordered to forfeit $896,698.00 and all of her interests in Quintillion and a property in Texas.” She will also be subject to a restitution order to compensate her victims “at a later date.”
Pierce’s industry experience helped her land the top spot on Pai’s broadband advisory committee in April 2017. But she left Quintillion in July 2017 as her scheme unraveled, and she resigned from the FCC advisory panel. Pai appointed a new chair for his committee two months later; he thanked Pierce for her service, saying she did “an excellent job” chairing the committee and “wish[ed] her all the best in her future endeavors.”
Pierce used fake contracts to fool investors
Berman’s announcement detailed Pierce’s fraud:
Between May 2015 and July 2017, Pierce engaged in a scheme to induce two New York-based investment companies to provide more than $270 million to construct the Quintillion System by providing them with eight forged broadband capacity sales contracts and related order forms under which Quintillion would obtain guaranteed revenue once the Quintillion System was built (the “Fake Revenue Agreements”). Under the Fake Revenue Agreements, four telecommunications services companies appeared to have made binding commitments to purchase specific wholesale quantities of capacity from Quintillion at specified prices. The cumulative value of the Fake Revenue Agreements was approximately $1 billion over the life of the Fake Revenue Agreements. In reality, the Fake Revenue Agreements were completely worthless because Pierce had forged the counterparties’ signatures.
Some of these revenue agreements “never existed at all,” and “others were falsified versions of genuine revenue agreements.” Pierce altered the contracts “to make them more favorable to Quintillion and, therefore, more appealing to investors than the genuine agreements,” the US Attorney’s office said.
“For example, under one of the Fake Revenue Agreements, the customer purportedly agreed to buy from Quintillion increasing quantities of gigabits per second of capacity over a period of 20 years,” the US Attorney said. “That agreement, if genuine, would have assured Quintillion hundreds of millions of dollars in future revenue. In reality, negotiations over that deal had ended unsuccessfully, a fact that Pierce never disclosed to the investors. Under another Fake Revenue Agreement, the customer purportedly agreed to buy a fixed, predetermined amount of capacity from Quintillion regardless of subsequent market conditions. In truth, that customer was not obligated to buy any capacity.”
Pierce tried to cover up her fraud “by continuing to negotiate with the telecommunications companies in hopes of reaching agreements identical to the ones she forged” but failed to do so.
“Pierce hid these genuine, but inferior, contracts from the investment companies and her own staff,” the US Attorney’s office said. “When Quintillion and the investment companies ultimately discovered the fraud in mid-2017, they learned that the real contracts Pierce actually negotiated would generate only a fraction of the anticipated guaranteed revenue of the Fake Revenue Agreements she forged.”
Pierce convinced the two individual investors that they would receive ownership interests in Quintillion in exchange for their $365,000, when in reality they received no shares in the company. Pierce “used half of one victim’s money and all of the other victim’s investment for her own personal benefit,” the US Attorney’s office said.
Quintillion said it “took swift action and self-reported to the Department of Justice” when it learned of Pierce’s fraud, the company said in April 2018.
FCC committee favors industry
The FCC committee that Pierce used to lead has repeatedly been criticized for favoring the interests of industry over the public at large. San Jose Mayor Sam Liccardo quit the group in January 2018 out of frustration that its recommendations favor the interests of private industry over municipalities. In April this year, Pai gave a BDAC spot to a representative of the American Legislative Exchange Council (ALEC), which lobbies against municipal broadband, net neutrality, and other consumer protection measures.
The committee has also pushed policy that would benefit telecom companies at the expense of other tech companies. In December 2018, the committee urged states to impose new taxes on Netflix, Google, Facebook, and many other businesses that require Internet access to operate. The resulting funding would have been transferred to ISPs via grants that subsidize private broadband providers’ network construction. (Pai didn’t back the tax proposal.)
The BDAC is continuing its work, with the FCC saying it will “craft recommendations for the Commission on ways to accelerate the deployment of high-speed Internet access… by reducing and/or removing regulatory barriers to infrastructure investment and strengthening existing broadband networks in communities across the country.”