Hewlett-Packard to pay $16M+ as more problems come out in HISD, DISD E-Rate program

A major computer company with strong local ties is being forced to pay more than $16 million to the federal government and people in Houston and Dallas in the aftermath of allegations of fraud in a federal program supplying computers to the Houston and Dallas school districts.

According to the settlement, five people, all from Texas, sued Hewlett-Packard for violating the bidding processes associated with the E-Rate technology program.

“...during the period from 2002 to 2005 in the Dallas and Houston Independent School Districts: (1) conspiring to rig the competitive bidding of E-Rate contracts; (2) subverting the competitive bidding processes for E-Rate contracts through the provision of gratuities, including meals, trips, and tickets, to school district representatives in violation of school district policies or rules and E-Rate Program rules; and (3) unjust enrichment from E-Rate contracts received as a result of violations of the competitive bidding processes.”

HP is based in California but has a substantial presence in Houston. It bought out Houston-based rival Compaq a few years ago.

HISD’s E-rate compliance officer, Richard Patton, told Texas Watchdog he had not been aware of the interaction between HP and the Department of Justice and the Federal Communications Commission.

“I can tell you this, I was not aware of this ... All of those things do not run through my office, either,” Patton said. “The Secret Service or the FBI may have spoken with the parties at the time, but it was a complete surprise to me.”

Patton was hired by HISD in February of this year. The district had been forced to agree to hire someone to look over its E-Rate contracting processes.

David Galbraith, a lawyer for HISD, said he was aware of the suits against HP but said HISD was not involved with them. “We did not get into any of that. We knew the suit was going on, and the suit did hold up our settlement a little, but we were not a party to the case.”

The latest settlements are a part of a string of investigations and lawsuits related to the E-Rate programs at both HISD and DISD, two of the state’s largest school districts.

HISD was forced to pay $850,000 to settle a suit earlier this year after allegations of E-Rate vendors giving gifts, sporting tickets and meals to district employees, including the HISD superintendent at the time, Abelardo Saavedra.

The investigations in Dallas led to prison sentences for a former DISD employee, Ruben Bohuchot, and a former DISD and HISD E-Rate vendor, Frankie Wong. The two men had been charged with bribery and conspiracy to commit money laundering. Appeals were denied this week for both men, the Chronicle reported.

In the HISD investigation, allegations against HP and other E-Rate vendors were outlined in a memorandum provided to the federal government by the school district. The allegations against HP in the memorandum include:

  • In August 2006, Hewlett-Packard offered HISD two complimentary passes, worth more than $1,000 each, to the 2006 HP Technology Forum, which was held at the George R. Brown Convention Center in Houston.District employees Mark Landrum and Carl Bradley attended the event.
  • In April 2005 HP sent a computer and printer to HISD technology employees Ken Eaton and Wayne Franklin as a “thank you” for serving on a panel. The computers were supposed to be donated to an HISD school but remained at the school district’s west region office. Franklin is no longer employed at HISD, a district spokesman said.
  • HISD documents show that “an unidentified district employee” registered for a conference in May 2005 atMandalay Bay Resort and Casino, the memo says. But HISD is “unable to confirm” that Steve Kim, HISD’s networking manager at the time, “accepted a trip to Las Vegas from HP on any of these dates,” the memo says.

According to the most recent lawsuit settlement with HP, the computer company will pay $16.25 million to the federal government. More than $7.4 million is associated with allegations in DISD and more than $8.8 million for the allegations associated with HISD. HP will also have to pay more than $200,000 in attorney fees, according to the settlement.

Once the federal government receives the money, it will give more than $1.4 million to plaintiffs Dan Cain and Pam Tingley and close to $800,000 to Dave Richardson, Dave Gillis and Barry Clauss, according to the settlement. In the documents, all five of the individuals are listed as being associated with real estate companies, Cain Realtors and Richardson Realtors.

HP is currently on the approved vendor list for HISD, Patton said, and it most likely will stay on.

“We do not do a lot of direct business with HP. We will analyze that (whether HP should remain on the list) but I do not think it would be smart to remove a solid vendor like that. It could potentially be very costly to change midstream.”

According to Patton, HISD primarily buys HP equipment through resellers and does not do a lot of direct buying from the company. An HISD contract database obtained by Texas Watchdog shows payments HP receiving close to $20,000 in payments from HISD from 2005 to 2009. Hewlett-Packard banned ACS and Micro Systems Engineering, two HISD E-rate vendors accused of providing sporting tickets and other gifts to HISD employees, from selling its equipment in late 2006, the Houston Chronicle reported.

Patton said the only way HP would be removed from the district’s vendor list were if the federal government specifically asked the district to do so. He also said HISD will review the compliance and settlement agreements HP signed with the federal government but does not think they will have an impact on HISD.

“I don’t think the district will be at a loss as a result of this agreement. We were not a part of the investigation,” he said. “Prior to our settlement agreement we had gaps and holes but we have closed those.”

Cain, from Dallas, spoke for the first time about the lawsuit in a recent story in the Dallas Observer. According to the story, Cain, a Realtor, did not work for DISD but his cousin, Chuck Spivey, did, serving as a district assistant superintendent and chief technology officer.

“One day in the fall of 2002, Bohuchot told Spivey that he and some dude from Houston named Frankie Wong were going in on a big ol' boat together -- a 46-foot Post Yacht dubbed the Sir Veza. It was worth more than $300,000. Spivey knew just the perfect folks to work that sucker: His cousin Pam -- Danny Cain's sister -- and her husband, Dan Tingley. Dan would captain; Pam would serve as first mate -- hostess, in other words...”

According to the story, Cain soon began receiving mail at his house from Coast Guard about the yacht and other pieces of mail that were addressed to Wong and Bohuchot.

“...he was furious: ‘Here were all these people stealing money from school kids -- and they were using my house for an illegal enterprise,’ he says. ‘I didn't care if it was my brother-in-law and sister.’”

Wong was sentenced to 10 years in prison, Bohuctot received 11 years. According to an article in the Houston Chronicle, both were denied appeals Tuesday in a New Orleans-based federal court.

Contact Lynn Walsh at Lynn@TexasWatchdog.org, 713-228-2850 or on Twitter @LWalsh. You can also follow her at @TexasWatchdog.