T-Mobile Sues to Thwart Fraud Over Educational Broadband Service Spectrum Leases
T-Mobile and seven of its subsidiaries seek “redress” for a “nationwide criminal scheme” to defraud T-Mobile and the subsidiaries “out of an amount believed to be more than $10 million,” alleged a complaint Friday (docket 2:23-cv-04347) in U.S. District Court for Central California in Los Angeles. The case involves educational broadband service (EBS) wireless spectrum in the 2.5-GHz band that the FCC historically has licensed to schools, and T-Mobile leased much of that spectrum from the schools that hold the licenses to build its nationwide cellular and data network.
T-Mobile’s leases typically include a right of first refusal (ROFR) provision, said the complaint. If a third party makes a bona fide offer to buy a spectrum license and the licensee intends to accept that offer, then T-Mobile typically has 30 days to match the third party’s terms and acquire the license itself, it said.
The suit alleges WCO Spectrum, its founder Gary Winnick and its CEO Carl Katerndahl conspired with five co-defendants to form an illegal enterprise in which they make “sham offers” to schools to buy spectrum licenses “that are intended to be conveyed to T-Mobile and to induce it to exercise its ROFR.” WCO simultaneously enters into “secret side agreements” with the schools in which WCO “pockets a kickback,” usually a percentage of the purchase price, in the likely event that T-Mobile exercises its ROFR and acquires the license, it said.
Through their scheme, the defendants “already have siphoned an amount believed to be more than $10 million from T-Mobile to themselves,” and their illegal conduct “continues unabated,” said the complaint. T-Mobile “fortuitously” learned of the fraud only when a former WCO insider whistleblower came forward and alerted T-Mobile’s counsel to the scheme, it said. The conduct resulted in the defendants being “unjustly enriched at T-Mobile’s expense,” it said. “At their core,” the defendants “are fraudsters whose racketeering and unfair and deceptive conduct is precisely the type of behavior” that the Rico Act and California’s Unfair Competition Law “were designed to redress,” it said.
The defendants’ “simple” goal is to defraud T-Mobile of tens of millions of dollars through WCO’s sham offers to purchase spectrum licenses, said the complaint. “This conduct is designed to funnel kickbacks from T-Mobile’s payments to educational institutions for purchase of EBS licenses” to the defendants “to support their criminal activities and to reward and incentivize participation in the scheme,” it said.
WCO tried to conceal the scheme from T-Mobile by requiring the school license holders to sign nondisclosure agreements, said the complaint. The NDAs preclude the schools “from disclosing to T-Mobile the contents of their discussions with WCO,” it said. The defendants also took “every possible step to prevent the details of their fraud from becoming public,” it said. They even abandoned “multiple deals rather than producing documents to T-Mobile” that would have reflected their fraud, it said. WCO and the other defendants didn’t comment.