Thursday, August 19, 2010

Feds Award $19 Million in Broadband Funds to Texas Firm Charged with Stock Fraud




StimulatingBroadband.com 08/19/2010 San Francisco – The U.S. Department of Agriculture yesterday awarded $19 million in broadband stimulus funds to a Texas wireless firm that has been charged with multiple securities violations in 3 jurisdictions over the past 3 years.
In the most recent case the U.S. Securities and Exchange Commission charged the firm, TierOne Converged Networks, Inc., in US District Court in Dallas with violations of federal securities law.  State securities regulators in Colorado and Texas issued cease and desist orders against the company in 2009 and 2008.

The SEC filed charges against TierOne alleged “material misrepresentation” in the raising of “almost $9.5 million from approximately 200 investors in 34 states through a continuous unregistered offering of securities.”   The initial SEC complaint was filed on April 27 against the firm, a wireless Internet service provider (WISP).  In a settled complaint action, filed with the court 3 days later, TierOne agreed to stop the practices alleged by the agency, without admitting to or denying the veracity of the charges. 


According to a story in the Dallas Morning News by reporter Eric Torbenson, CEO Kevin Weaver declined to comment at the time of the SEC action.

In May 2008 the Texas State Securities Board issued an Emergency Cease and Desist Order against TierOne alleging the company “was intentionally failing to disclose material facts” relating to past claims and fines against Mr. Weaver filed by the Financial Industry Regulatory Authority (FINRA).  In 2004 FINA filed $412,000 in claims against Weaver, barred him from associating with any FINRA member firm, and ordered him to pay $547,000 in restitution to 23 investors.

In February 2009 Colorado State Securities Commissioner Fred J. Joseph issued a Consent Cease and Desist Order against Tier One ordering the company to not sell unregistered securities in the state.

The award of $19,224,200 was 1 of 94 federal grants and loans totaling $1.8 billion announced yesterday by the Obama Administration as part of the $7.2 billion broadband stimulus program of the federal Recovery Act.  The official announcement of almost $2 billion in awards was issued by the White House in a statement quoting Vice President Joseph R. Biden.  Details of the overall announcement were reviewed during a media teleconference hosted by Biden’s chief economist, Jared Bernstein, Agriculture Secretary Tom Vilsack, and Commerce Secretary Gary Locke.  The award of funds to TierOne was made by the Rural Utilities Service (RUS), a division of the U.S. Department of Agriculture (USDA).

In the summary of the firm’s application provided in the White House documentation of the 94 awards, the statement is made that the award “will allow TierOne..to offer broadband service speeds of up to 6.5 megabytes per second in 11 north Texas counties.”  The summary goes on to say “Approximately 246,344 people stand to benefit, as do roughly 12,726 businesses and 874 community institutions.”  Additionally, RUS apparently accepted TierOne’s estimate that the project will create “more than 1,00 jobs.”

Many observers have faulted the Obama Administration for how long it has taken to move grant and loan monies under the broadband stimulus program out to deserving service providers, rural cooperatives, nonprofits and government agencies.  Managers at RUS and at its sister agency managing the program, the National Telecommunications and Information Administration (NTIA) of Commerce, have repeatedly said how diligently they must work to review the thousands of applications submitted in 2 funding rounds of the effort.

Several reports by the Government Accountability Office (GAO) of Congress and one by the Office of Inspector General at Commerce have questioned the ability of the agencies to manage the program as they attempt to both meet a pressing spending deadline and to put needed audit and control mechanisms in place. Under the provisions of the Recovery Act, Congress has mandated that the entire $7.2 billion must be obligated by September 30.

Yesterday’s award of $19 million to a firm charged with security violations in multiple jurisdictions over the past several years will heighten the concern that federal program managers still have not found the correct balance between timeliness and prudent review of applicants.

We are publishing this story at 7:45 am (EDT), and will ask for responses to our reporting from USDA, TierOne management, the SEC, and state securities regulators. 


SEC v TierOne Converged Networks - Complaint - 04-27-2010


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