The Department of Justice today announced a civil settlement with Hewlett-Packard Company (HP) for alleged E-rate fraud, following an investigation by the Federal Communications Commission and DOJ.

The E-rate program, which funds Internet connections in schools and libraries, has brought Internet connectivity to virtually every classroom in the country.

Acting on tips from whistleblowers, the FCC and the DOJ investigated allegations that contractors working with HP and other companies lavished gifts on Dallas Independent School District and Houston Independent School District personnel in order to get contracts that included some $17 million in HP equipment. Meals and entertainment -- including trips on a yacht and tickets to the 2004 Super Bowl -- were provided by the contractors to get inside information and win contracts that were supposed to be awarded through a competitive bidding process.

As part of the settlement, HP has agreed to pay the U.S. government $16.25 million, most of which will be returned to the E-rate program. In addition, the FCC has negotiated and will oversee a compliance agreement with HP that will ensure that the company plays by the rules in the future.

"The FCC's compliance agreement with HP ensures that HP will train its employees thoroughly on the FCC's gift and other E-Rate rules, and provides for audits of HP's E-Rate business," said Austin Schlick, General Counsel of the FCC. "If HP fails to monitor its E-Rate activities closely and abide by E-Rate Program requirements, it will face substantial penalties."