The Fifth Circuit held that the False Claims Act does not extend to claims submitted under the Education Rate (E-Rate) Program, which is administered by the Universal Service Administrative Company (USAC) with funds from the Universal Service Fund (USF), because there were no federal funds involved and the USAC is not a governmental entity.  See U.S. ex rel. Shupe v. Cisco Systems, Inc.

Relator Rene Shupe brought a qui tam action, alleging that defendant telecommunication companies violated the False Claims Act in connection with contracts to install and operate communications networks for school districts and libraries throughout South Texas, which was partially funded by the E-Rate program.  Shupe alleged that the defendants “tampered with the competitive bidding process, engaged in the ‘gold-plating’ of equipment provided, and substituted E–Rate ineligible products for eligible ones.”  

As set forth in the decision, in 1996 the Federal Communications Commission (FCC) designated the USAC, an independent, not-for-profit corporation owned by an industry trade group, to serve as the administrator of the USF.  The money in the USF is collected from private telecommunication providers under a mandate from Congress and the FCC and distributed in accordance with FCC regulations.

But, the Fifth Circuit held that this regulatory interest was insufficient to establish a claim under the FCA because the government was not in a position to lose money due to the alleged fraud.  Moreover, the FCC’s power over the fund indirectly, and through its oversight of the USAC, did not call for a different result because the government has no actual control over the fund.  Thus, “[b]ecause there are no federal funds involved in the program, and USAC is not itself a government entity,” the Government did not “provide any portion of the requested money under the FCA,” and the relator had no claim under the FCA.