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A Western Pennsylvania telecommunications company has agreed to pay $6.5 million to settle claims that it violated federal law by inflating its costs to receive greater federal subsidies under the Federal Communication Commission's High-Cost Program, the U.S. Department of Justice said Friday.

The settlement resolves the government's action filed in the U.S. District Court for the Western District of Pennsylvania, alleging that Butler, Pennsylvania-based Armstrong Group violated the False Claims Act. The company was accused of submitting inflated funding requests for money from the FCC's Universal Service Fund, which supports high-speed communications infrastructure and access.

High-Cost Program and FCC Violations

The High-Cost Program, part of the Universal Service Fund (USF), provides federal funds to eligible telecommunications carriers, or incumbent local exchange carriers (ILECs), to expand connectivity to rural or high-cost areas, the DOJ explained.

"When providers like the Armstrong Group fail to follow federal law and FCC regulations, they jeopardize not only critical government programs but also consumers' ability to access a modern lifeline — rapid, reliable, and efficient telecommunications services," said U.S. Attorney Eric G. Olshan for the Western District of Pennsylvania.

Armstrong Group to Pay $6.5M to Settle FCA case : Whistleblower and Overstated Costs

Federal authorities claimed that from 2008 to 2023, five Armstrong Group telephone companies in Pennsylvania, New York, West Virginia, and its Northern Division entity overstated costs related to telecom infrastructure to receive more money. The case was brought to the government's attention by whistleblower James Ranko, Armstrong's former controller, who is set to receive $1.26 million from the settlement.

"I have never witnessed such greed, arrogance, and mindlessness in my entire career and felt the need to come forward to address what I saw was a blatant misuse of the federal subsidy program by Armstrong's decisions to improperly allocate costs to pad their profits with government dollars," Ranko said in a statement issued by his counsel at Phillips & Cohen LLP.

Misallocation of Funds and Government Representation

The law firm statement noted that Armstrong had received tens of millions of dollars in federal funding and, beginning in 2012, misallocated $180,000 per year on company airplane costs for Armstrong Telephone. Ranko, who worked at Armstrong from 2008 to 2016, said he and others suggested developing a cost allocation manual to ensure Armstrong Telephone's expenditures complied with federal law, but the idea was rejected by executives.

"Accurate reporting of costs by rural telephone carriers is essential to ensure proper allocation of federal subsidy dollars. We applaud our client for coming forward to report his concerns to the Department of Justice and the Federal Communications Commission," said Colette Matzzie, an attorney for Ranko.

The government is represented by Benjamin C. Wei and Paul E. Skirtich of the U.S. Attorney's Office for the Western District of Pennsylvania, and Elliot Lowenstein and Peter Feinberg of the FCC Office of Inspector General. Ranko is represented by Colette Matzzie of Phillips & Cohen LLP and Andrew Stone of the Stone Law Firm.

Counsel information for Armstrong Group was not immediately available. Armstrong did not immediately respond to a request for comment.