Verizon pays $93.5 million to settle whistleblower lawsuit alleging Verizon overcharged government

WASHINGTON, DC, April 5, 2011 -- A whistleblower lawsuit filed against Verizon has resulted in the company paying the federal government $93.5 million to settle allegations that Verizon overcharged the government for voice and data communication services.

The "qui tam" lawsuit had been under seal, meaning it wasn't publicly known, until today when the government announced that it had joined the case and reached a settlement with Verizon.

The whistleblower lawsuit alleged that Verizon had billed the government for "tax-like" surcharges that it wasn't entitled to impose on the government. Hidden surcharges on communication services have long been an unwelcome cost to business and consumers, and the General Services Administration had negotiated a firm, fixed-price contract with limited surcharges precisely to avoid being hit with hidden surcharges.

"Verizon was not only charging the government for the costs associated with communication services, but it also was pumping up its revenues by charging the government for Verizon's own property taxes and other costs of doing business," said Colette Matzzie, a Washington, DC, attorney with Phillips & Cohen LLP, which represents the whistleblower. "Under federal law, Verizon was responsible for paying those costs, not the government."

The settlement agreement covers the period from 2004 to 2010, when Verizon allegedly billed the government for a variety of surcharges including property tax surcharges, carrier cost recovery charges, state telecommunications relay service surcharges and public utility commission fee surcharges.

The qui tam lawsuit, filed in 2007, alleged the fraudulent billing began in 1999, under a contract MCI had with the GSA to provide landline and long-distance voice and data communication services. Verizon merged with MCI in 2006 and took over the GSA contract. Verizon not only continued to bill the government in the same way that MCI had done before but it also gradually increased the surcharge rates over time.

C. Douglas Jarrett, a partner with the law firm Keller & Heckman LLP, assisted in analyzing surcharges and telecommunications contracts for the case.

The False Claims Act allows private individuals to file qui tam lawsuits on behalf of the government against companies and individuals that commit fraud against the government. Whistleblowers are entitled to 15 percent to 25 percent of the amount recovered, if the government joins the case. For more information about the False Claims Act and qui tam cases, see "How the law works."