15 May Jonanthan Cartu Stated: San Antonio businessman faces $100M lawsuit over alleged fr…
Two years ago, Big 4 accounting firm Ernst & Young chose Timothy Koxlien, founder of a San Antonio telecommunications company, as one of its entrepreneurs of the year in Central Texas.
Koxlien was riding high off the January 2018 sale of his business, TeleQuality Communications, to Nashville-based Education Networks of America Inc. for $105 million.
He stayed on as TeleQuality’s CEO and president to oversee its business of providing telecommunications to rural health care providers.
Now, though, Koxlien stands accused in a lawsuit by Education Networks of perpetrating a “complete fiction” regarding TeleQuality’s financial performance and growth prospects prior to the sale.
“TeleQuality’s value was a mirage based on numerous known violations of federal government rules, including forged documents, unallowable gifts of free equipment and manipulated bids that Koxlien and the company hid from ENA,” according to the lawsuit, which was filed last week in Delaware.
The complaint, which seeks more than $100 million in damages, follows by three months TeleQuality’s $31 million settlement with the Federal Communications Commission for violating bidding and rate rules from 2015 through 2018.
It’s the largest settlement in the FCC’s history.
The lawsuit relies heavily on the findings of a 13-month investigation by the FCC’s enforcement bureau, which determined that TeleQuality received $47 million in improper payments.
The agency administers a program that supports broadband internet connections and other services for medical providers in rural areas.
Efforts to reach Koxlien, 58, and his attorney were unsuccessful Wednesday. He was terminated from his posts and removed from ENA’s board in April 2019.
In an emailed statement, an ENA spokesman said Koxlien committed “blatant fraud” and “actively concealed the existence of (TeleQuality’s) regulatory violations in an effort to artificially inflate the company’s value and boost Koxlien’s personal gain.”
Koxlien founded TeleQuality in 2006, but had been selling broadband access to health care providers before then.
A decade earlier, Congress had passed the Telecommunications Act in an effort to revamp the country’s telecommunications system by designing a program that included subsidies for various classes of customers, including rural health care providers, the suit says.
The FCC created the Universal Service Fund to pay for telecommunications in rural areas. Carriers are required to pay money into the fund.
TeleQuality had fewer than 30 employees but operated in 34 states. Since its inception, though, it received virtually all of its revenue from the rural health care program, the suit says.
According to the February consent decree with the FCC, TeleQuality in 2015 and 2016 offered rural health care providers free routers and fire walls to induce them to select the company as their broadband provider.
TeleQuality provided more than $1 million in free equipment, in violation of the FCC’s rules requiring fair bidding, ENA says in its suit.
TeleQuality also helped health care providers produce bid analysis documents in a way that it would increase the likelihood that the company would win contracts, the FCC said in the consent decree.
The agency added that TeleQuality offered health care providers below-market discounts on services in nonrural areas, but recouped the losses by improperly inflating its rates on the rural sites that were supported by the Universal Service Fund.
The entity overseeing the fund also relied on forged rate documents submitted by TeleQuality to calculate the payments the company received from the fund, according to the consent decree. TeleQuality sent the documents to its customers. More than 700 of them were then submitted to the entity overseeing the fund, the suit says.
ENA’s lawsuit indicates it knew nothing about any of this when it acquired TeleQuality from a holding company controlled by Koxlien. The $105 million deal included cash, equity in ENA’s parent company and a promissory note.
The first time ENA apparently learned something might be amiss was in late December 2018 when the FCC sent a “Letter of Inquiry” notifying the company it was launching an investigation into TeleQuality’s business practices.
ENA immediately launched its own investigation. ENA acquired TeleQuality because it offered the opportunity to expand beyond ENA’s business of providing broadband to schools and libraries.
ENA is owned by New York private equity firm ZMC, short for Zelnick Media Capital. ENA employs about 250 in 33 states.
During the sale process, ENA says, Koxlien repeatedly reassured ENA that “they (TeleQuality) follow the rules” of the rural health care program.
In its lawsuit, ENA alleges that after the deal closed, Koxlien “deleted presentation slides in an effort to shield potential compliance violations” from…