Arrest Of Former CEO Of Alaska-Based Fiber Optic Company For Perpetrating A Multimillion-Dollar Inve

https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-arrest-former-ceo-alaska-based-fiber-optic-company
Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Thursday, April 12, 2018

Manhattan U.S. Attorney Announces Arrest Of Former CEO Of Alaska-Based Fiber Optic Company For Perpetrating A Multimillion-Dollar Investment Fraud Scheme

CEO Used Forged Contracts to Induce Two New York-Based Investment Companies To Invest Over $250 Million in the Fiber Optic Company

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a complaint charging ELIZABETH ANN PIERCE with wire fraud in connection with a scheme to use forged guaranteed revenue contracts to fraudulently induce investors to invest more than $250 million in a fiber optic cable network in Alaska. PIERCE surrendered this morning in New York, New York, to FBI agents and will be presented before Magistrate Judge Robert W. Lehrburger this afternoon.
(snip)

PIERCE was the chief executive officer of a telecommunications company based in Anchorage, Alaska (the “Fiber Optic Company”), that built, operates, and markets a high-speed fiber optic cable system. The system consists of three segments: a subsea segment that spans the Alaskan Arctic; a terrestrial segment that runs north to south along the Dalton Highway; and a land-based network of pre-existing fibers that connects the subsea and terrestrial segments that the Fiber Optic Company wholly or jointly owns or controls with another telecommunications company. The Fiber Optic System is connected to the lower 48 states through other existing networks.

Between May 2015, and July 2017, PIERCE engaged in a scheme to induce two investment companies to invest more than $250 million in the Fiber Optic System by providing them with forged broadband capacity sales contracts (the “Fake Revenue Agreements”). Under the Fake Revenue Agreements, the customers – other telecommunications companies that resell capacity to end users such as businesses and households – appeared to have made binding commitments to purchase specific wholesale quantities of bandwidth from the Fiber Optic Company at specific prices. The cumulative value of the Fake Revenue Agreements was more than $24 million during the first year of the subsea segment’s operation, approximately $10 million during the first year of the terrestrial segment’s operation, and approximately $1 billion over the life of the Agreements. In fact, the Fake Revenue Agreements were completely worthless because PIERCE had forged the counterparties’ signatures.

Certain of the Fake Revenue Agreements never existed at all, while others were false versions of genuine revenue agreements that were more favorable to the Fiber Optic Company than the genuine agreements. For example, under one of the Fake Revenue Agreements, the customer supposedly agreed to buy increasingly more gigabits per second of capacity over a period of 20 years from the Fiber Optic Company. That contract, if genuine, would have assured the Fiber Optic Company of hundreds of millions of dollars in future revenue. In reality, negotiations over that deal ended unsuccessfully, and PIERCE never disclosed that fact to the investors. Under another Fake Revenue Agreement, the customer had purportedly agreed to buy a fixed, predetermined amount of capacity regardless of subsequent market conditions. In actuality, that customer was not obligated to buy any capacity.

PIERCE’s scheme began unraveling when a customer disputed invoices that it received from the Fiber Optic Company pursuant to one of the Fake Revenue Agreements. Shortly thereafter, PIERCE abruptly resigned from the Fiber Optic Company.
(snip)