Cell Tower Manager Accused in Suit of Pocketing New York's Fees

(Bloomberg) -- Crown Castle International Corp., the U.S.’s second-largest operator of mobile phone towers, defrauded New York by concealing fees it received from wireless carriers that were supposed to be split with the state, according to a whistle-blower lawsuit unsealed in state court.

The allegations surround the Houston-based company’s exclusive contract with the New York State Police to run phone towers on publicly owned land. Crown also manages fiber optic systems that link antennas on utility poles or buildings to a central hub to increase mobile voice and data capacity.

Under a 1997 contract that gave Crown a site-management monopoly, the company agreed to split with the state the user fees received from wireless carriers such as AT&T Inc., Sprint Corp., T-Mobile US Inc. and Verizon Communications Inc.  

Starting around 2012, Crown entered into license agreements with a subsidiary to install antenna systems on New York land for $400 annually for each site, splitting that with the state. According to the lawsuit, Crown’s subsidiary then entered into undisclosed deals with wireless companies to use the sites without providing New York with its share of fees of as much as $25,000 per month received from each carrier.

Crown filed monthly reports to the state falsely showing its subsidiary was the only user of the antenna sites, concealing the agreement with the wireless carriers and the difference between what the carriers paid the subsidiary and what Crown split with the state, according to the suit. In August 2012, the state reduced its oversight of the arrangement by agreeing to remove itself as a party to user licensing deals, the lawsuit said.

“Defendants converted the state’s monies for their benefit, while actively misleading the state to accept a mere fraction of the amount defendants were required by contract to pay the state,” the complaint said. “The scheme has cost the state millions of dollars to which it is entitled."

Edward Paltzik, the whistle-blower’s attorney, declined to comment.

Crown didn’t engage in any misconduct with respect to the contract or the state, Teddy Adams, a vice president and counsel for the company, said in a statement. Crown’s contract is set to expire this month.

“Crown Castle strongly disagrees with the allegations in the lawsuit, which appear to be based on a misunderstanding of the contracts at issue and the state’s involvement in the licensing process," he said.

The whistle-blower, whose name wasn’t disclosed, formerly worked for a wireless carrier that did business with Crown and has “direct personal knowledge” of the allegations in the complaint. The individual is asking for 25 percent of the proceeds of a judgment or settlement if the state agrees to intervene in the case and 30 percent if it doesn’t. The suit demands that Crown should pay the state triple damages.

William Duffy, director of public information for the New York State Police, declined to comment, citing ongoing court proceedings.

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net.

To contact the editors responsible for this story: Christopher Maloney at cmaloney16@bloomberg.net, William Selway, Joe Schneider