Armstrong Group Pays $6.5M to Settle False Claims Act Lawsuit

The Armstrong Group of Companies agreed in July 2024 to pay $6.5 million to resolve a False Claims Act lawsuit alleging that five of its telephone subsidiaries inflated their reported costs to collect larger subsidies from the Federal Communications Commission’s High-Cost Program. Alongside the payment, the Butler County, Pennsylvania conglomerate entered into what the FCC called its first-ever compliance plan tied to that subsidy program. The Armstrong Group False Claims Act settlement resolved a whistleblower case that had been pending since 2017.¹

What Armstrong Was Accused Of

The Department of Justice alleged that from 2008 through 2023, five Armstrong-owned incumbent local exchange carriers submitted improper cost reports to the FCC and collected subsidies they were not entitled to receive. The five carriers were the Armstrong Telephone Company operations in Maryland, New York, Northern Division, Pennsylvania, and West Virginia.¹

The subsidies came from the FCC’s High-Cost Program, part of the Universal Service Fund, which pays telecommunications carriers to build and maintain service in rural, insular, and high-cost areas. FCC rules dictate which costs a carrier may include when calculating how much subsidy it is owed. According to prosecutors, Armstrong’s telephone companies failed to follow those rules and included costs they were not permitted to claim, producing larger subsidy payments than the carriers were entitled to.²

The DOJ did not publicly detail the specific accounting methods the carriers allegedly used.

The Whistleblower Who Brought the Case

The lawsuit began in 2017 as a qui tam action filed by James Ranko, a former Armstrong Telephone employee who worked at the company from 2008 to 2016, first as controller and then as director of regulatory compliance. Qui tam provisions of the False Claims Act let private individuals sue on behalf of the government when they have knowledge of fraud against federal programs.³

Ranko alleged that he and other employees urged Armstrong to develop a cost allocation manual to ensure compliance with FCC regulations, and that the company rejected those recommendations. After the settlement, he issued a public statement saying, “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 decision to improperly allocate costs to pad their profits with government dollars.”³

Ranko was represented by Phillips & Cohen LLP. Partner Colette Matzzie said accurate cost reporting by rural carriers “is essential to ensure proper allocation of federal subsidy dollars” so that residents in rural and underserved areas have access to communications services at rates comparable to urban areas.⁴

For his role, Ranko received $1,267,500 of the recovery, roughly 19.5% of the total. False Claims Act whistleblowers who bring successful qui tam actions typically receive between 15% and 25% when the government intervenes.¹

The Settlement Terms and Armstrong’s Response

The DOJ announced the $6.5 million settlement on July 12, 2024. The case, captioned U.S. ex rel. Ranko v. Armstrong Group of Companies, et al. (Case No. 17-1052), was handled in the U.S. District Court for the Western District of Pennsylvania under U.S. Attorney Eric G. Olshan, working with the DOJ’s Civil Division and the FCC’s Office of Inspector General and Office of General Counsel.⁵

The agreement carried no determination of liability. Armstrong denied wrongdoing, telling the Pittsburgh Post-Gazette that after a seven-year investigation there was no finding of misconduct and that it believed it “acted properly at all times.”³

On July 24, 2024, the United States filed a stipulation of dismissal. Judge Cathy Bissoon signed a final order two days later, dismissing the case with prejudice and closing it.⁶

The First High-Cost Program Compliance Plan

Money was only part of the resolution. Armstrong also agreed to a corporate compliance plan with the FCC. The FCC’s Office of Inspector General described it as the “first-ever High-Cost program compliance plan with the Commission.”⁷ The DOJ said the agreement requires Armstrong to adopt changes to its internal controls and put in place ongoing oversight and monitoring mechanisms.¹

The specific terms of the plan, including the duration of monitoring and what reports Armstrong must file with the FCC, have not been made public in detail.

The Cable Business Was Not Part of the Case

The five Armstrong telephone subsidiaries named in the settlement are legacy incumbent local exchange carriers, distinct from Armstrong’s cable and broadband operation. Armstrong Utilities, Inc. provides internet, television, and VoIP phone service under brands including Zoom Internet across Pennsylvania, Ohio, West Virginia, Maryland, Kentucky, and New York, and was not among the entities alleged to have violated the False Claims Act.⁸ The broader company remains operational and reportedly opened a new facility in Connellsville, Pennsylvania, in early 2024.⁹

1
U.S. Department of Justice. Armstrong Group Agrees to Pay $6.5M to Settle False Claims Act Allegations Relating to Subsidies Under the Federal Communications Commission’s High-Cost Program
2
Broadband Breakfast. Armstrong to Pay $6.5 Million for Overcharging FCC Subsidy Fund
3
Pittsburgh Post-Gazette. Butler Broadband Provider, FCC Settle Whistleblower Lawsuit
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Phillips & Cohen LLP. Armstrong Group Agrees to Pay
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U.S. Department of Justice. Armstrong Group Agrees to Pay $6.5M to Settle False Claims Act Allegations
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PACER Monitor. United States of America et al v. Armstrong Group of Companies et al
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FCC Office of Inspector General. FCC OIG Semiannual Report
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Armstrong Group of Companies. Brands
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Pittsburgh Business Times. Armstrong Settlement FCC Whistleblower