Sandwich Isles Communications, which provides phone and internet service to about 3,600 residents of Hawaiian Home Lands, is suing state regulators in the hopes of restoring the flow of about $1.36 million in monthly federal subsidies that were suspended last year while federal regulators scrutinized the company’s finances.
The telecom company has been under investigation and audit by the Federal Communications Commission since its founder, Al Hee, was indicted and later sentenced to almost four years in prison in January on tax fraud charges.
Federal prosecutors said Hee skimmed some $4 million from Sandwich Isles’ parent company, Waimana Enterprises, to pay for personal expenses, such as vacations, massages and his children’s college tuition.
The FCC cut off the subsidy, which supports telecom services in rural and remote areas, in June 2015, amounting to an overall financial loss so far for Sandwich Isles of about $24.5 million.
The Hawaii Public Utilities Commission has since declined to recertify Sandwich Isles on a quarterly basis — a step necessary for the company to resume receiving federal funding. If the FCC chooses to restore the subsidy after its investigation, it could take several more months before Sandwich Isles can get approval from the PUC, further delaying payments.
In a complaint filed in Circuit Court on Oct. 31, Sandwich Isles argues that it has met PUC certification requirements and that commissioners have treated the company unfairly, requiring it to respond to additional information requests that other companies weren’t subject to.
The “PUC unconstitutionally and improperly relied on additional qualifications” and held the company to a “heightened standard,” according to the complaint.
The company asks that the court reverse the PUC’s decision and certify Sandwich Isles.
“We filed the appeal because we don’t believe the PUC or the Consumer Advocate followed the law,” Lex Smith, an attorney for Sandwich Isles who works for Honolulu firm Kobayashi, Sugita and Goda, said by email. “The record establishes that SIC meets the criteria for (eligible telecommunications carrier) certification. The PUC’s denial of certification despite that fact is the basis for the appeal.”
Before Hee’s conviction on tax fraud charges, Sandwich Isles had argued in FCC documents that any reduction to its federal subsidies, which are supported by ratepayers, would push the company into insolvency. However, the company has continued to operate for a year and a half since the FCC cut off the funding.
Smith did not respond to questions about whether the company could continue to operate without the federal funding, or for how long, or whether the company has had to layoff employees or scale back operations.
In the PUC’s September order denying Sandwich Isles’ certification request, commissioners said that it didn’t make sense to certify the company before the findings of the FCC’s audit and investigation were available.
The “commission cannot make a determination based on hoped-for or anticipated outcomes which may or may not come to pass,” commissioners wrote.
Commissioners must certify to the FCC that local telecom companies have used federal funds appropriately.
The PUC has been particularly concerned that the company funds Hee used for personal expenses came from ratepayer subsidies provided to Sandwich Isles.
PUC Chairman Randy Iwase said he could not comment on the court case given that it’s a pending matter before the PUC. Sandwich Isles has also filed a motion for reconsideration with the PUC.
Iwase said that usually a party can only appeal to the courts when there has been a final ruling by the PUC, which there has not been.
The FCC had indicated last year that its investigation into Sandwich Isles’ finances could be completed by December 2015 and that the company’s subsidy could be restored by then. But the inquiry into Sandwich Isles appears to be ongoing.
The FCC did not respond to questions about whether it had concluded its audit and investigation, or when it expected to do so.
