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Before the
Federal Communications Commission
Washington, D.C. 20554
)
)
In the Matter of )
PENDLETON C. WAUGH, CHARLES M. AUSTIN, ) EB Docket No. 07-147
and JAY R. BISHOP
) File No. EB-06-IH-2112
PREFERRED COMMUNICATION SYSTEMS, INC.
) NAL/Acct. No.
Licensee of Various Site-by-Site Licenses 200732080025
in the Specialized Mobile Radio Service. )
FRN No. 0003769049
PREFERRED ACQUISITIONS, INC. )
FRN No. 0003786183
Licensee of Various Economic Area )
Licenses in the 800 MHz Specialized
Mobile Radio Service )
)
)
ORDER TO SHOW CAUSE
AND
NOTICE OF OPPORTUNITY FOR HEARING
Adopted: July 18, 2007 Released: July 20, 2007
By the Commission:
I. INTRODUCTION
1. By this Order to Show Cause and Notice of Opportunity for Hearing
("Order"), we commence a hearing proceeding before an administrative
law judge to determine whether Pendleton C. Waugh ("Waugh"), Jay R.
Bishop ("Bishop"), Charles M. Austin ("Austin"), and the entities they
own and control, Preferred Communication Systems, Inc. ("PCSI"),
parent company of Preferred Acquisitions, Inc. ("PAI") (collectively,
"Preferred"), licensee of the referenced stations, are qualified to
be and remain Commission licensees. As discussed below, the record
before us indicates that these individuals, two of whom are convicted
felons, and the referenced entities, individually and collectively,
among other things, apparently (1) failed to disclose a
real-party-in-interest and engaged in unauthorized transfers of
control of Commission licenses; (2) misrepresented material facts to
the Commission; (3) lacked candor in their dealings with the
Commission; (4) failed to disclose the involvement of convicted felons
in ownership and control of the licenses; (5) failed to file required
forms and information and respond fully to Enforcement Bureau letters
of inquiry; and (6) discontinued operation of certain licenses.
Evidence of such misconduct raises material and substantial questions
requiring further inquiry at hearing as to whether the referenced
licenses should be revoked and whether forfeitures should issue
against one or more of the persons and/or entities identified above.
II. BACKGROUND
A. Pendleton C. Waugh
2. In 1990, Waugh, an attorney who was licensed to practice law in Texas,
formed Express Communications, Inc. ("Express") and several affiliated
entities, to acquire wireless licenses. Waugh became president and was
a majority owner of Express. In 1993, Waugh came under investigation
by federal authorities for activities relating to his involvement in
Express. As a result of that investigation, Waugh was indicted in 1994
in the United States District Court for the Northern District of Texas
on one count of conspiracy to structure financial transactions to
evade securities and banking reporting requirements and one count of
money laundering, both felonies. Waugh ultimately pled guilty to the
first count, and the second count was dismissed. In 1995, as a result
of the plea agreement, Waugh was sentenced to 21 months in federal
prison, followed by three years of probation, and payment of $20,000
in fines. As part of his plea agreement, Waugh agreed not to violate
any federal, state, or local laws, and specifically regulations or
orders issued by the United States Securities and Exchange Commission
("SEC") or any equivalent state agency. He also agreed to divest
himself, without compensation, of any ownership interests in Express
and its affiliated entities.
3. Thereafter, in 1997, the United States District Court for the District
of Columbia granted the SEC summary judgment against Waugh for
violations of various securities regulations stemming from his
involvement in Express. Waugh was ordered to pay the federal
government nearly $13 million of illegally acquired funds. He also was
permanently enjoined from violating various securities laws.
4. In 1999, Waugh was convicted of securities fraud, a felony, in a case
brought by the State of Texas, arising from his failure, in 1993, to
disclose to a potential investor that he was under investigation by
federal authorities for activities relating to his involvement in
Express. Waugh was sentenced to four years in state prison, all of
which were suspended pending successful completion of probation. He
also was ordered to pay $72,000 in restitution and to complete 500
hours of community service.
5. Later in 1999, Waugh was determined to have violated the terms of his
parole from federal prison and his probation on his state conviction
by traveling to Puerto Rico to engage in activities relating to
cellular telephone securities. As a result, Waugh was sentenced to six
additional months in federal prison and four years in state prison.
A. Jay R. Bishop
6. In the early 1990s, Bishop was one of three shareholders in
Continental Wireless Cable Television, Inc. ("Continental"), a company
that held itself out to investors as a business constructing cable
systems. In 1994, as a result of the company's activities, the SEC
filed an enforcement action against Continental for defrauding
investors after the company raised approximately $41 million from
nearly 3,000 investors, only about 10 % of which was used for building
cable systems. The SEC obtained a restraining order against
Continental, seized its assets, and froze its bank accounts and those
of its principals. Continental was placed into involuntary
receivership.
7. In 2001, Bishop was convicted of two felonies in United States
District Court for the Southern District of California for conspiracy
to defraud the Internal Revenue Service and attempted tax evasion,
relating to his personal and business tax returns in 1993 and 1994 as
a shareholder in Continental. Bishop was sentenced to 30 months in
federal prison.
A. Charles M. Austin
8. According to material provided by PCSI, during the 1990's, Austin
served as Investment Representative of a wireless cable development
company, American Wireless; Investment Representative of an SMR
development capital company, Walmac LLC; Vice-President of a wireless
licensing and acquisitions company, Communications Equity Associates,
L.L.C.; and President of an infomercial funding company,
MediaResponse, LLC. The record does not indicate that he has been
convicted of any felonies.
A. Applications for Authorizations
9. In approximately 1997, Waugh, Bishop, Austin and another individual,
Charles Guskey, formulated a business plan to acquire FCC wireless
licenses and sell them for a profit. They created two corporations for
this purpose: PCSI and a wholly-owned subsidiary, PAI.
10. In 1998, PCSI sought to acquire multiple SMR licenses stemming from
the so-called "Goodman-Chan" proceeding and filed assignment
applications from a variety of licensees. In 1999, the Commission
granted PCSI's applications, and PCSI became the licensee of 86
site-based SMR licenses located in the U.S. Virgin Islands and Puerto
Rico.
11. Thereafter, on July 17, 2000, PAI, PCSI's subsidiary, filed an
application on FCC Form 175, Application to Participate in an FCC
Auction ("Short Form"), to participate in Auction No. 34, in which the
Commission intended to auction spectrum for the 800 MHz SMR service in
the General Category Band (851 MHz to 854 MHz). In its Short Form, PAI
represented that Austin held 100 % of PCSI's common shares. PAI also
stated with respect to its parent company:
PCSI has agreed to issue additional shares that would dilute the ownership
of Mr. Austin, conditioned upon receipt of prior FCC approval. PCSI
expects to file an application seeking such FCC approval with respect to
PCSI's incumbent 800 MHz licenses in the near future. However, as PCSI is
contractually committed to seek such FCC approval, PCSI is providing the
information herewith to show what the ownership would be on a fully
diluted basis after a receipt of FCC approval and after conversion into
equity of all existing convertible debt instruments.
PAI then noted that the ownership would be diluted as follows: (1) Austin,
32.7 %; (2) Raymond A. Hebrank Irrevocable Voting Trust, 32.7 %; and (3)
Bishop Irrevocable Voting Trust, 32.7 %. Notably, PAI made no explicit
reference in its Short Form to the involvement in the application, if any,
by Waugh.
12. Auction No. 34 lasted from August to September 2000, during which time
PAI was the successful bidder of 38 SMR Economic Area ("EA") licenses,
located in California, Kentucky, Maryland, North Carolina, Ohio,
Oregon, Pennsylvania, Puerto Rico, the U.S. Virgin Islands, Virginia,
Washington, D.C., and West Virginia.
13. On September 18, 2000, in further regard to its participation in
Auction No. 34, PAI filed a FCC Form 602, FCC Ownership Disclosure
Information for the Wireless Telecommunications Services Form
("Ownership Disclosure Form"), with the Commission. Therein, PAI again
identified Austin as holding 100 % of PCSI common shares. PAI did not
specify any other person or entity holding disclosable interests.
14. Following Auction No. 34, PAI filed an FCC Form 601, FCC Application
for Wireless Telecommunications Bureau Radio Service Authorization
("Long Form"), to obtain the grant of its licenses. In its
application, PAI again identified Austin as holding 100 % interest in
the applicant. The Long Form, at page 2, required PAI to disclose the
name of the real party in interest of the applicant, if different from
the applicant. PAI did not disclose the name of any other individual
or entity. In addition, at page 3 of the Long Form, the applicant was
required to state whether "the applicant or any party to this
application, or any party directly or indirectly controlling the
applicant" has ever been "convicted of a felony by any state or
federal court." PAI responded in the negative. The Long Form, at page
4, required PAI to certify that it "either (1) has current required
ownership data on file with the Commission, (2) is filing updated
ownership data simultaneously with this application, or (3) is not
required to file ownership data under the Commission's rules." Austin
executed the certification on behalf of PAI. PAI did not reference
Waugh anywhere in its Long Form as having any attributable interest or
involvement.
15. Under Section 90.685 of the Commission's Rules, PAI was required to
provide coverage to at least two-thirds of the population of the
service areas of each of the SMR stations for the licenses that it won
at auction within five years of the grant of the initial licenses. In
the alternative, Economic Area ("EA") licensees like PAI may provide
substantial service to their markets within five years of the grant of
their license. PAI's five-year build-out deadline for its SMR licenses
was December 20, 2005, but it failed to meet this deadline. Instead,
PAI filed a waiver request on December 14, 2005 ("Waiver Request"),
with the Wireless Telecommunications Bureau to waive the build-out
deadline for all of its SMR licenses. In requesting its waiver, PAI
relied on the standard outlined in the Commission's ongoing 800 MHz
rebanding proceeding. The Commission recognized in this proceeding
that some licensees might seek waivers of their construction deadlines
prior to their being scheduled for relocation. The Commission stated
that a licensee making such a request would be required to demonstrate
"that it would have constructed but for the fact that band
reconfiguration would affect its proposed facilities" and that it has
commenced construction; for example, it "[has] on hand, or [has]
placed a firm order for, non-frequency sensitive equipment, [has]
erected a tower, obtained a commitment for tower space, etc." In its
Waiver Request, PAI represented to the Commission that it "has
commenced construction . . . . It has the necessary frequency radio
neutral equipment on hand or on firm order. It has the necessary
commitments for tower site locations." PAI also stated that, "[a]ll
leases have been or will be executed by both parties as of December
20, 2005," in each of the EA's in which PAI's SMR licenses are
located. PAI's Waiver Request remains pending.
A. Enforcement Bureau Investigation
16. On June 1, 2006, the Commission's Enforcement Bureau ("Bureau")
received information suggesting that PCSI may have transferred control
of all of its licenses to Waugh without prior Commission
authorization. The Bureau immediately commenced an investigation, and,
on June 30, 2006, issued the first of two comprehensive letters of
inquiry to PCSI. The Bureau's First LOI directed PCSI to provide
information and documents relating to its corporate composition as
well as the nature and extent of Waugh's involvement in PCSI and
control of its licenses. PCSI responded on July 27, 2006.
17. In its response, PCSI described itself as an early stage company,
stating that its "primary focus" has been to "secure funding to
complete its acquisitions of licenses according to its business plan
and to fund construction and operation of its facilities." PCSI stated
that financial difficulties "significantly impacted the Company's
business plan," and complicated "use of the frequencies as intended by
the Company . . . impairing its continued ability to raise the
necessary capital . . . ."
18. Although the Bureau's First LOI directed PCSI to describe its
corporate composition for each year beginning in 1998, PCSI provided
information only for the year 1999. As of that year, PCSI described
its corporate structure as follows: Austin, 77.78 % of voting stock,
54.97 % of total equity (including non-voting preferred stock); Gerald
E. Setka, 19.9 % of voting stock, 14.09 % of total equity, including
non-voting preferred stock; and Amide Pharmaceutical, Inc., 14.50 % of
total equity of PCSI (all non-voting, preferred stock). It is unclear
during what time period beyond 1999, if any, that this corporate
structure may have existed.
19. PCSI acknowledged in its First LOI Response that Waugh was and had
been, since the inception of the company, involved in its operations.
PCSI maintained, however, that Waugh had not exercised control of
PCSI. In this regard, PCSI claimed that that Waugh possessed no
independent authority to act on PCSI's behalf, made no decisions on
policy matters, had no firing or hiring authority over PCSI employees
or outside consultants, and was not responsible for financing PCSI's
operations. PCSI further represented that Waugh did not share PCSI's
profits and had no authority regarding PCSI's bank accounts.
20. The documents that PCSI provided to the Commission in its First LOI
Response suggested, however, that Waugh was more involved in PCSI than
the company otherwise claimed in its narrative response. In this
regard, PCSI provided approximately 2,000 pages of documents,
consisting primarily of e-mail exchanges between Austin and Waugh
during the period from 2004 to 2006. The e-mails involved a variety of
matters relating to the daily operations of PCSI. Specifically, they
identified Waugh as having engaged, on behalf of PCSI, in recruiting,
hiring, training, and supervising personnel, and procuring leases,
office equipment, and other necessities for the day-to-day operation
of PCSI's sales office in Escondido, California. Such e-mails and
other correspondence also suggested that Waugh dealt extensively with
outside counsel and other parties in negotiations on behalf of PCSI.
Additionally, the documents provided by PCSI indicated that Waugh
drafted filings on behalf of the company that were submitted to the
Commission. The documents showed that Waugh drafted internal memoranda
on PCSI goals. Further, the documents suggested that Waugh had
actively solicited potential and current PCSI investors.
21. Documents that the Bureau independently gathered also suggest that
Waugh had a more significant interest in PCSI (and, thus, in PAI) than
PCSI had admitted in its First LOI Response. Among them is a copy of a
stock certificate apparently indicating that 800,000 shares of PCSI
stock had been transferred to Waugh through the Raymond A. Hebrank
Irrevocable Voting Trust that PAI had referenced in its Short Form
Application. Notably, the stock certificate was dated April 14, 2000,
after PCSI acquired its 86 site-based SMR licenses, but before PAI
filed its Short Form application to participate in Auction No. 34, in
which it later acquired 38 EA SMR licenses.
22. Apparent inconsistent information about the extent and timing of
Waugh's interests and involvement in PCSI raised several concerns: (1)
whether control of PCSI (and the site-based SMR licenses that it held)
was transferred to Waugh without prior Commission consent; (2) whether
Waugh was an undisclosed real-party-in-interest in PAI (and in the EA
SMR licenses that it acquired at auction); (3) whether PAI
misrepresented material facts or lacked candor in its three auction
filings (Short Form, Ownership Disclosure Form, and Long Form); and
(4) whether PCSI had misrepresented material facts or lacked candor in
its First LOI Response. Accordingly, the Bureau, on December 27, 2006,
directed a second letter of inquiry to PCSI. The Bureau directed PCSI
to provide an explanation regarding, among other things, Waugh's
ownership interests in PCSI. PCSI responded to the Second LOI on
January 25, 2007.
23. In its Second LOI Response, PCSI acknowledged that Waugh was in fact
the beneficiary of the Raymond A. Hebrank Irrevocable Voting Trust
that PAI referenced in its Short Form application. PCSI also conceded
that Waugh was one of PCSI's founders. Further, PCSI authenticated the
copy of the referenced stock certificate, which, on its face, appeared
to transfer 800,000 shares of PCSI voting stock to the Raymond A.
Hebrank Irrevocable Voting Trust for Waugh's benefit. PCSI claimed,
however, that the stock certificate was ineffectual because it
suffered from procedural defects, and it provided a copy of the same
document with "VOID" handwritten across it. PCSI claimed that a
transfer of ownership interests to Waugh never actually took place.
24. PCSI also acknowledged in its Second LOI Response that Bishop, too,
was a founder of PCSI, and that a voting trust was to be formed,
pursuant to which PCSI would transfer shares to Bishop and his wife,
Michelle, who served as PCSI's Secretary/Treasurer until 2001. PCSI
also stated that Bishop had worked for the company as a "consultant"
from 1998-2001.
25. The Bureau also directed PCSI to provide information about Gerald E.
Setka; the company initially revealed Setka as an interest holder in
PCSI in its First LOI Response. PCSI indicated that Setka had acquired
his PCSI stock through investments in the company in 1998-1999. PCSI
explained that it did not disclose Setka's involvement in PAI's
auction filings because "[b]y contract and agreement, Mr. Setka was to
hold no more than a slightly over 5 % ownership interest in
Preferred." PCSI further stated that its calculation of Setka's shares
"did not reflect verbal agreements to issue shares to the Raymond A.
Hebrank Voting Trust and the voting trust to be formed for the benefit
of the Bishops."
26. In its Second LOI Response, PCSI also provided additional information,
as directed by the Bureau, about the lease arrangements referenced by
PAI in its Waiver Request for waiver of the five-year construction
deadline for the 38 SMR EA licenses that PAI won at auction. Although
PAI had affirmatively stated to the Commission in support of its
Waiver Request that all tower site leases had been or would be
executed by December 20, 2005, copies of leases that PCSI submitted in
its Second LOI Response reveal that at least some of them were
executed later than what PCSI had represented.
27. The Bureau also directed PCSI to describe the circumstances under
which Waugh became employed by the company as a consultant. PCSI
explained that Austin hired Waugh as a consultant to aid PCSI in
acquiring SMR licenses. PCSI further stated that "[i]n exchange for
providing consulting services based on his knowledge of the wireless
industry and licensing in Puerto Rico, Mr. Austin agreed that Mr.
Waugh would receive one-third of the profit from the sale of such
licenses to Telecellular."
28. The Bureau also specifically directed PCSI to provide copies of tax
returns for PCSI, Waugh, and Bishop, and criminal conviction and
sentencing records for Waugh and Bishop. As with other material in
response to the Bureau's inquiries in this proceeding, such copies
were due within 30 days of the Bureau's second letter of inquiry.
PCSI, however, provided no such information in its Second LOI
Response. Instead, PCSI represented in its Second LOI Response that
such information would be provided to the Bureau at a later date. To
date, PCSI still has not provided any of the required tax returns or
criminal records.
29. PCSI's responses to both LOIs also raised concerns regarding its use
of the licenses for the purpose of raising capital, rather than
operation. Independent investigation by the Bureau and the Wireless
Telecommunications Bureau yielded the following information. Several
tower operators in Puerto Rico and the U.S. Virgin Islands informed
Commission staff during telephone conversations that PCSI was not a
customer of any of the towers in those areas at least since December
2005, and possibly earlier. Further, PCSI's own website related
similar information, stating that "Preferred now is raising equity
capital and arranging debt financing to launch a major ESMR system in
Puerto Rico and the U.S. Virgin Islands and to construct networks in
its other markets by satisfying Federal Communications Commission
(`FCC') construction standards." As a part of its business objectives,
PCSI stated that it plans to "[p]rovide a full package of wireless
voice and data services."
III. DISCUSSION
30. The hearing proceeding will consider issues related to Preferred's
undisclosed real-party-in-interest and unauthorized transfer of
control; Preferred's misrepresentation and lack of candor; the
criminal convictions of individuals who appear to be Preferred's
principals; Preferred's failure to file required forms or information;
whether PCSI failed to operate its licenses; and, the effect of all of
these issues on Preferred's qualifications to be and remain a
Commission licensee. The hearing also will determine whether
forfeitures and/or revocation of PAI's licenses are warranted based on
whether and which violations of the Commission's rules are determined
at hearing.
A. Undisclosed Real-Party-In-Interest and Unauthorized
Transfer of Control
31. Section 1.2112 of the Commission's Rules requires entities
participating in FCC auctions to disclose the real party or parties in
interest in the applicant or application, including a complete
disclosure of the identity and relationship of those persons or
entities directly or indirectly owning or controlling (or both) the
applicant. The record indicates that Waugh may have obtained 800,000
shares of stock in PCSI, of which PAI is a wholly-owned subsidiary, in
April 2000, prior to PAI's participation in Auction No. 34. In
addition, the documentary evidence indicates that Waugh may have been
deeply involved in the day-to-day operations of PCSI. Together, the
evidence before us pertaining to Waugh's ownership interest and
personal involvement in company operations raises a material and
substantial question of fact as to whether Waugh in fact controlled
the company. Based on such information, PAI may have been required to
disclose Waugh's interest in its Short Form, in its Ownership
Disclosure Form, and in its Long Form applications. None of the
applications, however, reveals any references by PAI to Waugh. Rather,
PAI identified Austin as the sole (100 %) shareholder in the company
in each of its filings.
32. Evidence of Waugh's participation in PAI at the time PAI participated
in Auction No. 34 raises material and significant questions of fact as
to whether Waugh was an undisclosed real party in interest in PAI who,
pursuant to Section 1.2112 of the Commission's Rules, should have been
identified in applications filed in Auction No. 34. Accordingly,
appropriate issues will be specified below for further inquiry at
hearing.
33. The record before us also raises questions as to whether Waugh and/or
Bishop may have acquired control of PCSI without prior Commission
consent. Essentially, it appears from the stock certificate
transferring 800,000 shares of stock to Waugh and documents
independently gathered by the Bureau that the corporate structure of
PCSI may have changed between the time that PCSI acquired its
site-based SMR licenses via assignment in 1999 and when PAI bid on its
EA SMR licenses at auction in 2000. Additionally, in its responses to
the Bureau's letters of inquiry, PCSI indicated that it also
transferred shares of stock to Bishop and Setka. Together, these
transfers of interests to Waugh, Bishop, and/or Setka may have had the
consequence of effectuating a transfer of control of PCSI for which
Commission approval would have been required under Section 310(d) of
the Communications Act of 1934, as amended and Section 1.948 of the
Commission's Rules. Questions about the corporate composition of PCSI
and whether control of the company was transferred without prior
Commission consent require further inquiry at hearing, as specified in
the Ordering Clauses below.
A. Misrepresentation and Lack of Candor
34. Section 1.17 of the Commission's Rules prohibits misrepresentations
and lack of candor in Commission filings. "The bedrock requirement for
absolute truth and candor from a Commission licensee or from a
licensee or applicant is, simply stated, this agency's quintessential
regulatory demand." Material misrepresentations to the Commission or
an intentional lack of candor with respect to matters affecting an
applicant's basic eligibility status are two species of misconduct
that thoroughly disqualify applicants for the public trust embodied in
a Commission license. Where an applicant has knowingly attempted to
mislead the Commission on an underlying matter of decisional import,
complete disqualification of such an untrustworthy licensee or
applicant has consistently resulted. As the Court of Appeals for the
D.C. Circuit stated:
[A]pplicants before the FCC are held to a high standard of candor and
forthrightness. The Commission must license [thousands of] stations in the
public interest, and therefore relies heavily on the completeness and
accuracy of the submissions made to it . . .Thus, "applicants . . . have
an affirmative duty to inform the Commission of the facts it needs in
order to fulfill its statutory mandate."
35. The Commission and the courts have recognized that "[t]he FCC relies
heavily on the honesty and probity of its licensees in a regulatory
system that is largely self-policing." "Misrepresentation and lack of
candor raise immediate concerns as to whether a licensee will be
truthful in future dealings with the Commission." Misrepresentation is
"a false statement of fact made with intent to deceive." Lack of
candor is concealment, evasion, or other failure to be fully
informative, accompanied by intent to deceive. Intent to deceive is
established if a licensee knowingly makes a false statement, and can
also be inferred when the surrounding circumstances clearly show the
existence of an intent to deceive. The Commission may disqualify an
applicant who deliberately makes misrepresentations or lacks candor in
dealing with the agency.
36. In the instant case, in each of its three Auction No. 34 filings
(Short Form, Ownership Disclosure Form, and Long Form applications),
PAI affirmatively represented to the Commission that Austin was the
sole (100 %) shareholder in PCSI. In its Long Form, when asked to
disclose the identity of any real parties in interest in the
applicant, PAI failed to name Waugh or anyone else. Additionally, in
the Long Form, when required to identify any party, directly or
indirectly controlling the applicant who had ever been convicted of a
felony, PAI affirmatively responded in the negative. Finally, PAI
certified to the veracity of all the information in each of its
auction-related applications.
37. In contrast to these representations, the evidence before the
Commission indicates that Waugh may have held an ownership interest
in, and/or exercised control, of PCSI, PAI's parent company, before
PAI filed even its first auction-related application. Contrary to
PCSI's representations, among other things, the referenced stock
certificate transferring 800,000 shares to Waugh, the two voting
trusts for Waugh's benefit, and numerous internal e-mails and
correspondence provide convincing evidence that Waugh may have been
far more than a minor player in the affairs of PCSI.
38. Moreover, it appears that PCSI had every reason to conceal Waugh's
participation in the company from the Commission. As a convicted
felon, Waugh's deep involvement in PCSI could have jeopardized PAI's
qualifications to participate in Auction No. 34. His status as a
convicted felon also could have threatened PCSI's qualifications to
retain its site-based SMR licenses.
39. PAI's pattern of deception apparently did not stop with the filing of
its auction-related applications. PAI asserted in its Waiver Request
of the construction deadlines for its auction-related EA SMR licenses,
that it had secured lease commitments necessary to operate its
licenses and that all leases would be executed by the time that the
construction deadline applicable to those licenses would have lapsed
absent a waiver, December 20, 2005. The evidence before us, however,
indicates that some of the leases were not executed until 2006.
40. PAI's intent to misrepresent its operational readiness to the
Commission may be inferred because its Waiver Request would be subject
to dismissal and its licenses, for which it had paid substantial sums
of money at auction, could terminate automatically for failure to
timely construct. PAI clearly would not want to jeopardize its
investment in its licenses.
41. More recently, PCSI also apparently continued its pattern of
misinformation in its responses to official letters of inquiry from
the Bureau. For example, in its First LOI Response, PCSI stated that
Waugh had not exercised control of PCSI and that he had: no sharing of
PCSI's profits, no firing or hiring authority over PCSI employees or
outside consultants, no independent authority to act on PCSI's behalf,
no decisional authority on policy matters, and no responsibility for
financing PCSI's operations. Numerous e-mails and other correspondence
independently gathered by the Bureau indicate, however, that Waugh's
involvement in the daily operations of PCSI, and, by extension, PAI,
was significant. In this regard, the evidence reveals that Waugh
shared in PCSI's profits and was involved in: supervising, hiring, and
firing of personnel; negotiating of agreements on behalf of PCSI;
procuring office equipment and space; drafting of Preferred's filings
before the Commission; and raising capital for the company. PCSI also
continued to maintain in its Second LOI Response that Waugh had no
ownership interest in PCSI and was not a major player in its affairs.
42. In sum, the record before us raises significant and material questions
as to whether PCSI and PAI committed misrepresentations and/or lacked
candor in its dealings with the Commission. Accordingly, appropriate
issues will be specified below.
A. Criminal Convictions
43. In assessing character qualifications, the Commission considers
relevant "evidence of any conviction for misconduct constituting a
felony." The Commission has found that "[b]ecause all felonies are
serious crimes, any conviction provides an indication of an
applicant's or licensee's propensity to obey the law" and to conform
to provisions of both the Communications Act of 1934, as amended, and
the agency's rules and policies. Thus, felony convictions raise
potential questions regarding a licensee's qualifications.
44. The record before us reveals that Waugh is now and was, at the time
PCSI acquired its 86 site-based SMR licenses via assignment and PAI
acquired its 38 EA SMR licenses at auction, a convicted felon. Waugh's
felony convictions are particularly relevant to our consideration of
his character (and the character of PCSI and PAI) because they
involved elements of fraud. As such, they provide a reliable barometer
as to whether Waugh and the entities he controls can be trusted to
deal truthfully with the Commission in the future. Accordingly, an
appropriate issue will be specified regarding the impact, if any, of
Waugh's felony convictions on the qualifications of PCSI and PAI to be
and remain Commission licensees.
45. As discussed above, Bishop is also a convicted felon to whom PCSI
transferred or contemplated transferring stock shares through a voting
trust, and PAI highlighted this potential transfer in its auction
applications. Two voting trusts and a stock certificate indicate that
a transfer of interest to Waugh may have taken place; in contrast, the
record does not contain sufficient documentation to determine if
Bishop formed a trust to receive the contemplated transfer of stock
shares. Like Waugh, however, Bishop's felony convictions are
particularly relevant to our consideration of his character (and the
character of PCSI and PAI) because they involved elements of fraud.
The fraud convictions are of particular relevance here because the
underlying conduct involved seeking investors for a potential
Commission licensee. Accordingly, an appropriate issue will be
specified regarding the impact, if any, of Bishop's felony convictions
on the qualifications of PCSI and PAI to be and remain Commission
licensees.
A. Failure to File Required Forms or Information
46. Under Commission precedent and Sections 4(i), 4(j), 218, 308, and 403
of the Communications Act of 1934, as amended, failure to respond
appropriately to a Bureau letter of inquiry constitutes a violation of
the Commission's Rules, potentially subjecting the party doing so to
serious sanctions. Section 1.65 of the Commission's Rules requires
applicants to file substantial and significant changes in information
furnished by applicants to the Commission within 30 days of such
changes.
47. The record indicates that PAI may have failed to update the Commission
regarding substantial and significant changes in information it
furnished as a part of its pending construction Waiver Request. In its
Waiver Request, PAI represented that it has met operational benchmarks
that would allow it to construct timely on its licenses but for the
rebanding of the 800 MHz spectrum. To that end, PAI represented that
it has secured tower commitments and that all leases would be executed
by December 20, 2005. The information before us, however, suggests
that some of the leases upon which PAI is relying in support of its
Waiver Request may have lapsed. PAI is required to maintain the
continuing accuracy of its Waiver Request, and its failure to inform
the Commission of material changes therein is inconsistent with its
obligations as a licensee and adversely affects the Commission's
ability to determine whether grant of the Waiver Request would serve
the public interest.
48. The record before us also reveals that PCSI failed to respond fully
and completely in its Second LOI Response. The Bureau specifically
directed PCSI to provide copies of tax returns for PCSI, Waugh, and
Bishop, and criminal conviction and sentencing records for Waugh and
Bishop. Such records were due within 30 days of the date of the letter
of inquiry. PCSI, however, provided no such information in its Second
LOI Response. Instead, PCSI represented in its Second LOI Response
that such information would be provided to the Bureau at a later date.
To date, PCSI has not provided any of the required tax returns or
criminal records.
49. PCSI's failure to maintain the continuing accuracy of the information
in its Waiver Request and its failure to respond fully and completely
to the Bureau's direction for information require further exploration
at hearing, as specified in the Ordering Clauses below.
A. Lack of Operation of PCSI Licenses
50. Under Section 90.157 of the Commission's Rules, by operation of law, a
wireless licensee's licenses cancel for discontinuation if the
licensee has failed to operate its licenses for over one year and not
obtained permission from the Commission to discontinue such operation.
PCSI's LOI responses indicated that when its founding members
initially formed the idea of acquiring SMR licenses, their intention
was to sell rather than operate them. Information from several tower
operators in Puerto Rico and the U.S. Virgin Islands indicates that
PCSI ceased to be a customer of the tower operators since at least
December 2005. PCSI's LOI responses and website indicated that it is
currently in the business of raising capital, rather than operating
its licenses. The evidence suggests that PCSI has discontinued
operation of its licenses for at least one year, without informing the
Commission of its intent to do so. If it is determined that PCSI has
not operated its licenses, then, by operation of law, the licenses
shall cancel. Accordingly, issues will be specified below to determine
whether, in fact, the licensee has permanently discontinued operation
of its licenses for more than one year. If it is found that PCSI has
done so, then the licenses shall automatically cancel. Therefore, as
to this matter, the only issue for the Presiding Judge to determine is
whether the licensee discontinued the operation of its licenses for
more than one year. Whether the licenses shall cancel is a matter that
follows as a function of law, and the Presiding Judge may direct the
Wireless Telecommunications Bureau to delete the cancelled call signs
from its database.
A. Licensee Character
51. Section 312(a)(2) of the Act provides that the Commission may revoke
any license or construction permit "because of conditions coming to
the attention of the Commission which would warrant it in refusing to
grant a license or permit on an original application." The character
of the applicant is among those factors that the Commission considers
in its review of applications to determine whether the applicant has
the requisite qualifications to be a Commission licensee.
52. The Commission takes licensee character qualifications very seriously.
The extent of a licensee's candor with the Commission and compliance
with its rules are paramount concerns when determining whether such
licensees should gain or continue to hold existing authorizations.
Evidence in the record shows a disregard for the Commission's rules by
two experienced licensees which includes: failure to disclose the real
party in interest; unauthorized transfers of control; numerous
misrepresentations; prior, undisclosed felony convictions of persons
such as Bishop and Waugh holding ownership interests in a licensee
entity; and failure to file required forms and information which would
tend to disclose the ownership or control of such persons in the
licensee entity. Such egregious misconduct could constitute a basis
for serious sanctions such as revocation of licenses. Considering the
overall record, there remain genuine and material issues of fact
regarding whether PCSI is qualified to be and remain a Commission
licensee. Accordingly, it shall be considered whether the violations,
if any, of the Commission's rules that are found to have occurred
warrant revocation of PCSI's and PAI's licenses.
A. Forfeitures
53. Under Section 503(b)(1) of the Communications Act of 1934, as amended
(the "Act"), any person who is determined by the Commission to have
willfully or repeatedly failed to comply with any provision of the Act
or any rule, regulation, or order issued by the Commission shall be
liable to the United States for a monetary forfeiture penalty. In
order to impose such a forfeiture penalty, the Commission must issue a
notice of apparent liability, the notice must be received, and the
person against whom the notice has been issued must have an
opportunity to show, in writing, why no such forfeiture penalty should
be imposed. The Commission will then issue a forfeiture if it finds by
a preponderance of the evidence that the person has violated the Act
or a Commission rule. As we set forth below, PCSI and PAI may be
liable for forfeitures if it is found at the hearing ordered below
that they violated the Commission's rules.
54. The Commission's rules allow a base forfeiture of $8,000 for
unauthorized transfers of control; $4,000 for a failure to file
required forms or information; and the statutory maximum for each
service for misrepresentation and a lack of candor. Further, the
Commission allows a maximum forfeiture of $130,000 for each violation
or each day of a continuing violation, except that the amount assessed
shall not exceed $1,325,000 for any single continuous violation.
Section 1.80(b)(4) of the Commission's Rules also specifies that, in
determining the amount of a forfeiture penalty, the Commission or its
designee will take into account "the nature, circumstances, extent,
and gravity of the violations and, with respect to the violator, the
degree of culpability, any history of prior offenses, ability to pay,
and such other matters as justice may require." Unremedied,
unauthorized transfers of control may be considered to be continuous
violations, but other violations identified above are likely subject
to a statute of limitations. Depending on the violation, the statute
of limitations may bar forfeitures, but not license revocation.
55. Accordingly, based on all of these factors, it shall be determined, as
specified below, whether PCSI may be liable for forfeitures not to
exceed $5,820,000: for violating Sections 1.948 and 1.2110-1.2112 of
the Commission's Rules; Section 1.17 of the Commission's Rules;
Section 1.65 of the Commission's Rules; and Section 308(b) of the Act,
for any such violations that occurred or continued within the
applicable statute of limitations.
A. Waiver Request
56. Although the referenced Waiver Request, seeking waiver of the
construction deadlines for PAI's 38 EA SMR licenses, remains pending,
we are not, in the context of this hearing proceeding, designating an
issue to determine whether the Waiver Request should be granted.
Evidence as to whether the Waiver Request contained misrepresentations
and whether PAI failed to maintain its continuing accuracy will be
considered herein, only as discussed above. If it is found, based on
the totality of the evidence, that PAI is unqualified to be a licensee
and its referenced licenses should be revoked, the pending Waiver
Request will be rendered moot. Accordingly, the presiding
Administrative Law Judge is specifically directed to consider the
Waiver Request insofar as it provides probative evidence relating to
the issues below. The ultimate disposition of the Waiver Request,
however, shall be determined by the Wireless Telecommunications
Bureau.
A. Effect on PCSI/PAI Licenses in 800 MHz Rebanding
57. We note that all of PCSI and most of PAI's licenses at issue in this
proceeding are in the 806-809/851-854 MHz portion of the 800 MHz band,
and are therefore subject to relocation as part of the 800 MHz
rebanding proceeding to clear the spectrum for relocation of 800 MHz
public safety licensees currently operating in the 821-824/866-869 MHz
NPSPAC band. Thus, notwithstanding the pendency of this hearing
proceeding, PCSI and PAI must relocate from their 806-809/851-854 MHz
spectrum holdings in time to allow NPSPAC licensees to relocate into
the band by the June 26, 2008 deadline for completion of the rebanding
process. Accordingly, the Public Safety and Homeland Security Bureau
and the Wireless Telecommunications Bureau will exercise their
authority under the 800 MHz rebanding orders to modify PCSI and PAI's
licenses as needed to enable NPSPAC licensees in geographic proximity
to PCSI/PAI to relocate to the 806-809/851-854 MHz band in accordance
with the rebanding schedule.
58. In addition, unless their licenses are revoked or otherwise terminated
in this proceeding, PCSI and PAI have the right to relocate from the
806-809/851-854 MHz band to "comparable spectrum" higher up in the 800
MHz band as provided in the rebanding proceeding. In the case of PAI's
EA licenses, however, the right to relocate is also contingent on
grant of PAI's Waiver Request discussed in Section III.H. above.
Therefore, we will defer assigning replacement spectrum to PAI until
the conclusion of this proceeding and resolution of the Waiver
Request. With respect to the PSCI licenses, the Public Safety and
Homeland Security Bureau and the 800 MHz Transition Administrator will
provide for relocation of PCSI in accordance with the rebanding rules.
Should we determine that PCSI is an unqualified licensee, however,
PCSI's relocated licenses will be subject to revocation.
IV. ORDERING CLAUSES
59. Accordingly, IT IS ORDERED, pursuant to sections 312(a) and 312(c) of
the Act, and section 1.91 of the Commission's Rules, that Preferred
Acquisitions, Inc., its principals, and by extension its ultimate
owner Preferred Communication Systems, Inc., and its principals, shall
SHOW CAUSE why the referenced licenses SHOULD NOT BE REVOKED in a
consolidated hearing proceeding. These entities shall appear before an
administrative law judge at a time and place to be specified in a
subsequent Order and provide evidence upon the following issues:
a. To determine whether Pendleton C. Waugh was an undisclosed real party
in interest in filings before the Commission, in willful and/or repeated
violation of Section 1.2112 of the Commission's Rules;
b. To determine whether PCSI engaged in an unauthorized transfer of
control, in willful and/or repeated violation of Section 310(d) of the
Communications Act of 1934, as amended;
c. To determine whether PCSI and/or PAI misrepresented material facts to,
and/or lacked candor in its dealings, with the Commission, in willful
and/or repeated violation of Section 1.17 of the Commission's Rules;
d. To determine the effect of Pendleton C. Waugh's and Jay R. Bishop's
felony convictions on their qualifications and those of PCSI and PAI to be
and remain Commission licensees;
e. To determine whether PCSI and/or PAI failed to maintain the continuing
accuracy of filings pending before the Commission in willful and/or
repeated violation of Section 1.65 of the Commission's Rules;
f. To determine whether PCSI failed to respond fully and completely to
official requests for information from the Commission, in willful and/or
repeated violation of Section 308(b) of the Communications Act of 1934, as
amended;
g. To determine whether, in fact, PCSI discontinued operation of its
licenses for more than one year, pursuant to Section 90.157 of the
Commission's Rules;
h. To determine, in light of the evidence adduced pursuant to the
foregoing issues, whether the captioned individuals and/or entities are
qualified to be and remain Commission licensees;
i. To determine, in light of the evidence adduced pursuant to the
foregoing issue, whether the referenced authorizations should be revoked.
60. IT IS FURTHER ORDERED, that, in accordance with section 312(d) of the
Act, and section 1.91(d) of the Commission's Rules, the burden of
proceeding with the introduction of evidence and the burden of proof
with respect to these issues shall be on the Commission's Enforcement
Bureau.
61. IT IS FURTHER ORDERED, that, irrespective of the resolution of the
foregoing issues, it shall be determined, pursuant to section
503(b)(1) of the Act, whether an ORDER OF FORFEITURE in the amounts
specified herein shall be issued against Preferred Acquisitions, Inc.
and Preferred Communication Systems, Inc. with respect to the
following apparent willful and/or repeated violations of: Sections
1.948 and 1.2110-1.2112 of the Commission's Rules, in an amount not to
exceed $2,650,000; Section 1.17 of the Commission's Rules, in an
amount not to exceed $260,000; and Section 1.65 of the Commission's
Rules, Commission precedent requiring full responses to letters of
inquiry, and Sections 4(i), 4(j), 218, 308, and 403, of the
Communications Act of 1934, as amended in an amount not to exceed
$2,910,000; for any such violations that occurred or continued within
the applicable statute of limitations. The forfeiture, if any, shall
be adjusted based upon consideration of the factors enumerated in
section 503(b)(2)(D), such as "the nature, circumstances, extent and
gravity of the violation, and with respect to the violator, the degree
of culpability, any history of prior offenses, ability to pay and such
other matters as justice may require."
62. IT IS FURTHER ORDERED, that, in connection with the possible
forfeiture liability noted above, this document constitutes notice
pursuant to section 503(b)(3) of the Act.
63. IT IS FURTHER ORDERED, that the Chief, Enforcement Bureau IS MADE A
PARTY to this proceeding without the need to file a notice of
appearance.
64. IT IS FURTHER ORDERED, that a copy of each document filed in this
proceeding by Preferred Acquisitions, Inc., and/or Preferred
Communication Systems, Inc. SHALL BE SERVED on Gary A. Oshinsky and
Anjali K. Singh, counsel of record appearing on behalf of the Chief,
Enforcement Bureau. Such service SHALL BE ADDRESSED to Gary A.
Oshinsky and Anjali K. Singh, Investigations and Hearings Division,
Enforcement Bureau, Federal Communications Commission, 445 12th
Street, S.W., Room 4-C330, Washington, D.C. 20554.
65. IT IS FURTHER ORDERED, that, to avail themselves of the opportunity to
be heard and the right to present evidence at a hearing in these
proceedings, pursuant to sections 1.91(c) and 1.221of the Commission's
Rules, each of the captioned individuals and entities, in person or by
attorney, shall file within 30 calendar days of the release of this
Order, a written appearance in triplicate stating that they will
appear at the hearing and present evidence on matters specified in
this Order. If any of the captioned individuals or entities fails to
file a written notice of appearance within the time specified, or a
petition to accept, for good cause shown, such written appearance
beyond the expiration of the 30-day time period, the right to a
hearing on the issues in this proceeding shall be deemed to be waived.
In the event that a hearing on the issues is waived, the Chief
Administrative Law Judge (or presiding officer if one has been
designated) shall, at the earliest practicable date, issue an order
terminating the hearing proceeding and certifying the case to the
Commission.
66. IT IS FURTHER ORDERED, that a copy of this Order shall be sent by
Certified Mail, Return Receipt Requested, and by regular first class
mail to Preferred Acquisitions, Inc., and Preferred Communication
Systems, Inc. to the attention of Charles M. Austin, at 6311 North
O'Connor Boulevard N24, Irving, Texas 75039, and Charles J. Ryan, III,
Attorney At Law, Post Office Box 4782, Upper Marlboro, Maryland,
20775.
67. IT IS FURTHER ORDERED, that the Secretary of the Commission shall
cause to have this Order or a summary thereof published in the Federal
Register.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
Preferred Communication Systems, Inc., is the licensee of the following
Specialized Mobile Radio ("SMR"), site-by-site stations, which are the
subject of this Order to Show Cause and Notice of Opportunity for Hearing:
WPDU206 (Santurce, PR); WPDU210 (Santurce, PR); WPDU218 (Santurce, PR);
WPDU222 (Santurce, PR); WPDU263 (Santurce, PR); WPDU266 (Santurce, PR);
WPDU271 (Santurce, PR); WPDU275 (Santurce, PR); WPDU279 (Santurce, PR);
WPDU287 (Santurce, PR); WPEF461 (Santurce, PR); WPEU434 (Santurce, PR);
WPEX345 (Santurce, PR); WPEY418 (Santurce, PR); WPEY419 (Santurce, PR);
WPEY421 (Santurce, PR); WPEY422 (Santurce, PR); WPEY423 (Santurce, PR);
WPEY424 (Santurce, PR); WPEY425 (Santurce, PR); WPEY427 (Santurce, PR);
WPEY429 (Santurce, PR); WPEY430 (Santurce, PR); WPEY431 (Santurce, PR);
WPEY432 (Santurce, PR); WPEY445 (Santurce, PR); WPEY446 (San Juan, PR);
WPEY447 (Santurce, PR); WPEY448 (Santurce, PR); WPEY450 (Santurce, PR);
WPEY451 (Santurce, PR); WPEZ750 (Santurce, PR); WPFA265 (San Juan, PR);
WPFA266 (Santurce, PR); WPFA268 (Santurce, PR); WPFA269 (Santurce, PR);
WPFA270 (Santurce, PR); WPFA273 (Santurce, PR); WPFA278 (Santurce, PR);
WPFA280 (Santurce, PR); WPFD607 (Santurce, PR); WPFD808 (Santurce, PR);
WPFD809 (Santurce, PR); WPFD810 (Santurce, PR); WPFD811 (Santurce, PR);
WPFD812 (Santurce, PR); WPFE472 (Santurce, PR); WPFE934 (Cayey, PR);
WPFG589 (no ULS address; coordinates 18-16-08.8 N, 066-04-00.5 W); WPFG599
(Caguas, PR); WPFM597 (Cayey, PR); WPFM600 (San Juan, PR); WPFN354
(Aguada, PR); WPFN600 (Anasco, PR); WPFN636 (Anasco, PR); WPFN725 (Anasco,
PR); WPFQ293 (Charlotte Amalie, VI); WPFS846 (Saint Croix, VI); WPFS856
(Saint Croix, VI); WPFT334 (Saint Croix, VI); WPFT335 (Saint Croix, VI);
WPFT335 (Aguada, PR); WPFT356 (Aguada, PR); WPFT357 (Saint Croix, VI);
WPFT369 (Charlotte Amalie, VI); WPFT416 (Charlotte Amalie, VI); WPFT417
(Saint Croix, VI); WPFT968 (Charlotte Amalie, VI); WPFV692 (Charlotte
Amalie, VI); WPFV884 (Mayaguez, PR); WPFX997 (Mayaguez, PR); WPFZ805
(Mayaguez, PR); WPFZ806 (Mayaguez, PR); WPFZ807 (Mayaguez, PR); WPFZ808
(Mayaguez, PR); WPGD852 (Mayaguez, PR); and WPGD855 (Mayaguez, PR).
Preferred originally acquired 86 licenses, as discussed infra, but 9 have
since expired for lack of renewal.
Preferred Acquisitions, Inc., is the licensee of the following SMR
Economic Area ("EA") stations: WPRQ941 (BEA013 - Washington-Baltimore,
DC-MD-VA-WV-PA); WPRQ942 (BEA015 - Richmond-Petersburg, VA); WPRQ943
(BEA016 - Staunton, VA-WV); WPRQ944 (BEA017 - Roanoke, VA-NC-WV); WPRQ945
(BEA048 - Charleston, WV-KY-OH); WPRQ946 (BEA164 - Sacramento-Yolo, CA);
WPRQ947 (BEA165 - Redding, CA-OR); WPRQ948 (BEA174 - Puerto Rico and the
U.S. Virgin Islands); WPRQ949 (BEA016 - Staunton, VA-WV); WPRQ950 (BEA017
- Roanoke, VA-NC-WV); WPRQ951 (BEA048 - Charleston, WV-KY-OH); WPRQ952
(BEA162 - Fresno, CA); WPRQ953 (BEA165 - Redding, CA-OR); WPRQ954 (BEA174
- Puerto Rico and the U.S. Virgin Islands); WPRQ955 (BEA016 - Staunton,
VA-WV); WPRQ956 (BEA017 - Roanoke, VA-NC-WV); WPRQ957 (BEA048 -
Charleston, WV-KY-OH); WPRQ958 (BEA162 - Fresno, CA); WPRQ959 (BEA163 -
San Francisco-Oakland-San Jose, CA); WPRQ960 (BEA164 - Sacramento-Yolo,
CA); WPRQ961 (BEA165 - Redding, CA-OR); WPRQ962 (BEA174 - Puerto Rico and
the U.S. Virgin Islands); WPRQ963 (BEA013 - Washington-Baltimore,
DC-MD-VA-WV-PA); WPRQ964 (BEA015 - Richmond-Petersburg, VA); WPRQ965
(BEA016 - Staunton, VA-WV); WPRQ966 (BEA017 - Roanoke, VA-NC-WV); WPRQ967
(BEA174 - Puerto Rico and the U.S. Virgin Islands); WPRQ968 (BEA013 -
Washington-Baltimore, DC-MD-VA-WV-PA); WPRQ969 (BEA015 -
Richmond-Petersburg, VA); WPRQ970 (BEA016 - Staunton, VA-WV); WPRQ971
(BEA017 - Roanoke, VA-NC-WV); WPRQ972 (BEA174 - Puerto Rico and the U.S.
Virgin Islands); WPRQ973 (BEA013 - Washington-Baltimore, DC-MD-VA-WV-PA);
WPRQ974 (BEA015 - Richmond-Petersburg, VA); WPRQ975 (BEA016 - Staunton,
VA-WV); WPRQ976 (BEA017 - Roanoke, VA-NC-WV); WPRQ977 (BEA162 - Fresno,
CA); and WPRQ978 (BEA164 - Sacramento-Yolo, CA).
See licenses listed supra, note 1-2.
See U.S. v. Waugh, Indictment, Case No. 3:94-CR-160-T (N.D. Tex. May 11,
1994).
See id.
See U.S. v. Waugh, Plea Agreement, Case No. 3:94-CR-160-T (N.D. Tex. July
13, 1994).
See U.S. v. Waugh, Judgment, Case No. 3:94-CR-160-T (N.D. Tex. Jan. 25,
1995).
See Securities and Exchange Commission v. Express Communications, Inc.,
Complaint by Securities and Exchange Commission, Case No. 95-CV-2268
(D.D.C. Dec. 13, 1995).
See Securities and Exchange Commission v. Express Communications, Inc.,
Revised Final Judgment of Permanent Injunction and Other Relief Against
Defendant Pendleton C. Waugh, Case No. 95-CV-2268 (D.D.C. Mar. 7, 1997).
See Texas v. Waugh, Judicial Confession and Consent to Stipulation of
Evidence, Case No. F-9703517 (Crim. Dist. Ct. Dallas, TX Mar. 5, 1999).
See Texas v. Waugh, Judgment, Case No. F-9703517 (Crim. Dist. Ct. Dallas,
TX May 17, 1999).
See Texas v. Waugh, Judgment, Case No. F-9703517 (Crim. Dist. Ct. Dallas,
TX May 17, 1999).
See U.S. v. Waugh, Judgment in a Criminal Case (For Revocation of
Probation or Supervised Release), Case No. 3:94-CR-160-T (N.D. Tex. N.D.
Tex. July 9, 1999).
See U.S. v. Waugh, Order Granting in Part and Denying in Part Defendant's
Motion to for Authorization to Travel, Case No. 3:94-CR-160-T (N.D. Tex.
N.D. Tex. Aug. 26, 1996). In particular, the court noted that "[t]he
probation office has informed the Court that Waugh may be engaged in
calling and sending information to potential investors to solicit their
money, in violation of a previous order of this Court." See id. See also
Texas v. Waugh, Judgment Revoking Community Supervision, Case No.
F-9703517 (Crim. Dist. Ct. Dallas, TX Jan. 11, 2001).
See U.S. Securities and Exchange Commission, Continental Wireless Cable
Television, at http://sec.gov/divisions/enforce/claims/contwire.htm (last
visited May 24, 2007).
U.S. v. Bishop, 291 F.3d 1100 (9th Cir. 2002).
See U.S. v. Bishop, Judgment Including Sentence, Case No. 98CR3260-IEG
(S.D. Cal. March 6, 2001), affirmed, U.S. v. Bishop, 291 F.3d 1100 (9th
Cir. 2002), cert. denied, Bishop v. U.S., 537 U.S. 1176 (2003).
See id.
See Second LOI Response at 16 and related exhibits.
See Letter from Charles J. Ryan, III, Attorney at Law, to Dana Leavitt,
Special Counsel, Investigations and Hearings Division, Enforcement Bureau,
Federal Communications Commission, dated January 25, 2007, at 1, 13, 16
("Second LOI Response").
Charles Guskey, a former business colleague of Bishop, served as an
outside accountant to Continental Wireless Cable Television, Inc.
Daniel R. Goodman, Receiver; Dr. Robert Chan, Petition for Waiver of
Sections 90.633(c) and 1.1102 of the Commission's Rules, Memorandum
Opinion and Order and Order on Reconsideration, 13 FCC Rcd 21944 (1998);
pet. for review denied, Daniel Goodman v. FCC, 182 F.3d 987 (D.C. Cir.
1999).
See Applications of Preferred Communication Systems, Inc., Order, 14 FCC
Rcd 20,648 (WTB 1999).
See Preferred Acquisitions Inc., FCC Form 175, dated July 17, 2000, at
Exhibit A, at 1 n.1 ("Form 175").
See id. at 1-2.
See Wireless Telecommunications Bureau Grants 800 MHz Specialized Mobile
Radio (SMR) Service General Category (851-854 MHz) and Upper Band (861-865
MHz) Auction Licenses, Public Notice, 16 FCC Rcd. 1427, 1429 (WTB 2000).
See Preferred Acquisitions Inc., FCC Form 602, FCC Ownership Disclosure
Information for the Wireless Telecommunications Services, Schedule for
Disclosable Interest Holders, dated September 20, 2000.
See id. at 1.
See Preferred Acquisitions Inc., FCC Form 601, FCC Application for
Wireless Telecommunications Bureau Radio Service Authorization, dated
September 27, 2000.
See Preferred Acquisitions Inc., FCC Form 601, FCC Application for
Wireless Telecommunications Bureau Radio Service Authorization, dated
September 27, 2000, at Exhibit A, at 2.
See Preferred Acquisitions Inc., FCC Form 601, FCC Application for
Wireless Telecommunications Bureau Radio Service Authorization, dated
September 27, 2000, at 2.
See id.
Id. at 3.
See id.
See id. at 4.
47 C.F.R. S: 90.685(b).
See Preferred Acquisitions Inc., FCC Form 601, FCC Application for
Wireless Telecommunications Bureau Radio Service Authorization, dated
December 14, 2005 ("Waiver Request"). PAI subsequently amended this filing
on December 22, 2005.
See Improving Public Safety Communications in the 800 MHz Band, et al.,
Report and Order, Fifth Report and Order, Fourth Memorandum Opinion and
Order, and Order, 19 FCC Rcd. 14969, 15079 P: 205 (2004) (800 MHz
Rebanding R&O).
See id.
See Waiver Request at Exhibit 1 at 5.
Id. at Declaration of Charles M. Austin, at 1-2 (containing the cited
statement concerning efforts regarding preparation to meet construction
deadlines on PAI's licenses in each of BEAs 13 (Washington/Baltimore), 15
(Richmond/Petersburg), 16 (Staunton), 17 (Roanoke), 48 (Charleston, WV),
162 (Fresno), 163 (San Francisco), 164 (Sacramento), 165 (Redding), and
174 (Puerto Rico and U.S. Virgin Islands)).
As referenced elsewhere in this order, PCSI received 86 licenses through
assignment, 9 of which have expired for failure to file a renewal, and its
wholly owned subsidiary, PAI, acquired 38 licenses at auction. See, supra,
notes 1-2.
See Letter from William H. Davenport, Chief, Investigations and Hearings
Division, Enforcement Bureau, to Charles M. Austin, President, Preferred
Communication Systems, Inc., dated June 30, 2006 ("First LOI").
See Letter from Paul C. Besozzi, Patton Boggs LLP, to Dana Leavitt,
Investigations and Hearings Division, Enforcement Bureau, Federal
Communications Commission, dated July 27, 2006 ("First LOI Response").
See id. at 5.
See id.
See id. at 9-10.
See id. at 23-25.
See id.
See id.
PCSI requested confidentiality for these documents. Pursuant to our
confidentiality rules, we are giving the documents confidential treatment
while its request is pending.
See Letter from Hillary S. DeNigro, Chief, Investigations and Hearings
Division, Enforcement Bureau, Federal Communications Commission, to
Charles M. Austin, President, Preferred Communication Systems, Inc., dated
December 27, 2006 ("Second LOI").
See Letter from Charles J. Ryan, III, Attorney at Law, to Dana Leavitt,
Special Counsel, Investigations and Hearings Division, Enforcement Bureau,
Federal Communications Commission, dated January 25, 2007 ("Second LOI
Response").
See id. at 1-4.
See id. at 7-8. Waugh's own affidavit submitted with the same response
states that, although he was a member of the core group of PCSI, he was
not a founding member. See id. at Affidavit of Pendleton C. Waugh, at 1.
See id. at 1-4. When asked to state whether the stock certificate was a
true and correct copy of a stock certificate signed by Michelle Bishop,
PCSI's Secretary, and Austin, PCSI's President, issuing 800,000 shares of
stock to the Hebrank voting trust held for the benefit of Waugh, PCSI
responded "Yes, the document . . . is a Xerox copy of a copy of stock
certificate C-17 from PCSI's corporate book." See id. at 1.
PCSI denied that the trust documents were valid, citing procedural
defects, such as a lack of a filing to obtain taxpayer identification
number, lack of compensation from Waugh to his trustee, and lack of
payment from Waugh to the trustee to tender to PCSI in exchange for the
shares of stock. See id. at 1-4 & Exhibit marked Bates Stamp 00000.
See Second LOI Response at 1-4, 7-8. PCSI's Second LOI Response stated,
however, that the Bishop voting trust was never formed. See id. at 1-4.
See id. at 26-29.
See id.
See id. at 17.
See id.
The leases appear to have been executed on various dates in 2006.
Furthermore, it appears from information gathered by the Bureau from other
sources that PAI may be in default on a number of tower leases and that it
may have allowed several leases which formed the basis for the Waiver
Request to lapse.
See Second LOI Response at 16.
See id.
See Second LOI Response at 42, 48.
See Preferred Communication Systems Inc., Corporate Profile, at
http://www.precomsys.com/corporateprofile.html, last visited 6/12/07.
See id.
See 47 C.F.R. S: 1.2112.
See paragraph 21, supra. The record contains conflicting evidence as to
what percentage of outstanding PCSI stock shares Waugh would own if he, in
fact, acquired 800,000 shares of PCSI stock. For example, PAI's auction
filings contemplate that PCSI would dilute Austin's ownership and transfer
32.7% to Waugh. See Preferred Acquisitions Inc., FCC Form 175, dated July
17, 2000, at Exhibit A, at 1-2. However, PCSI also represented in its
First LOI Response that Austin held 800,000 shares of PCSI stock as of
1999, and in its auction filings, PAI represented that Austin held 100% of
outstanding PCSI stock. See Second LOI Response at 11; Preferred
Acquisitions Inc., FCC Form 601, FCC Application for Wireless
Telecommunications Bureau Radio Service Authorization, dated September 27,
2000, at Exhibit A, at 2. If Waugh acquired 800,000 shares before the
auction filing representations were made, then his ownership interest
could be equivalent to that of Austin by the time that PAI submitted its
auction filings. See paragraphs 11-14 and 18-21, supra.
See paragraph 20, supra.
Under Commission precedent, the Commission examines the following factors
to determine whether control over licenses rests with an entity other than
the licensee: (a) does the licensee have unfettered use of all facilities
and equipment; (b) who controls daily operations; (c) who determines and
carries out policy decisions, including preparing and filing applications
with the Commission; (d) who is in charge of employment, supervision and
dismissal of personnel; (e) who is in charge of the payment of financing
obligations, including expenses arising out of operating; and (f) who
receives monies and profits from the operation of the facilities. The
Commission has also stated that "[o]wnership of the licensed facilities by
someone other than the licensee is not necessarily inconsistent with these
incidents of control. At a minimum, however, where ownership rests in
hands other than those of the licensee, the maintenance and retention of
the latter's exclusive right to operate must be clearly reflected." See
Marc Sobel, Decision, 17 FCC Rcd 1872, 1877 (2002)(citing Intermountain
Microwave, 24 RR 983, 984 (1963)).
See Preferred Acquisitions Inc., FCC Form 602, FCC Ownership Disclosure
Information for the Wireless Telecommunications Services, Schedule for
Disclosable Interest Holders, dated September 20, 2000, at 1; Preferred
Acquisitions Inc., FCC Form 601, FCC Application for Wireless
Telecommunications Bureau Radio Service Authorization, dated September 27,
2000, at 2; Preferred Acquisitions Inc., FCC Form 175, dated July 17,
2000, at Exhibit A, at 1-2. See also paragraphs 11-14, supra.
Evidence concerning PCSI's corporate structure in 1999 has been gathered
based on its LOI responses, whereas the evidence concerning its corporate
structure in 2000 is being inferred from its auction applications and
other evidence in the Bureau's possession, such as a stock certificate
purporting to transfer 800,000 shares of PCSI stock to Waugh. See
paragraphs 11-14 and 18, supra.
See 47 U.S.C. S: 310(d):
No construction permit or station license, or any rights thereunder, shall
be transferred, assigned, or disposed of in any manner, voluntarily or
involuntarily, directly or indirectly, or by transfer of control of any
corporation holding such permit or license, to any person except upon
application to the Commission and upon finding by the Commission that the
public interest, convenience, and necessity will be served thereby.
See 47 C.F.R. S: 1.948.
See 47 C.F.R. S: 1.17.
California Broadcasting Corporation, 2 FCC Rcd 4175, 4177 (Rev. Bd. 1987)
(italics in original).
See, e.g., RKO General, Inc. v. FCC, 670 F.2d 215 (D.C. Cir. 1981); WHW
Enterprises, Inc. v. FCC, 753 F.2d 1132 (D.C. Cir. 1985); Sea Island
Broadcasting Corp. of S.C. v. FCC, 627 F.2d 240 (D.C. Cir. 1980); FCC v.
WOKO, 329 U.S. 223 (1946).
See, e.g., Contemporary Media, Inc., 13 FCC Rcd 14,437 (1998); Catoctin
Broadcasting Corp. of New York, 2 FCC Rcd 2126, 2136-38 (Rev. Bd. 1987);
TeleSTAR, Inc., 2 FCC Rcd 5 (Rev. Bd. 1987); Mid-Ohio Communications,
Inc., 104 FCC 2d 572 (Rev. Bd. 1986); Bellingham Television Associates,
Ltd., 103 FCC 2d 222 (Rev. Bd. 1986).
See WHW Enterprises, 753 F.2d at 1139 (internal citations omitted).
See Contemporary Media, Inc., v. FCC, 214 F.3d 187, 193 (D.C. Cir. 2000)
(Contemporary Media)).
Policy Regarding Character Qualifications in Broadcast Licensing, Report,
Order, and Policy Statement, 102 FCC 2d 1179, 1210-11 P: 60 (1986)).
Fox River Broadcasting, Inc., Order, 93 F.C.C. 2d 127, 129 (1983) (Fox
River Order). A false certification may also constitute a
misrepresentation. San Francisco Unified School District, Hearing
Designation Order and Notice of Apparent Liability for Forfeiture, 19 FCC
Rcd 13326, 13334 P: 19 nn.40-41 (2004)(subsequent history omitted).
An applicant has a duty to be candid with all facts and information before
the Commission, regardless of whether that information was elicited. See
Fox River Order, 93 F.C.C. 2d at 129 P: 6.
Leflore Broadcasting, Co., Inc. v. FCC, 636 F.2d 454, 462 (D.C. Cir.
1980).
American International Development, Inc., Memorandum Opinion and Order, 86
FCC 2d 808, 816 n.39 (1981), aff'd sub nom. KXIV, Inc. v. FCC, 704 F.2d
1294 (D.C. Cir. 1983).
Contemporary Media, 214 F.3d at 196.
See Preferred Acquisitions Inc., FCC Form 602, FCC Ownership Disclosure
Information for the Wireless Telecommunications Services, Schedule for
Disclosable Interest Holders, dated September 20, 2000, at 1; Preferred
Acquisitions Inc., FCC Form 601, FCC Application for Wireless
Telecommunications Bureau Radio Service Authorization, dated September 27,
2000, at 2; Preferred Acquisitions Inc., FCC Form 175, dated July 17,
2000, at Exhibit A, at 1-2. See also paragraphs 11-14, supra.
See Preferred Acquisitions Inc., FCC Form 601, FCC Application for
Wireless Telecommunications Bureau Radio Service Authorization, dated
September 27, 2000, at 2.
See id. at 3.
The original trust was dated April 14, 2000, and the amended trust was
dated April 14, 2005.
See Waiver Request at Exhibit 1 at 5 and at Declaration of Charles M.
Austin, at 1-2.
47 C.F.R. S: 90.685(d). As discussed infra, note 125, PAI's Waiver Request
may be subject to dismissal because it is indebted to the Commission.
1990 Modifications of Character Policy Statement, 5 FCC Rcd at 3252 P: 4.
See, e.g., Contemporary Media, Inc. v. FCC, 214 F.3d 187, 193 (D.C. Cir.
2000) (Commission properly considered any felony conviction of broadcast
licensee's principal as a relevant factor in evaluating propensity of
licensee to obey the law).
1990 Modifications of Character Policy Statement, 5 FCC Rcd at 3252 P: 5.
See also 47 U.S.C. S: 312(a)(1) (authorizing license revocation "for false
statements knowingly made either in the application or in any statement of
fact which may be required pursuant to section 308").
The facts of Waugh's felony convictions are res judicata and will not be
retried in this hearing.
See Preferred Acquisitions Inc., FCC Form 175, dated July 17, 2000, at
Exhibit A, at 1-2.
The facts of Bishop's felony convictions are res judicata and will not be
retried in this hearing.
See SBC Communications, Inc., Order of Forfeiture, 17 FCC Rcd. 7589
(2002); 47 U.S.C. S:S: 154(i), 154(j), 218, 308, and 403.
See 47 C.F.R. S: 1.65.
See Waiver Request at Exhibit 1, at 5, & at Declaration of Charles M.
Austin, at 1-2.
See id.
See Second LOI Response at 42, 48.
See 47 C.F.R. S: 90.157.
See, e.g., Second LOI Response at 16.
See First LOI Response at 5; Preferred Communication Systems Inc.,
Corporate Profile, at http://www.precomsys.com/corporateprofile.html, last
visited 6/12/07.
47 U.S.C. S: 312(a)(2).
See Policy Regarding Character Qualifications in Broadcast Licensing,
Amendment of Part 1, the Rules of Practice and Procedure, Relating to
Written Responses to Commission Inquiries and the Making of
Misrepresentation to the Commission by Applicants, Permittees, and
Licensees, and the Reporting of Information Regarding Character
Qualifications, Policy Statement and Order, 5 FCC Rcd 3252, 3252 (1990)
("1990 Modifications of Character Policy Statement"), recon. on other
grounds, 6 FCC Rcd 3448 (1991), modified on other grounds, 7 FCC Rcd 6564
(1992). The Commission has consistently applied these broadcast character
standards to applicants and licensees in the other radio services. See,
e.g., Schoenbohm v. FCC, 204 F.3d 243, 246-49 (D.C. Cir. 2000), cert.
denied, 531 U.S. 968 (2000) (affirming the Commission's denial of an
amateur radio operator's license renewal application based on the
licensee's felony conviction for fraudulently using counterfeit access
codes to obtain long distance telephone services, as well as its lack of
candor regarding such conviction); Ronald Brasher et al., Decision, 19 FCC
Rcd 18462 (2004) (affirming Administrative Law Judge's Initial Decision
revoking, denying, or dismissing licensees' private land mobile radio
licenses and applications based on the licensees' misrepresentations and
lack of candor, unauthorized transfers of control, and abuse of process).
PCSI and PAI have held numerous Commission licenses for several years each
and have actively engaged in Commission proceedings such as that involving
the rebanding of the 800 MHz band.
See id.; Schoenbohm v. FCC, 204 F.3d 243, 246-49 (D.C. Cir. 2000), cert.
denied, 531 U.S. 968 (2000) (affirming the Commission's denial of an
amateur radio operator's license renewal application based on the
licensee's felony conviction for fraudulently using counterfeit access
codes to obtain long distance telephone services,, as well as its lack of
candor regarding such conviction); Marc Sobel, Decision, 17 FCC Rcd. 1872
(EB 2002) (revoking certain licenses based on unauthorized de facto
transfer of control ); Terry Keith Hammond, Order to Show Cause, Notice of
Opportunity for Hearing, and Hearing Designation Order, 21 FCC Rcd 10267
(EB 2006) (ordering licensee to show cause why license should not be
revoked for felony convictions, misrepresentations, and lack of candor
violations, and designating renewal application for hearing).
See 47 U.S.C. S: 503(b)(1).
See 47 U.S.C. S: 503(b)(4).
See, e.g., SBC Communications, Inc., Order of Forfeiture, 17 FCC Rcd.
7589, 7591 (2002).
See 47 C.F.R. S: 1.80.
See 47 C.F.R. S: 1.80.
47 C.F.R. S: 1.80(b)(4).
See Lee W. Schubert, Esq., Letter, 17 FCC Rcd. 15487 (MB 2002) (issuing
$8,000 forfeiture for continuous violation of unauthorized transfer of
control and finding continuous violation); Danville Television
Partnership, Memorandum Opinion and Order and Notice of Apparent
Liability, 16 FCC Rcd. 9314, 9316-9317 (MB 2001) (issuing $10,000
forfeiture for apparent liability for unauthorized transfer of control and
finding continuous violation); Melvin N. Eleazer, Memorandum Opinion and
Order and Notice of Apparent Liability for Forfeiture, 16 FCC Rcd. 9322,
9325 (MB 2001) (issuing $8,000 forfeiture for continuous violation of
unauthorized transfer of control and finding continuous violation).
See 47 U.S.C. S: 503 (b)(6)(B).
See 47 U.S.C. S: 503 (b)(6)(B).
See paragraph 59, infra.
47 C.F.R. S:S: 1.948, 1.2110-1.2112.
See 47 U.S.C. S: 503(b)(6).
See supra, note 2.
We note that PAI remains indebted to the Commission. See Preferred
Acquisitions, Inc., Letter, 17 FCC Rcd 15816 (WTB 2002) (advising PAI of
debt it owes the Commission); Letter from Claudette E. Pride, Chief,
Revenues and Receivable, Operations Group, Office of the Managing
Director, to Etta Jalloh, Department of the Treasury, dated August 11,
2004 (referring PAI's debt to the Treasury Department for lack of
payment). The Commission's rules require the Commission to withhold action
on applications and other requests for benefits when the entity applying
for or seeking benefits is delinquent in non-tax debts owed to the
Commission, and to dismiss such applications or other request if the
delinquency is not resolved. See 47 C.F.R. S: 1.1910(b)(3). Also see
generally 47 C. F. R. Part 1, Subpart O.
800 MHz Rebanding R&O, 19 FCC Rcd 15051, P: 151.
Id. at 19 FCC Rcd 15052, 15055,P:P: 153, 159.
Id.
See Improving Public Safety Communications in the 800 MHz Band, et al.,
Supplemental Order and Order on Reconsideration, 19 FCC Rcd. 25120, 2155
P: 70 (2004). While PCSI and PAI have the right to comparable spectrum, we
note that Sprint Nextel is not required to pay for relocation of
PCSI/PAI's facilities. According to its Waiver Request, PAI has not
finalized construction and is not currently operating facilities under any
of its EA licenses. Waiver Request at 2. Moreover, in the rebanding
proceeding, PCSI and PAI have elected to convert from non-cellular to
cellularized Enhanced Specialized Mobile Radio (ESMR) operations, which
requires them rather than Sprint Nextel to pay for any such conversion.
See Improving Public Safety Communications in the 800 MHz Band, et al.,
Memorandum Opinion and Order, 20 FCC Rcd. 16015, 16026-28 P:P: 23-28
(2005)
See paragraph 56, supra. If the Waiver Request is denied, PAI's licenses
will cancel automatically.
Deferral of relocation does not prejudice PAI because it has no operating
facilities for any of its EA licenses and has requested that it not be
required to construct and commence operations until after it has been
relocated. We direct the Public Safety and Homeland Security Bureau and
the 800 MHz Transition Administrator to ensure that replacement spectrum
for PAI will be made available in the event that PAI relocates.
47 U.S.C. S: 312(a), (c).
47 C.F.R. S: 1.91.
See supra, notes 1-2.
47 C.F.R. S: 1.2112.
47 U.S.C. S: 310(d).
47 C.F.R. S: 1.17.
47 C.F.R. S: 1.65.
47 U.S.C. S: 308(b).
See 47 C.F.R. S: 90.157.
47 U.S.C. S: 312(d).
47 C.F.R. S: 1.91(d).
47 U.S.C. S: 503(b)(1).
47 C.F.R. S:S: 1.948, 1.2110-1.2112.
See SBC Communications, Inc., Order of Forfeiture, 17 FCC Rcd. 7589
(2002); 47 U.S.C. S:S: 154(i), 154(j), 218, 308, and 403.
See 47 U.S.C. S: 503(b)(6).
See Commission's Forfeiture Policy Statement and Amendment of Section 1.80
of the Rules to Incorporate the Forfeiture Guidelines, Report and Order,
12 FCC Rcd 17087, 17100-01, P: 27, 17112 Appendix A (1997), recon. denied,
15 FCC Rcd 303 (1999); see also 47 C.F.R. S: 1.80(b).
47 U.S.C. S: 503(b)(3).
47 C.F.R. S:S: 1.91, S: 1.221.
See 47 C.F.R. S: 1.92(a).
See 47 C.F.R. S: 1.92(c).
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Federal Communications Commission FCC 07-125
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Federal Communications Commission FCC 07-125