Telephone company to pay $1 million penalty

~ The fine is thought to be the largest ever levied by the Missouri Public Service Commission.

KANSAS CITY, Mo. -- A rural Missouri telephone company whose former president was convicted of a scheme that involved a New York crime family has agreed to pay a $1 million penalty.

The fine against Peculiar-based Cass County Telephone Co. is thought to be the largest ever levied by the Missouri Public Service Commission. In seeking the penalty, the agency alleged the phone company's former president, Kenneth Matzdorff, lied when he denied wrongdoing in an April 2004 commission hearing.

Matzdorff pleaded guilty in January to federal charges of conspiracy to commit mail and wire fraud. He said he and others used inflated expense figures for CassTel and its parent company, Local Exchange Company LLC, or LEC, to defraud two federal programs of $8.9 million.

Fraud, money laundering

Before that, Matzdorff pleaded guilty in New York to two counts of fraud and money laundering, admitting he helped funnel $750 million to members of the Gambino crime family. Those charges involved telephone "cramming" and Internet pornography scams, which authorities have called the largest consumer fraud in U.S. history.

Matzdorff has yet to be sentenced in Kansas City or New York.

The settlement also stipulates that LEC must sell CassTel. Since early 2005, CassTel has been managed by a Colorado-based telecommunications consulting firm, GVNW Consulting Inc. But CassTel continues to be owned by LEC, which federal prosecutors say is owned by Gambino family members.

Dan Joyce, the commission's director of administration and regulatory policy, said the commission was told the sale was proceeding.

In its written stipulation and agreement with CassTel, the commission staff said the settlement would allow CassTel "to concentrate its energies on providing safe, reliable and affordable telecommunications service."

Awaiting approval

The settlement still awaits commission approval. Once that happens, the money is to be deposited in the state's Public School Fund within 90 days.

CassTel serves about 8,000 customers in Cass County and a smaller number of customers in Kansas.