$1 billion in phony contracts propped up gigantic Alaska business scam

In the history of Alaska scams, Elizabeth Pierce, 55, deserves a chapter of her own, having raised $270 million from investors based on eight forged contracts from Alaska companies to buy $1 billion worth of telecommunications services.

Most of that $270 million came from a New York-based private equity fund owned by a billionaire with ties to Russian oligarchs close to Vladimir Putin. The company, Cooper Investment Partners, accepted the fake revenue agreements from Pierce and skipped due diligence when it began its major cash infusions in 2015.

“In the absence of Pierce’s fraudulent misrepresentations about this expected stream of revenue,” Adam Murphy, managing director of Cooper said, the company would “never have committed to finance the project.”

Pierce filed a court document in which she said her actions were not particularly sophisticated or complex. Instead, they were “so rudimentary that the victim entity, an experienced venture capital company, could have discovered the fraud before investing any money by simply contacting the purchaser parties,” had Cooper tried to confirm the authenticity of the contracts.

That didn’t happen.

At a conference two years ago, Pierce said everyone had told her it would be impossible to construct a financially viable Arctic fiber optic subsea cable system along the coast of Alaska, one phase of a dream to run lines to Asia and Europe.

She described Quintillion as a “very lean team of Alaska-based experts, engineers and finance people who are building something that over 200 people told us couldn’t be built.”

“So what is it that we did that people said we couldn’t do?” she asked a post-lunch crowd at the University of Alaska Fairbanks on a May afternoon in 2017. “We built a subsea fiber optic cable in the Arctic without any government grants, completely privately funded.”

The system would go live later that year. "We have already contracted with customers where we reduced their 'backhaul' costs by as much as 90 percent — on average around 50 percent — and that's Day 1," Pierce said in 2017. "And it only gets better from there because we have an almost infinite amount of capacity."

Perhaps she really believed that things would get better once the system was going and it would generate enough business and cash erase the fraud that underpinned the financing package. She had secretly negotiated real contracts with the Alaska telecom companies that were not as favorable as the forged documents.

The U.S. attorney’s office in New York said she was “apparently hoping to buy time and use the early income stream” from the genuine contracts to make it appear that the forged contracts were in effect.

Pierce was already near the end of the line with Quintillion when she spoke at that 2017 conference.

The scheme collapsed that summer after a customer questioned a bill based on one of her forged purchase agreements. She had fake agreements with a variety of companies, such as Matanuska Telephone Association, the Arctic Slope Telephone Association, Alaska Communications and others. Some Native corporations invested in the project.

The U.S. attorney for the Southern District of New York said that Pierce used fake invoices to give the appearance that Quintillion had lined up more than enough business in advance to make a profit.

It summarized the fraud this way: “Between May 2015 and July 2017, Pierce engaged in a scheme to induce two New York-based investment companies to provide more than $270 million to construct the Quintillion System by providing them with eight forged broadband capacity sales contracts and related order forms under which Quintillion would obtain guaranteed revenue once the Quintillion System was built (the Fake Revenue Agreements.)”

”Under the Fake Revenue Agreements, four telecommunications services companies appeared to have made binding commitments to purchase specific wholesale quantities of capacity from Quintillion at specified prices. The cumulative value of the Fake Revenue Agreements was approximately $1 billion over the life of the Fake Revenue Agreements. In reality, the Fake Revenue Agreements were completely worthless because Pierce had forged the counterparties’ signatures.”

“Certain of the Fake Revenue Agreements never existed at all, while others were falsified versions of genuine revenue agreements. Pierce fabricated the terms of the false versions of the agreements to make them more favorable to Quintillion and, therefore, more appealing to investors than the genuine agreements.”

At the end of September, she began serving a five-year jail sentence for fraud, having admitted that she had created the forged contracts. The court ordered her to pay more than $263 million in restitution, a debt that she will be paying in small parts of for the rest of her life.

At her sentencing June 19, Pierce said she was “truly sorry for my actions and for any and all loss and harm that I have caused.” She said she did not set out to defraud anyone, but she handled the situation “very badly.”

“It was a passion that I had and something of a labor of love. I gained nothing, am financially, professionally, and socially ruined, destroyed,” Pierce told the judge at sentencing.

“I've sullied, destroyed, and damaged my credibility, my opportunities in life forever. I've hurt my family. And I accept responsibility for all of that,” she said.

But she also said that the $300 million in annual federal subsidies paid to Alaska telecom companies made it a “very healthy and wealthy telecom market.” She said that the largest telecom company in Alaska was charging $15,000 in 2017 for one megabit per second of broadband access. She said that service would cost less than $1 in New York.

Pierce said that about 90 percent of the $300 million federal subsidy went to GCI. She said that Quintillion contracts were set up in a way that sought to protect them from GCI and to help them grow market share.

She also said that the actual losses to Cooper were not as great as portrayed by the government because the investments were not “unsecured,” the money went into the fiber optic cable business and Quintillion “is thriving.”

After hearing this and a string of comments by Pierce about how much pressure had been placed on her by Cooper Investment Partners, Judge Edgardo Ramos said the remarks contradicted her expressions of remorse and “none of that serves to provide an excuse for what you did.”

The Quintillion cable system, extending more than 1,176 miles, was built and is operational, with the company planning now to build an extension to Shemya and east as the first element in a new trans-Pacific cable. The company has no connection to Pierce. It serves about 10,000 residents, along with schools, hospitals and other businesses, Bloomberg reported, and is looking to expand.

It was only three years ago that Pierce was being hailed in Alaska as a model of business acumen. In 2016, she was named a “Woman of Achievement” by the YWCA Alaska. In early 2017, the Alaska Congressional delegation showed up at a ribbon cutting, along with the lieutenant governor. She had easy access to everyone in power.

I wrote a 2016 column about how the proposed Quintillion plan could reshape the future of Alaska communication. “The investors in the project, which include a private equity fund as well as the Arctic Slope Regional Corp., say that the Alaska phase will stand on its own but they hope that connections to Europe and Japan will follow in the years ahead,” that column said.

The Cooper fund appointed a majority of the board and really ran the company, Pierce said.

“Yes, I signed things,” Pierce said at her sentencing. “But I didn’t run things.”

Matt Boyer, a senior adviser at Cooper Investment Partners and a board member of Quintillion, traveled to a broadband summit in Barrow in 2016 at which the Quintillion project was hailed. One attendee Tweeted a photo of Pierce “presenting the amazing Quintillion submarine cable success story.”

"The original idea was to build a subsea cable from Europe to Asia and stop off in Alaska along the way, almost as an afterthought," Boyer said on a session broadcast on KBRW in northern Alaska.

The ownership chain was complicated and required a diagram to explain. See page 37 of this document.

"The equity interest in the Cooper Fund is ultimately held, through a series of intermediate trust funds and Delaware holding companies, by The Phoenix Charitable Trust, a trust formed under the laws of Bermuda whose trustees are Mr. Alex Blavatnik, a U.S. citizen, and Mr. Lincoln Benet, a citizen of the United States and the United Kingdom," an April 22, 2016 document filed by the Federal Communications Commission says.

Blavatnik is the brother of Len Blavatnik, who has a net worth of $26 billion, according to Bloomberg.

Born in the Ukraine and raised in Moscow, Len Blavatnik moved to the United States in 1978 at 21 and became a U.S. citizen. He heads the conglomerate Access Industries, where Alex is a senior executive. The holding company owns Warner Music.

In a 2014 profile in the New Yorker, Connie Bruck wrote that Len Blavatnik "made his fortune in the tumultuous privatization of aluminum and oil that followed the collapse of the Soviet Union."

Len Blavatnik was one of the wealthiest donors to President Obama and also contributed to Mitt Romney and a super PAC controled by Sen. MItch McConnell. He has given tens of millions to Harvard, Yale and Oxford. He donated $1 million to the Trump inaugural committee.

At her sentencing, Pierce said that Cooper Investment Partners had taken steps to force a “lopsided buy-sell arrangement” on Alaska Native corporations that invested in Quintillion and she objected. She also said that Len Blavatnik was the largest investor in Cooper, not his brother.

She testified that Blavatnik “had people at Coopers talking to Russian parties about connecting to the Quintillion network, which the federal government would not have allowed.”

Pierce was ordered to forfeit $896,698.00 and all of her interests in Quintillion. She said she put most of the money into the business and did not become wealthy, even for a short period. Her income was about $146,000.

This Bloomberg article is the best one I’ve read on this bizarre situation. Why she thought the deception would work is hard to fathom.

“Elizabeth was so committed to making Quintillion successful that she just dreamt all this shit up,” says a former company executive, quoted in the piece. “The question is not why Elizabeth did it, but rather, how did she think she’d get away with it?”