(Adds Rosenworcel statement)
By David Shepardson
WASHINGTON, May 6 (Reuters) - The broadband industry in 2017 funded a campaign that generated millions of fake comments to create the impression of grassroots opposition to net neutrality rules while the U.S. Federal Communications Commission considered repealing the policy, New York state's attorney general said on Thursday.
Attorney General Letitia James, a Democrat, said her office reached agreements with three companies involved in the scheme - Fluent Inc, Opt-Intelligence Inc and React2Media Inc - imposing penalties of $4.4 million and requiring them to adopt comprehensive reforms in future advocacy campaigns.
Her office identified the companies as the lead generators responsible for millions of the fake comments submitted in the FCC's net neutrality proceeding. Federal agencies often solicit public comments on key policy issues before taking action.
The New York investigation showed that broadband industry players spent $4.2 million to generate and submit more than 8.5 million fake comments to the FCC "to create the appearance of widespread grassroots opposition to existing net neutrality rules."
The investigation found that nearly 18 million of the more than 22 million public comments that the FCC received both for and against net neutrality were fake.
New York-based Fluent agreed to pay $3.7 million, according to the attorney general's office. It said Fluent provided the broadband industry with more than 5 million digital signatures for net neutrality comments.
Fluent said in a statement that the settlement covers "legacy practices that occurred prior to late 2018."
The company added that the settlement "provides clarity and sets a new standard in the political advocacy space" and said that since it has already made most of the required changes it "will have little impact on how Fluent serves our clients."
Opt-Intelligence and React2Media did not immediately respond to requests for comment.
The three companies also worked on more than 100 other unrelated campaigns to influence regulatory agencies and public officials and generated fake comments for other rulemaking proceedings, the investigation found.
James said investigations into others that engaged in fraud are ongoing.
The FCC under Democratic former President Barack Obama adopted landmark net neutrality rules in 2015 that barred internet service providers from blocking or throttling traffic or offering paid fast lanes. The rules, opposed by the broadband industry, were overturned by the FCC under President Donald Trump in December 2017.
Supporters of the net neutrality rules argued that the protections ensured a free and open internet. Broadband and telecoms trade groups argued that the rules would discourage investment.
Acting FCC Chairwoman Jessica Rosenworcel, a Democrat, voted against the repeal and said the report "demonstrates how the record informing the FCC's net neutrality repeal was flooded with fraud... We have to learn from these lessons and improve because the public deserves an open and fair opportunity to tell Washington what they think about the policies that affect their lives."
New York's investigation also found the FCC received another 9.3 million fake comments supporting net neutrality that used fictitious identities. Most of these comments were submitted by a 19-year-old college student using automated software, it found.
In mid-January 2017, several days before Trump was inaugurated, a document was circulated among a small group of senior broadband industry executives "laying out a plan to overturn the FCC's existing net neutrality regulations," according to James' office.
The document proposed a campaign to provide support for the FCC's expected net neutrality repeal, it said.
The campaign was run through a nonprofit organization funded by the broadband industry called Broadband for America made up of senior broadband company and trade group officials, it said. Documents cited in the investigation said the public comments would give the FCC's Republican chairman at the time, Ajit Pai, "volume and intellectual cover" for the repeal.
Pai declined to comment.
(Reporting by David Shepardson; Editing by Will Dunham, Chizu Nomiyama and Diane Craft)
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