JEFFERSON CITY, Mo. -- A telephone company whose former president has been connected to New York mobsters will pay a $1 million fine and $3.6 million in rate credits and other payments to resolve a complaint filed by the Missouri Public Service Commission. The agreement announced Tuesday settles a complaint arising from the commission's review of the company's rates. The agency began the investigation after CassTel's former president, Kenneth Matzdorff, pleaded guilty in January 2005 to charges of conspiracy to commit mail and wire fraud.

He said he and others used inflated expense figures at CassTel and its parent company, Local Exchange Company LLC, to defraud two federal programs of $8.9 million.

Prior to that, Matzdorff had pleaded guilty in New York to two counts of fraud and money laundering after admitting he helped funnel $750 million to members of the Gambino crime family.

In the second part of Tuesday's agreement, CassTel agreed to pay its customers a total of $350,000, or about $40 per customer. Some customers also will be paid a total of about $3.25 million, or about $400 per customer. Those payments and payment credits depend on the company being sold, which is expected to happen in July.

CassTel also must pay $500,000 to other telecommunication companies that paid for switched access services from CassTel from January 1, 2005, through April 30 of this year. Rates also will be frozen for two years.

The commission also approved the transfer of assets allegedly associated with organized crime from CassTel to FairPoint Communications once the sale is completed. CassTel will end service in Missouri when the sale to FairPoint is final. FairPoint Communications Inc. has said it plans to buy CassTel for $33 million later this year.

The commission said Charlotte, N.C.-based FairPoint is not proposing any changes in the rates or services currently offered to CassTel's mostly rural customers.