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Three men charged with cheating federal phone subsidy program for $32 million

Three men charged with cheating federal phone subsidy program for $32 million

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The Department of Justice has indicted three men for allegedly abusing the Lifeline program, which provides low-income Americans with subsidized landline or prepaid wireless phone service. Thomas Biddix, Kevin Brian Cox, and Leonard Solt were charged on April 9th with 15 counts of wire fraud, false claims, and money laundering, as well as one count of conspiracy to commit wire fraud, all of which allegedly resulted in $32 million in improper reimbursements over the course of two years. While several fines have been levied since the FCC started tightening standards two years ago, this is the first time the federal government has brought a criminal case.

Biddix, Cox, and Solt allegedly operated Associated Telecommunications Management Services (ATMS), a holding company that ran at least five subsidiary mobile operators. Between 2009 and 2011, the company received millions of dollars in subsidies through the Lifeline program, but its rapid growth drew the attention of investigators. A probe in Florida revealed that it had received around $37 million in 2010 alone but had misrepresented its enrollments to the government. Ultimately, ATMS agreed to a $4 million settlement with the Florida Public Service Commission but failed to pay it. Along with the indictment, the court authorized seizure of the men's "ill-gotten gains," including multiple bank accounts, a yacht, and "several luxury automobiles."

The Lifeline program was founded in 1985 under Ronald Reagan and expanded to cover prepaid wireless service in 2005. After major prepaid provider Tracfone launched a program offering free phones to low-income users with funds from the Universal Service Fund (which includes Lifeline) in 2008, rumors about a newly established "Obama phone" welfare program spread, and the system was widely scrutinized, especially by the conservative press. In 2012, the FCC began to crack down on abuse of the Lifeline service. Since late 2013, it's imposed over $60 million in fines on several companies, including TracFone, that reported multiple subsidies for the same user or failed to present evidence of eligibility.

"The FCC is working hard to combat fraud in the Lifeline program, and I applaud our Office of Inspector General, the FCC's Lifeline policy and enforcement teams, and the program administrator, USAC, for their considerable contributions that helped lead to yesterday's criminal fraud indictment," said FCC chair Tom Wheeler of today's indictments. "Lifeline helps ensure that all Americans can afford phone service, providing connections to jobs, family and 911. But we will not tolerate abuse of this program, and are gratified to see the results of our hard work to battle fraud."

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