‘Obamaphone’ Company To Pay $13.4 Million After Allegedly Signing Up 175,000 Customers Ineligible For Free Phones

A company that was supposed to distribute free phones to low-income individuals has agreed to pay $13.4 million after it was accused of signing up more than 175,000 ineligible customers.

TracFone Wireless Inc., a telecommunications carrier based in Miami, Florida, was accused of violating the False Claims Act by signing up the ineligible customers as part of its contract with the Federal Communications Commission’s (FCC) Lifeline Program, the Department of Justice (DOJ) announced Monday.

“Lifeline, created by Congress in the Telecommunications Act of 1996, provides nearly $2 billion each year to assist low-income consumers with their telecommunications needs. In many cases, this consists of a free cell phone (provided by the carrier) and free monthly cell phone service (provided by the government). In order to qualify for Lifeline, a consumer’s income must be at or below 135% of the Federal Poverty Guidelines or the consumer must receive benefits from certain specified federal assistance programs,” the DOJ explained.

But between 2012 and 2015, the DOJ alleged, TracFone signed up more than 175,000 customers who didn’t meet the program’s requirements. According to the DOJ, the company hired third-party sales agents to enroll the ineligible customers. These third-party sales agents soon found a glitch in company software that allowed them to sign up ineligible customers, which they exploited to increase their enrollment numbers, which led to more commission payments, the DOJ alleges.

“The government alleged that TracFone failed to adequately review the applications and did not properly investigate reports of clearly ineligible subscribers enrolled in the program that would have revealed the glitch. After TracFone eventually discovered the software glitch in August 2015, it repaid more than $10.9 million to Lifeline, an amount that was credited as part of the $13.4 million settlement,” the DOJ reported.

The Washington Times noted that critics of former President Barack Obama called the phones given out by the program “Obamaphones,” after video surfaced of recipients bragging about receiving the phones.

“Lifeline providers have a duty to ensure that only eligible subscribers are enrolled in the Lifeline Program,” Deputy Assistant Attorney General Michael D. Granston of the Civil Division’s Commercial Litigation Branch said in a statement. “Today’s settlement demonstrates our commitment to ensure that those participating in government funded programs exercise appropriate vigilance to prevent the misuse of taxpayer dollars.”

“Today’s settlement reflects the FCC’s ongoing commitment to root out waste, fraud and abuse in its universal service programs,” FCC Chairwoman Jessica Rosenworcel added. “Especially during these unprecedented times, the Universal Service Fund provides a key lifeline for many families, and our careful stewardship of the program ensures that low-income households can access the telecommunications services they so critically need. Let today’s action serve as a warning to others that we will do everything we can to ensure strict compliance with the rules of the road.”

TracFone has also agreed to enter a corporate compliance program with the FCC.

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