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Program receives funding under the USF, marks recent expansion after Bush era Hurricane Katrina giveaway

The U.S. Department of Justice (DOJ) announced late last week that it was cracking down on Associated Telecommunications Management Services LLC (ATMS) -- a small rural cellular service provider in the East.  ATMS and its various subsidiaries -- such as True Wireless LLC and Angles Communications LLC -- received contracts under the "Lifeline" federal program, which looked to provide cellular and landline telephone service to low-income Americans.
I. "Lifeline" -- a Quasi-Voluntary, Government-Managed Phone Voucher Program
Lifeline, like many efforts today associated with the Obama administration, began under U.S. President Ronald Reagan (R).  Much as President Reagan's EMTALA (a subclause of COBRA), socialized the American healthcare system by forcing hospitals to treat Americans with no payment (and forcing taxpayers to pick up the difference), Lifeline looked to make sure poor Americans didn't go without phone service.
The bill that hatched Lifeline was a bipartisan effort proposed by Sen. Robert William "Bob" Packwood (R, Oreg.) and Rep. John David Dingell, Jr. (D-Mich.).  President Reagan swiftly threw his weight behind the effort.  

Telephone Lines
The Reagan administration and its allies in Congress, pressured telecoms into backing a private fee to pay for land line vouchers for the poor. [Image Source: Listener Communications UK]

The New York Times wrote in 1983, "[The law reflects] a growing recognition that the price of telephone service could become a 1984 campaign issue."
The pending law was never passed.  But the bill -- and pressure from President Reagan -- did convince telecoms to bow to the federal whims, creating a new line item "phone stamp" fee on customers phone bills.  This fee was collected by the U.S. Federal Communications Commission under the ambiguous power granted it under The Communications Act of 1934 [PDF] (47 U.S.C. § 151).
This was not the first fee of this kind; a similar fee on long-distance calls had already subsidized local calling.   But the Lifeline program was the first time the federal government had forced telecoms to redistribute income from their customers to the FCC, in order to fund poverty-assistance programs.
The next major shift would come in 1996 with The Telecommunications Act of 1996.  Under that bill -- signed into law by President Bill Clinton (D) -- the FCC and private sector's voluntary poverty assistance program was made mandatory regulation.  The Universal Services Fund (USF) fund was born.  

Universal Services Fund
Under the Universal Services Fund, signed into law by President Clinton, participation in the voucher program was no longer mandatory, although telecoms could still pass off the cost of the program to consumers. [Image Source: A Capitol Blog]

The USF was initially tasked with extending landlines to poor, rural underserved parts of America, and providing internet access at libraries and other public service efforts.  Thus America's mildly socialist poverty assistance program morphed from voluntary socialism to mandatory socialism.
II. Lifeline? Isn't that the "Obamaphone"?
The USF program was executed via a service called "Lifeline", which was initially a wired service, but eventually expanded to offer vouchers for both wired and wireless customers.  Since its inception, Lifeline has been pushed slowly to repurpose itself towards cellular service.
In a 2004 Congressional hearing, Rep. James Warren "Jim" DeMint (R-S. Car.) complained that the USF money would be better spent on building cell phone towers and spending on cellular vouchers, rather than land lines:

We missed the estimate of wireless users so bad it's unbelievable now that we've got more cell phone numbers than we've got hardwired numbers.  I'm worried that the whole concept of Universal Service Fund is basically subsidizing or based on an old technology.

TracFone Wireless, Inc. -- a subsidiary of Mexico's América Móvil SAB de CV (AMX) -- was the recipient of USF funds from FCC  funds under President George Walker Bush (R).  The Bush administration pushed for funds to be award to TracFone and other firms who offered low-cost cellular services with no credit checks and no monthly bills.
Under President George W. Bush, Hurrican Katrina victims got free phones with 300 minutes, courtesy of their fellow taxpayers. [Image Source: TracFone Wireless]

The first major phone giveaway occurred under President Bush. The FCC in 2005 handed out thousands of free TracFones and other budget cell phones (Bushphones?) with 300 free cellular minutes on them.  The phones were distributed to impoverished victims of Hurrican Katrina in the stricken Gulf Coast region.

TracFone described the program in a press release, writing:

The applicant must have lived in an area affected by Hurricane Katrina, as determined by FEMA, and have been approved by FEMA to receive emergency housing assistance. Applicant must provide TracFone with a copy of the FEMA grant letter advising them they are eligible to receive support, present a copy of a Federal or state-issued I.D. and must answer eligibility questions in writing.

The program was popular and in 2009 under new President Barack Obama (D), the free phone giveaway to the poor and the voucher-backed free phone service was expanded.  For that reason, while President Obama's program was nearly identical to past programs, it began to draw much more attention.
Between 2008 and 2011 costs soared, tripling.  By 2011, the USF was drawing down a subsidy of $2.2B USD from the U.S. federal government.  Thus in 2012, President Obama's rivals were quick to lambaste the program as "Obamaphones", pointing to growing claims of corruption.  One point not fully explored -- while not necessarily good nor bad -- was that some of these costs came from President Obama seeking to repurpose the USF to fund broadband internet vouchers and rural rollout (in other words, not all of these rising costs were coming from the traditional Lifeline services, alone).

On the flip side, there have also been allegations that lobbying from TracFone/América Móvil was a key cause of the Obama administration expanding funding for the program; TracFone President Frederick "F.J." Pollak was a "major Obama donor", according to The Huffington Post.

The Washington Free Beacon elaborates on this, writing:

One of the major providers of the free cell phones—3.8 million subscribers as of late 2011—is Miami-based TracFone Wireless, a company whose president and CEO, Frederick “F.J.” Pollak, has donated at least $156,500 to Democratic candidates and committees this cycle, including at least $50,000 to the Obama campaign.
Pollak’s wife, Abigail, is a campaign bundler for Obama who has raised more than $632,000 for the president this cycle, and more than $1.5 million since 2007. She has personally contributed more than $200,000 to Democratic candidates and committees since 2008.

Despite various criticisms the Obama administration has tried to stand behind its USF voucher program.  At the same time it has looked to crack down on small contractors that have been filing fraudulent claims, inflating program costs.
(The Wire offers an excellent summary of the evolution of the phone vouchers program from President Reagan to President Obama.)
That's how we arrive at the current controversy.
III. Obamaphone Fraud
The DOJ worked in cooperation with the U.S. Internal Revenue Service (IRS) and U.S. Federal Bureau of Investigation (FBI) to investigate claims that a handful of businesses were taking money from the USF for selling budget phones and services to the poor.  The key to the scam was that the firms repsponsible would request funds from the government for providing products or services at one rate, then turn around and charge impoverished customers a higher amount, pocketing the difference.
The federal agencies allege that between September 2009 and March 2011 three key culprits affiliated with ATMS conspired to defraud taxpayers, gaining roughly $32M USD in the process.  The suspects reportedly were quite brazen in their ill-gotten gains purchasing yachts, mansions, and exotic sports cars with the Obamaphone money.
Regardless of your feelings on the government paying for peoples' phones and phone service, clearly this is an even more blatant fleecing of the taxpayer for private profit.
Meet the accused criminals...
Thomas E. Biddix -- Age: 44 -- Location: Melbourne, Fla.
Mr. Biddix was "Chairman" of ATMS and allegedly the ringleader of the scheme.

Thomas Biddix
[Image Source: Facebook]

[Image Source: Florida Today]

Kevin Brian Cox -- Age: 38 -- Location: Arlington, Tenn.
Created numerous subsidiaries such as Go True Wireless and Angles Communications LLC, which submitted more fraudulent documents, sharing cash with Mr. Biddix.

(No pictures available)

Leonard I. Solt -- Age: 49 -- Location: Land O’Lakes, Fla.
Created other subsidiaries and performed collection duties for Biddix.

Leonard I. Solt

The men involved are charged with fifteen counts of wire fraud (18 U.S.C. § 1343) and an additional count of conspiracy to commit wired fraud (18 U.S.C. § 1349).  Under those provisions the suspects may face virtually a life sense (20 years per wire fraud count) in prison and fines of $15M USD, plus be entitled to forfeit what they gained from the fraud scheme.  
In most such cases, when the suspect is found guilty of multiple duplicate counts, these duplicate charges are merged/consolidated during sentencing, so you're probably looking at something more in the realm of 20-30 years in prison.  Given the suspects' age, that's still a pretty stiff penalty.
The DOJ in a press release says it has issued warrants to seize the suspects’ property while the court battle plays out:

The court also authorized a seizure warrant seeking the defendants’ ill-gotten gains, including the contents of multiple bank accounts, a yacht and several luxury automobiles.

The Tampa Bay Tribune covers these seizures, which affected the pawn shop business Mr. Biddix also operated.  It writes:

The government wants $32.4 million back, along with alleged spoils that include an orange Lamborghini, a red-bronze Chevrolet Corvette, a black Cadillac Escalade, a Chevrolet Suburban limo, a black Mercedes Benz S63 and a blue Audi R8.

Employees of a pawn shop operated by Biddix saw vehicles hauled away on flatbed trucks Thursday as federal agents descended on the Melbourne business, Outdoor Gun & Pawn.

It should be interesting how the public reacts to this crackdown on Lifeline fraud.  One thing's for sure -- whether you love Lifelines/"Obamaphones" or view them as despicable socialist wealth redistribution, they're unlikely to go away.  After all, both parties appear to support the program on some level, given its potential to win votes.  
Both will likely look to capitalize on perceived weaknesses in the scope and implementation of the other’s plan, but at the end of the day there will likely still be free phones on the menu.

Sources: DOJ [press release], The Wire, The Tampa Bay Tribune

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Wait! You mean.....
By marvdmartian on 4/15/2014 7:17:45 AM , Rating: 4
.....that giveaway programs like this can be taken advantage of, and are ripe for the (fraudulent) picking??

Man, you could knock me down with a feather, right now!

I wonder if we should take a look at the food stamp program??

RE: Wait! You mean.....
By BRB29 on 4/15/14, Rating: 0
RE: Wait! You mean.....
By inperfectdarkness on 4/15/2014 9:46:40 AM , Rating: 1
This post is going to -1 fast than you can blink, but I'm gonna say it anyhow.

ENOUGH WITH THE SOCIAL WELFARE PROGRAMS ALREADY. All they do is jack up the spending in Washington without any real tangible benefit to show for it--all while squeezing other legitimate government affairs (i.e. defense spending) into realms where efficacy is no longer assured. And even worse, the more handouts that we have, the more people are going to abuse the system.

Push welfare back onto the states. The FED has ZERO business mucking about with it. If a state wants to go bankrupt, that's it's prerogative, but the FED shouldn't bail them out. I don't buy for one second the idea that people NEED these handouts & all that "Fixed Budget" crap. We live in a market economy. Prices flex to the consumer's ability to pay. That's one of the reasons why educational costs in the USA have SKYROCKETED--Pell Grants (for one) have essentially done nothing but raise the minimum cost of education by that very amount.

Put together enough impoverished people and you have sufficient market demand for lower cost goods and services--cell phones included. And if they STILL can't afford it--well either they need to figure out how to budget better (i.e. use prophylactics, no cable tv, etc) or--if we're talking senior citizens--they should have budgeted better for retirement when they were working age.

It is NOT my responsibility to pay higher taxes to cover for YOUR a$$ not being prudent enough to properly plan & save for retirement. Self reliance is what this country was founded on. Handouts are a stain on the legacy of our forefathers.

Don't even get me started on medical costs. How about the impoverished make due with 10+ year old medical technology....just like buying a used car or an old house? Why in the He!! do we seem to think that everyone is entitled to the latest and greatest in medical treatment--regardless of cost? That's like believing that everyone is entitled to a Ferrari in their driveway. Get real.

RE: Wait! You mean.....
By anactoraaron on 4/15/2014 11:16:48 AM , Rating: 3
How can you possibly follow this:
ENOUGH WITH THE SOCIAL WELFARE PROGRAMS ALREADY. All they do is jack up the spending in Washington without any real tangible benefit to show for it--all while squeezing other legitimate government affairs (i.e. defense spending) into realms where efficacy is no longer assured. And even worse, the more handouts that we have, the more people are going to abuse the system.

...with this?
Push welfare back onto the states.

Do you really thing that this will ease spending on the state level? All this will do is most assuredly raise state and local taxes, and on top of that, federal taxes will likely not change at all (trust me they will find a reason to convince the public of).

Many things are done at a federal level(medicare, etc) because letting the states deal with these kinds of things only creates redundancy and in most cases red tape. It's like how every state has their own DMV. These agencies DO NOT communicate with one another and if you move to a new state YOU are required to produce evidence that you have a clean driving record from your former state before you are allowed to get a license in your new home state. Isn't there an easier way?

Put together enough impoverished people and you have sufficient market demand for lower cost goods and services--cell phones included.

=logic fail. The market demand isn't the only thing that drives the costs of goods/services to consumers. I'm 1000% positive that there is 99% consumer demand for $1 a month cell phone plans, that doesn't mean that I could start a successful cell phone company tomorrow.

And this right here:
It is NOT my responsibility to pay higher taxes to cover for YOUR a$$ not being prudent enough to properly plan & save for retirement. Self reliance is what this country was founded on. Handouts are a stain on the legacy of our forefathers. exactly why this country is going down the drain and why so many people are looking to the government for assistance. It used to be that when people fell on hard times, the community and their neighbors rallied together to help one another. Nowadays everyone doesn't even know their neighbors and if the hear about someone who has had something happen beyond their control they just get a "FU*K OFF" from people like you and from the community. Things happen to good people who plan and save beyond their control, and one way or another we all pay for it.

Don't even get me started on medical costs. How about the impoverished make due with 10+ year old medical technology.
You mean like maybe there could be a separate country without lawyers and we would FORCE those people to sign away their rights? WHAT THE HELL KIND OF IDEAL COUNTRY DO YOU WANT TO LIVE IN?!?!?!!

One where "all men are created equal" does not apply? MAYBE YOU SHOULD READ THE DECLARATION OF INDEPENDENCE AGAIN and MAYBE you will truly understand the country the founding fathers intended. Good day douchebag.

RE: Wait! You mean.....
By inperfectdarkness on 4/15/2014 4:58:05 PM , Rating: 2
I'm saying that it should be up to the states to fund--OR NOT FUND--social programs. People who don't want to live in places like Kommiefornia where social programs are more important than a viable government--wouldn't have to.

What you don't seem to understand is that the level of responsibility given to our Federal government currently has NOT kept pace with taxation, and have have looming debt as a result. I don't necessarily think our taxes would decrease by booting social programs out of the Federal government, but I am certain that it would all but eliminate annual deficits & help to pay down the debt.

You're right about the demand for $1 cell phone plans, but what you're forgetting is that ENOUGH people are willing to pay current market prices that the system as it currently exists remains viable. So long as there is willingness/capability to pay higher prices, the market will capitalize on that.

The reason why people aren't willing to lend a helping hand anymore is because it's MANDATORY to do so--thanks to government. Charity is no longer optional. Don't put the cart before the horse. And self-reliance is STILL what made this country great, no matter how much bleeding-hearts like you wish it weren't the case.

All men are created equal. They are also free to PURSUE happiness--it is not guaranteed. Men do not remain equal over the course of their lives--some achieve greatness; others are a burden on society.

I have no idea why the idea of 10 year old medical technology is so offensive to you. Why should the medical field be treated any differently than any other market economy? Are YOU entitled to a new car--pro bono--because some movie-star got one? Your dearth of logic confounds me.

RE: Wait! You mean.....
By sgw2n5 on 4/16/2014 10:43:47 AM , Rating: 1
If you hold such disdain for the US government, and really hate how our country doesn't let people who are down on their luck starve to death, maybe you should move to a libertarian paradise like Somalia? Surely you would be much happier there.

RE: Wait! You mean.....
By Dorkyman on 4/17/2014 1:12:24 PM , Rating: 2
...or how about all the folks who want freebies move to Cuba? Free apartments, free health care, great climate...what's not to like?

They even believe in a "from each according to his abilities, to each according to his needs" socialist point of view, just like the ideal that Messiah is trying to ram down our throats.

RE: Wait! You mean.....
By sgw2n5 on 4/17/2014 3:39:34 PM , Rating: 2
I have never heard ANYONE call Obama Messiah... besides republicans. And come to think of it, they are always going on about this or that being "rammed down their throats."

It's like you all are a bunch of closeted, religious wackaloons with daddy issues.

RE: Wait! You mean.....
By tayb on 4/15/2014 11:50:07 AM , Rating: 2
I assume you hold the same disdain for corporate welfare as you do for social welfare. Given that the US spends nearly twice as much annually on corporate welfare than social welfare.

I say end corporate welfare. Massive corporations with billions in profit don't deserve gifts from the public treasury.

If we ended corporate welfare today we could finance social welfare and save ~$40 billion a year. Or we could just save ~$100 billion annually. Republicans should be ecstatic with this plan!

And I always wonder why people harp on these teeny tiny social programs. These programs are approximately .13% of the annual budget. That is not a typo. The biggest federal expenses by far are Medicare and Medicaid, Social Security, Defense, and Interest. Those 4 categories combine for ~72%. Food stamps barely even register. They are a freaking ROUNDING ERROR in the grand scheme of things.

RE: Wait! You mean.....
By inperfectdarkness on 4/15/2014 4:47:02 PM , Rating: 3
Medicaid & Medicare are social programs. ;)

RE: Wait! You mean.....
By Reclaimer77 on 4/17/2014 1:13:42 PM , Rating: 2
A few million here, billions there, hey pretty soon we're talking some real money.

RE: Wait! You mean.....
By Nutzo on 4/15/2014 12:06:16 PM , Rating: 2
Only reason they are cracking down on this, is that the fraud has gotten so pervasive, that it's becoming a political liability during an election year.

My prediction is that they will do a few more highly public crackdowns as we get closer to the election (so they can say they are doing something about it), but after the election they will stop, and probably even drop the cases against these people.

RE: Wait! You mean.....
By ven1ger on 4/16/2014 2:25:21 PM , Rating: 2
Just because this is an election year does not mean something like this wasn't being investigated for awhile. Because this is a criminal investigation, it takes months and even years before any charges are bought because they have only one chance to do this right and they need to make sure that they do a thorough job and all the evidence is collected.

RE: Wait! You mean.....
By Dorkyman on 4/17/2014 1:19:08 PM , Rating: 2
Oh, please. The current Administration is a genius at obfuscating and delaying. They are doing all they can to buy votes with the federal purse.

Days after the IRS fiasco, Messiah says, "This is disgusting and we will get to the bottom of this." Now that he won re-election, he says on national TV, "Not a smidge of illegality or corruption." What a fool. My hope is that enough voters see that the man's a fool to throw his regime out of office. My greatest fear, though, is that he's not the fool; it's the Low-Information-Voters that elected him that are the fools. A nation of fools more interested in the latest TV show celebrities than the nation's crushing debt and bleak future.

"So if you want to save the planet, feel free to drive your Hummer. Just avoid the drive thru line at McDonalds." -- Michael Asher

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