AT&T supervisors ordered operators to aid Nigerian fraudsters making free calls that cost millions in credit card fraud and the life savings of some victims, while AT&T collected more than $16 million in reimbursements paid by telephone ratepayers across the country.

Last week, AT&T admitted no wrongdoing but agreed to pay a $3.5 million settlement to the operator the company fired after complaining about widespread fraudulent use of a service intended to help the hearing and speech impaired.

The story is now the subject of a movie script, reports The New Castle News. It begins in 2003, when AT&T was required by the Americans with Disabilities Act to provide operators willing to relay conversations from hearing or speech impaired individuals typing on a computer or device and the people they called.

AT&T employed at least 150 operators at a western Pennsylvania call center in a former shopping mall just to assist with international relay calls. One of them was Constance Lyttle.

AT&T’s international relay service offered those overseas the opportunity to make a free, untraceable relay phone call to any number in the United States. AT&T billed the FCC-administered fund $1.30 a minute for calls placed through the relay operator.

The service quickly became popular… with Nigerian scammers who used it to make free calls to American businesses. In fact, according to a lawsuit filed in 2010, around 95 percent of all calls placed through AT&T’s international relay service came from con artists peddling various scams and ordering merchandise with stolen credit cards from unsuspecting businesses.

The Nigerians used hard-to-track public Internet terminals to initiate calls through AT&T’s relay center. An AT&T operator would read the words typed by the con artist over the phone to the person called and type back any responses.

Lyttle testified the usual target for the scam was a unknowing small business willing to accept credit card orders from Nigeria or an individual willing to advance their life savings in return for promised larger payout unlocked by their deposit. It was all made possible with the help of AT&T, which earned several dollars for every successfully completed call.

Lyttle said the operators in the call center immediately understood what was going on and complained repeatedly about the abuse of the system. In response, AT&T “made workers sign agreements that they would put through the scam and fraudulent calls, and they actually used those words,” said Lyttle’s attorney, who also happens to be her sister. “The workers at the call center were afraid they would lose their jobs. AT&T paid very well and good-paying jobs are hard to come by in western Pennsylvania.”

Nigerians exploited the AT&T Relay service call center located at this former mall in New Castle, Penn.

The lawsuit against AT&T alleged the phone company had full knowledge of what was going on but didn’t want to lose a lucrative contract that resulted in at least $16 million in reimbursements.

“They were getting $1.30 per minute for these calls,” said Lyttle’s attorney. “Think about the volume of calls that were being made.”

Lyttle’s attorney said Constance would sabotage some calls to stop the fraud, falsely claiming the party at the other end had hung up. Her 2010 lawsuit alleged her effort to protect the public from Nigerian scam artists was the reason she was fired in 2010 after 13 years with AT&T.

Her lawsuit soon attracted the interest of the U.S. Department of Justice. In March 2012, the federal agency joined the case. Lyttle was designated a “whistleblower” and her involvement in the federal lawsuit was initially kept secret. Earlier this year AT&T agreed to reimburse the Federal Communications Commission more than $18 million for abandoning their responsibility to block the overseas scammers not qualified to use the relay service. AT&T also admitted a percentage of callers did use the service for illicit purposes.

Lyttle herself received a settlement proposal of $3.5 million in her whistleblower case. AT&T also offered her old job back but she turned them down, saying she preferred her current part-time job over returning to AT&T.

It’s just as well. The New Castle, Penn. call center at the epicenter of more than $20 million in reimbursements and settlements was ordered closed by an unnamed AT&T executive in November.

“I was told 125 employees would lose their jobs in the next 12 to 15 months,” said New Castle Mayor Anthony Mastrangelo. “I don’t know if the local people will lose their jobs or have the option to be transferred.”

The taxpayer-funded Central Intelligence Agency is paying AT&T more than $10 million annually for its “voluntary help” with counter-terrorism investigations in return for open access to the company’s vast trove of calling records, including international calls placed by Americans.

No court order or subpoena was required to start the partnership, according to an article in today’s New York Times. The CIA provides AT&T with the telephone numbers of overseas terrorism suspects and in return the phone company provides records of calling activity, possibly identifying associates.

With interconnection agreements between telephone companies standard operating procedure, AT&T has been able to collect calling records from any foreign or domestic calls that pass through its equipment, even if neither party is an AT&T customer.

Despite AT&T’s claims of robust privacy protection, Americans are not promised anonymity or privacy when requests arrive from law enforcement officials. But only recently have phone companies voluntarily provided calling data that in earlier years would have required a court order to divulge.

By law, the CIA is specifically prohibited from collecting intelligence on the domestic activities of U.S. citizens, so the agency imposes its own safeguards on the surveillance program. AT&T provides the agency with calling times, duration of the calls, and the phone numbers of both the originating and called party. It does not divulge the contents of the calls. The CIA is granted full access to AT&T logs involving foreign to foreign calls, but if either party is in the United States, AT&T will mask certain digits of the U.S. telephone number. If more information is required, the CIA will refer the matter to the Federal Bureau of Investigation (FBI), which has jurisdiction the CIA lacks. The FBI can then subpoena AT&T directly for the missing details.

AT&T would not comment on national security matters, but the newspaper reminded readers AT&T has a history of making life very easy for government surveillance programs:

AT&T has a history of working with the government. It helped facilitate the Bush administration’s warrantless surveillance program by allowing the N.S.A. to install secret equipment in its phone and Internet switching facilities, according to an account by a former AT&T technician made public in a lawsuit.

It was also one of three phone companies that embedded employees from 2003 to around 2007 in an F.B.I. facility, where they used company databases to provide quick analysis of call records. The embedding was shut down amid criticism by the Justice Department’s inspector general that officers were obtaining Americans’ call data without issuing subpoenas.

And, for at least the past six years, AT&T has embedded its employees in federally funded drug investigation offices to analyze call records, in response to subpoenas, to track drug dealers who switch phones. A briefing document for that program said AT&T had records of calls handled by its switches — including “a tremendous amount of international numbers that place calls through or roam on the AT&T network” — dating back to 1987, and described efforts to keep its existence “under the radar.”

Some Clearwire customers remain unhappy when speeds are throttled to “manage” the network.

Clear (formerly known as Clearwire) has announced a general rate increase of about 10 percent for customers using its legacy 4G WiMAX broadband service.

As a result, most customers will pay about $5 more per month for fixed wireless or “on the go” broadband service.

“We instituted this to remain competitive and manage our costs,” a Sprint representative told Broadcasting & Cable. “Like our competitors, we must respond to customer trends, and provide a good user experience, and as a result we will make adjustments to fees and services from time to time. Our offer is still comparable to other offerings in the marketplace.”

Some customers would argue with Sprint’s definition of a “good user experience,” as complaints continue about heavy-handed throttling of Clear’s service that makes high bandwidth applications painful or impossible to use in the evening.

Stop the Cap! reader Akos contacted us this week to complain Clear still advertises and contracts for “unlimited data and top speeds,” while not exactly being upfront about targeting certain traffic for a prime time speed throttle that effectively keeps customers from streaming video.

“They openly admit their service is being throttled by software at each tower site that activates when it detects streaming video services like Netflix, reducing speed from 1.3Mbps to as little as 20kbps, rendering it unusable,” said Akos.

The speed throttle is usually active from 8pm-1:30am daily, when traffic is anticipated to be highest. Clear speaks about its network management speed throttle in the fine print: its Acceptable Use Policy.

Akos complains Clear’s speed throttle makes it easy to blame the streaming service, not Clear itself, because customers running speed tests will not see throttled speeds.

“It fools people to think the problem is on their end or with the streaming service, so customers don’t complain to Clear,” says Akos.

As a result, people using streaming video services get about 30 seconds of uninterrupted video before the throttle kicks in bringing extensive buffering delays.

Clearwire’s Speed Throttle Subject of Lawsuits

Clear’s own 2010 marketing promises unlimited usage with no speed reductions, like those “other” providers.

Clearwire’s speed throttle has been a part of life with the wireless service since 2010. Clearwire had significant legal exposure over its choice of network management because the company routinely advertised “unlimited service” with no speed throttles or overlimit fees. At least three lawsuits were filed against the company for its undisclosed throttling practices, eventually condensed into a single class action case that was finally settled last month.

Under the terms of the settlement, Clear admits no wrongdoing, but will clearly disclose it uses “network management” practices — a term that generally means usage caps and/or speed throttles — and will give customers information about the speeds they can expect when the throttle is active. As of today, Clear has not done that. Clear also volunteered to suspend term contracts and waive early termination fees for customers complaining about speed issues.

At least seven law firms handling the case will split a total award fee of $1,887,792.91 and expenses of $62,207.09. Individual representative plaintiffs each receive up to $2,000. Everyone else identified as part of the class action case that returned a claim form prior to Jan. 3, will receive an average of less than $30:

• a 50% refund of any early termination fee charged after a customer canceled service because of speed throttling;
• a rebate of $14 for customers signing up for Clearwire before Sept. 1, 2010 and experiencing speed throttling or a rebate of at least $7 for Clearwire customers signing up on or after Sept. 1, 2010;
• plus varying amounts for each month of service prior to Feb. 27, 2012 during which Clearwire’s records show it throttled a customer’s Internet speed. Customers throttled at 0.25Mbps will receive $5.00 for each month throttled, 0.60 Mbps: $3.00, and 1.0 Mbps: $2.00.

Court documents reveal of the 2,733,406 customers identified in Clearwire’s records as being speed throttled, only 83,840 submitted timely claims as part of the class action case. This represents a claims rate of about 3.1%. Of those, 76,199 were for speed throttling, 2,331 were requests for reimbursement of early termination fees.

The Future of Clear’s WiMAX and Sprint’s 4G

Sprint purchased the assets of Clearwire Corporation in July, rebranded the network “Clear,” and as of the end of August, stopped selling WiMAX devices to customers. Although Clear will still activate existing equipment, potential new customers are being marketed broadband plans on the Sprint network instead.

Former Clear dealers have received word Sprint plans to eventually decommission its acquired WiMAX network as early as 2014, most likely by gradually converting portions of the 2.5GHz spectrum Clear’s WiMAX service now uses in favor of Sprint’s 4G LTE service in urban and high congestion areas. Clearwire itself was in the process of adopting a variant of 4G LTE technology that would gradually replace the outdated WiMAX standard when Sprint acquired the company.

Although Sprint runs its own 3G network, it partnered with Clearwire to provide 4G WiMAX for Sprint customers. In 2011, Sprint announced it would stop selling devices with built-in support for WiMAX and announced it would launch its own 4G LTE network. Sprint will adopt the same version of LTE other North American carriers are using: FD-LTE, or Frequency Division LTE, which requires one transmit channel and one receive channel. But it will also support and continue Clearwire’s upgrade to TD-LTE, or Time Division LTE, a slightly different standard that supports receiving and transmitting signals on a single frequency at slightly different time intervals, providing enhanced spectrum efficiency. At least 5,500 towers should be active with TD-LTE service by the end of this year. End users will care only to the extent their devices support one or both standards.

Sprint’s 4G LTE rollout will depend primarily on higher frequency spectrum that is disadvantageous indoors and over extended distances. Sprint’s competitors AT&T and Verizon Wireless primarily depend on lower 700MHz frequencies that penetrate buildings better and can serve a larger coverage area. But a combination of Sprint and Clearwire’s spectrum assets give Sprint the most wireless spectrum of any U.S. carrier, which means potentially faster speeds and more capacity.

• 1900MHz: Sprint’s primary 4G FD-LTE service is now available in 151 cities on more than 20,000 cell towers;
• 2500MHz: Now used by Clear’s legacy WiMAX network, will see a transition towards Sprint’s TD-LTE service which will be targeted to urban and high congestion areas from “small cell” sites;
• 800MHz: The former home of now-shuttered Nextel, Sprint will eventually launch FD-LTE service on this band which will offer better indoor and marginal area reception.

Customers can expect devices that support both FD-LTE and TD-LTE in 2014.

LightSquared, the ill-fated venture to bring nationwide 4G wireless broadband to the masses may be all but gone and forgotten in bankruptcy reorganization proceedings, but the wireless spectrum it controls and the drama surrounding it is not.

A battle between billionaires and the hedge funds they support has broken out over who will ultimately control the failed venture — a hedge fund manager deep in LightSquared debt or the richest man in Colorado that often finds a way to get his way.

Harbinger Capital Partners’ Phil Falcone

Falcone

Phil Falcone earned his first fortune trading junk bonds in the 1980s. In 2001, he launched Harbinger Capital Partners and by 2007, Falcone and his investors were well-positioned for a blizzard of cash betting against sub-prime mortgages just before the housing collapse and credit crisis that followed. Falcone took home $1.7 billion in compensation that year while an epidemic of foreclosures and upside down mortgages was just getting started.

In late 2008, when the economy was in free-fall, Falcone suspended or limited withdrawals from his largest funds, upsetting investors who couldn’t get their money out. But Falcone reportedly gave special treatment to certain large investors (sources say Goldman Sachs is among them) who were able to clear out their exposed accounts before the losses piled up.

By 2009, Falcone was again making money — so much he vastly underestimated his federal and state tax bills. What’s a cash-strapped billionaire to do? Quietly loan himself $113.2 million from one of his investment funds at a favorable interest rate and keep it a secret from investors for five months. When they eventually found out, they were understandably disturbed. Falcone had barred those same investors from cashing out of the fund he borrowed from.

The Securities and Exchange Commission was not happy either and filed charges against Falcone.

“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” Robert Khuzami, director of the S.E.C.’s division of enforcement, said in a statement. “Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales.”

Despite the publicity generated by the SEC, investors who appreciated Falcone’s ability to earn them money allowed them turn a blind eye to the ethics questions and pour money into Falcone’s latest venture — a wireless network known as LightSquared.

LightSquared was preparing to launch a unique nationwide 4G LTE mobile broadband network powered by satellites and ground-based cell towers, selling wholesale access to third-party wireless companies able to market the service under their own brand. Falcone’s funds poured nearly $3 billion dollars into the venture while getting a waiver from the government to operate high-powered transmitters on the “L” band — 1525-1559 MHz. LightSquared’s plans alarmed the next door neighbors — GPS satellites facing interference issues that would hurt the accuracy of precise location information provided to millions of tracking devices on the “L1” band — 1559 to 1610 MHz.

Initial testing showed that significant interference from the prototype ground-based transmitters would occur and potentially could cripple aviation and public safety GPS users. The FCC eventually withdrew permission for LightSquared to run its network as planned, a potential death-blow to the venture.

Creditors grew anxious wondering how LightSquared would be in a position to repay its loans when it was unable to launch its wireless network.

In May 2012, creditors forced the issue and LightSquared filed for bankruptcy protection, listing assets of $4.48 billion and debts of $2.29 billion. Falcone claimed the bankruptcy filing would give the company more time to overcome the FCC’s objections to its network operations plan. Falcone estimated it would take two years to secure a resolution. Analysts familiar with the FCC suggested Falcone might die of old age before the agency gave way.

Falcone’s subsequent efforts to win back control of the venture have been made more difficult because one man has been quietly buying up large amounts of LightSquared’s debt with designs on the venture’s spectrum.

Dish Networks’ Charles Ergen

With LightSquared’s debt trading at around 50 cents on the dollar, Charlie Ergen went shopping.

Ergen has been involved in the satellite business for decades. Today, he controls and runs Dish Network, a satellite television provider that has seen the back of high customer growth. Dish and DirecTV are both locked out of the “triple play” business most cable and phone companies offer customers. Neither company can offer broadband or telephone service without partnering with another provider. As cord-cutting continues to take hold, customers willing to pay for increasingly expensive television packages are in decline. That likely explains Ergen’s interest in acquiring wireless spectrum — to build Dish into a broadband, television, and telephone service provider.

In May, Dish publicly bid $2.2 billion for certain spectrum assets from LightSquared. But for more than a year earlier, Ergen was quietly buying up LightSquared’s debt through holding companies and hedge funds.

Ergen created an opaque investment entity named “SP Special Opportunites, LLC” a/k/a “Sound Point” to buy LightSquared debt. Separately, Ergen asked Stephen Ketchum, a former investment banker with close ties to Ergen, to buy over $1 billion in LightSquared debt securities through Ketchum’s hedge fund. From April 2012 until May 2013, Sound Point allegedly spent $1,013,082,326.30 to purchase secured debt for Ergen’s personal benefit and without the knowledge of Dish or its board of directors. Secured debt held by creditors is paid first in a bankruptcy proceeding, and Ergen quietly because LightSquared’s largest single secured creditor.

That puts Charlie Ergen in a major ethical dilemma.

The more Dish offers to pay for LightSquared, the more money Ergen will be paid to cover the shares of LightSquared’s secure debt. Ergen has a controlling interest in Dish, which means he can order Dish to overpay for LightSquared, personally pocketing the proceeds.

Bloomberg’s Matt Levine explains the shady deal:

“An executive going around and buying up an asset for cheap, then convincing his company to buy all of that asset for a higher price – doesn’t come up a lot because it’s so obviously shady,” Levine wrote. “If you’re supposed to be devoting your time and energy to finding opportunities for your company, it looks pretty bad to steal those opportunities for yourself.”

Falcone was outraged when he learned of Ergen’s stealthy acquisitions.

Ergen

In July, Harbinger accused Ergen of “fraudulently” becoming a creditor to block efforts by LightSquared to reorganize and emerge intact from bankruptcy. Instead, Harbinger accused Ergen of seeking to acquire the company’s assets “on the cheap.” Harbinger also points to provisions in a LightSquared debt agreement that forbids certain competitors from buying the company’s debt.

Also upset are several major Dish Network shareholders who are not pleased Ergen’s private deal could make him a lot of money while costing shareholders plenty should Dish overpay for LightSquard’s assets or worse, end up with everything but the spectrum Dish covets.

At least five lawsuits have been filed since August, accusing Ergen and other board members of casting their fiduciary duties to the wind and wasting money along the way. They are also upset Ergen and his connections purchased $1 billion in LightSquared debt at a substantial discount and will likely be repaid the full face value of those debts with Dish Network’s money. That means nearly $300 million in personal profits for Ergen.

The latest shareholder lawsuit was filed by the Louisiana Municipal Police Employees’ Retirement System. It along with the suit filed by the City of Daytona Beach Police Officers’ and Firefighters’ Retirement System claim Ergen’s near-total control of Dish’s board of directors makes it impossible for the board to meet its obligation of representing shareholder interests first.

“Ergen’s control over the company and the board is highlighted by the numerous transactions he has caused Dish to enter into with members of his family,” the lawsuit states.

Ergen and Dish’s efforts to insulate themselves from charges of conflict of interest didn’t fly with many investors.

One lawsuit noted Tom Ortolf, one of the directors on the supposedly independent committee reviewing Dish’s bid, has a daughter that works at Dish; the other, George Brokaw, chose Mr. Ergen’s wife, Cantey Ergen—a Dish director named in the shareholder suit—to be the godmother of his son.

The discomfort level at Dish reached high enough to prompt one board member, Gary Howard, to suddenly resign in early September. Howard was also on the committee formed to vet the LightSquared deal because of the potential conflict of interest on Ergen’s part.

Before Falcone could claim the high road at Ergen’s expense, this week New York’s top financial regulator banned Falcone from managing Fidelity & Guaranty Life Insurance Company of New York for seven years. Harbinger Group bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc, for $350 million in 2011.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg LightSquared 9-5-13.flv[/flv]

Bloomberg News discusses the high drama between LightSquared and Dish Network. (4 minutes)

The “breakthrough” unlimited data deal with AT&T didn’t last long.

When Apple first introduced its AT&T 3G-equipped original iPad, both companies marketed it with an unlimited 3G wireless Internet plan that soon became unavailable for new buyers and left grandfathered customers enduring a speed throttle when AT&T decided you used their network too much.

Burned customers banded together and sued both Apple and AT&T for bait and switch unlimited broadband. The two companies have now decided to settle, and as well as a whopper payout for the attorneys who filed the class action case, original iPad owners are going to share the proceeds:

• Customers purchasing a 3G-ready iPad before June 7, 2010 will receive a $40 check from Apple, even if you still have a grandfathered unlimited data account.
• Customers purchasing a 3G-ready iPad before June 7, 2010 who never activated an AT&T unlimited tablet mobile data plan will get a $20 discount off AT&T’s current $50 a month data add-on for up to one year.

Customers complained the steep price premium they paid for a 3G-equipped iPad wasn’t worth Apple’s asking price once AT&T removed the unlimited data option that Steve Jobs called part of a breakthrough deal.

Customers will not receive any awards until after February of next year, when the settlement is expected to be approved.