The FCC Fined Robocallers $208 Mil. It’s Collected $6,790 Ajit Pai, FCC Chairman Is Incompetent (#GotBitcoin?)
America’s telecommunications watchdogs have levied hefty financial penalties against illegal robocallers and demanded that bad actors repay millions to their victims. But years later, little money has been collected. The FCC Fined Robocallers $208 Mil. It’s Collected $6,790 Ajit Pai, FCC Chairman Is Incompetent (#GotBitcoin?)
U.S. telecom regulators impose penalties and seek to recoup ill-gotten gains from robocallers, but have struggled to collect.
Since 2015, the Federal Communications Commission has ordered violators of the Telephone Consumer Protection Act, a law governing telemarketing and robodialing, to pay $208.4 million. That sum includes so-called forfeiture orders in cases involving robocalling, Do Not Call Registry and telephone solicitation violations.
So far, the government has collected $6,790 of that amount, according to records obtained by The Wall Street Journal through a Freedom of Information Act request.
The total amount of money secured by the Federal Trade Commission through court judgments in cases involving civil penalties for robocalls or National Do Not Call Registry-related violations, plus the sum requested for consumer redress in fraud-related cases, is $1.5 billion since 2004. It has collected $121 million of that total, said Ian Barlow, coordinator of the agency’s Do Not Call program, or about 8%. The agency operates the National Do Not Call Registry and regulates telemarketing.
“That number stands on its own. We’re proud of it; we think our enforcement program is pretty strong,” Mr. Barlow said.
An FCC spokesman said his agency lacks the authority to enforce the forfeiture orders it issues and has passed all unpaid penalties to the Justice Department, which has the power to collect the fines. Many of the spoofers and robocallers the agency tries to punish are individuals and small operations, he added, which means they are at times unable to pay the full penalties.
“Fines serve to penalize bad conduct and deter future misconduct,” the FCC spokesman said. A spokeswoman for the Justice Department, which can settle or drop cases, declined to comment.
The dearth of financial penalties collected by the U.S. government for violations of telemarketing and auto-dialing rules shows the limits the sister regulators face in putting a stop to illegal robocalls. It also shows why the threat of large fines can fail to deter bad actors.
“It’s great that we have these laws; it’s great that we have public enforcement, but because there are so many calls and so many callers, the public enforcement is a joke,” said Margot Saunders, senior counsel at consumer advocacy group National Consumer Law Center. “It doesn’t even make a dent.”
There were 26.3 billion unwanted robocalls made to U.S. mobile phones in 2018, by one measure from robocall-blocking app Hiya. Another company that offers such services, YouMail Inc., puts the number of unwanted and illegal robocalls made in the U.S. last year even higher, at nearly 48 billion.
AT&T Inc. and other large wireless carriers are currently working to implement a call-verification system by the end of the year that regulators and telecom industry executives say will help consumers identify legitimate calls. That system won’t block calls, but will signal that the caller has the right to use a given number and that it hasn’t been spoofed.
The FCC and FTC say there are challenges to collecting penalties for robocall-related wrongdoing. Small illegal operations can quickly close up shop and change their names, enforcement officials say. Some are based overseas, making it difficult to identify or seize assets.
Fines are “a deterrent on legitimate companies that have real assets in the U.S.,” said Daniel Delnero, a senior attorney at Squire Patton Boggs in Atlanta that advises companies on consumer class-action suits related to the Telephone Consumer Protection Act.
For a spam caller or overseas operator, “that’s really just pushing for Social Security numbers or bank account information—it’s less of a deterrent, because they don’t really have anything that could be collected anyway,” Mr. Delnero said.
In many FTC cases involving civil penalties, the agency secures judgments for large fines and settles for a smaller sum, contingent upon the accused person or company being transparent about their assets, Mr. Barlow said. Congress requires the agency to consider an individual’s ability to pay.
In the 2017 case of a “recidivist robocaller” that placed illegal robocalls for nearly a decade, for example, two defendants faced civil penalties of $2.7 million in a California suit filed by the FTC. They were each ultimately ordered to pay $225,000 or less, if their financial disclosures were complete and accurate.
Ajit Pai, chairman of the FCC since January 2017, said in an interview on robocalls earlier this month that in the past, few financial penalties have been collected, but that he is working to change that. It is “important to send a signal to other would-be robocallers that you’re not going to be able to get away with it,” Mr. Pai said.
Still, none of the $202 million demanded in what the FCC calls forfeiture orders against alleged rulebreakers during Mr. Pai’s tenure has been collected.
The agency in May 2018, for example, fined a Florida-based company and its top executive $120 million for making 100 million illegal robocalls during a three-month period in 2016. Agency records as of late December indicate that no funds had been collected.
Robocall Scams Exist Because They Work—One Woman’s Story Shows How
A caller impersonating an FBI agent persuaded Nina Belis to drain close to $340,000 from her bank accounts.
The FBI agent sounded official on the phone. He gave Nina Belis his badge number and a story about how her identity had been compromised. She gave him her life’s savings.
For most Americans, robocalls are an annoyance. For Ms. Belis, an oncology nurse in her 60s, a law-enforcement impersonation scam that appeared to have started with a robocall drew her into financial losses that sapped her family’s nest egg and derailed her retirement.
The scale of her loss—nearly $340,000—and the ease with which the money was moved out of her accounts show why scam calls persist. They work, even on people who think they would never fall for one.
The caller preyed on what psychologists describe as a habitual reliance on people in authority, and kept Ms. Belis in a state of isolation and heightened emotion to cloud her judgment. He told Ms. Belis her Social Security number had been stolen and that crimes had been committed under her name, and persuaded her to transfer assets to accounts he controlled on the pretext of protecting the funds.
He coached the New York-area resident on how to satisfy compliance questions at financial institutions as she moved the funds and kept her on the phone for hours at a time.
Law-enforcement, telecom executives and psychologists who have reviewed Ms. Belis’s case say it is unique given how much money was lost. It also has all the hallmarks of government impersonation scams that have snared thousands of other consumers. [See Tips On How To Avoid Robocall Scams Below.]
In the first nine months of the year, the Federal Trade Commission received more than 139,000 reports of fraud in which people claimed to be from the Social Security Administration, with losses totaling nearly $30 million.
In New York City alone, consumers lost $5.8 million in 523 Social Security Administration impostor scams between January and late October, according to the New York Police Department. Many of those used law-enforcement impostors to help facilitate the fraud.
The department began tracking that type of theft in greater detail this year for the first time because reports of them spiked. Victims in New York City ranged in age from teenagers to octogenarians.
The uptick in such theft speaks to a dangerous truth for consumers: It’s inexpensive and easy for fraudsters to blast out thousands of internet-based phone calls, and hard for law enforcement to trace those calls back to their origins. Even calls from overseas can be made to appear to be from a local area code.
Scammers benefit from the sheer volume of low-cost calls they can make with web technology, which has become ubiquitous in the past decade, as well as a trove of information on consumers’ email and physical addresses online, and on the dark web from data breaches, according to cybersecurity and law-enforcement officials.
Banks are required to have procedures in place to flag suspect transactions to regulators, but they have some flexibility to set those parameters.
And the coaching many scammers give their victims provides them with plausible answers to questions raised. In general, there are few limits to a customer’s ability to move funds at will.
Ms. Belis knew about phone-based scams, but thought they had to do with fake insurance companies or callers who claimed a relative was in the hospital. “I never heard about things like what happened with me,” Ms. Belis said.
Ms. Belis had just started her morning shift at an ambulatory care center when she got a voice mail on Feb. 27, a Wednesday. It was from someone who claimed to be part of the “attorney general’s Social Security office” and said there was an issue with her identity.
“I was terrified, of course,” she said, and quickly called back. She gave the operator her name, and she was connected with the man posing as an FBI agent. He verified Ms. Belis’s name, address and email address and said her identity had been stolen.
Crimes ranging from drug deals to illicit money transfers had been committed under her name, the man said, and while he knew she wasn’t responsible, she would have to cooperate with the FBI and help with their investigation or be arrested. The agency would help her erase her current Social Security number and set up a new one. The combination of threats and assurances of help is common and convincing, law-enforcement officials and psychologists say.
To do that, he told her she would have to move her money out of existing accounts to ones he said were protected by the government or her assets would be frozen permanently.
A few years from retirement, Ms. Belis had emigrated from Eastern Europe, where she was a doctor, about 20 years ago with her husband, who had been a surgeon there. She said she was fearful her savings would become inaccessible.
The scammer asked Ms. Belis about her financial assets, and she told him where her accounts were and the amounts they held.
That conversation set off a string of phone calls and text messages between Ms. Belis and the scammer that spanned 50 of the next 72 hours, and extended further into the following week, records from her wireless carrier show.
The voice mail that started the scam came at a difficult time for Ms. Belis. Her husband was recovering from cancer treatment and one of her daughters had recently suffered a stillbirth.
“What’s being played on is a habitual or socially imposed reliance on people in authority,” Stephen Lea, professor emeritus at Exeter University and a psychologist who has studied fraud, said of law-enforcement-impersonation scams. “That uniform or that representation elicits trust in a situation where you might be less likely to trust.”
In some such frauds, scammers give victims phone numbers of accomplices who they say are local law-enforcement agents to help them navigate the process, sometimes using real officers’ names. That added verification contributes to their believability.
The scammer told Ms. Belis to remain on the phone, leave work and not discuss the problem with anyone.
She worried about her patients, but asked her manager for permission to leave, staying on the phone with her maroon folding phone case closed over the face of the smartphone while it remained connected.
Doug Shadel, state director in Washington for AARP, an organization that educates and assists retired people, spent more than a decade as an investigator in the state attorney general’s office and said criminals in theft cases capitalize on pulling victims into the “ether”—a mental state of heightened emotion, whether it be fear or excitement, that clouds rational judgment.
The scammer told her to make sure she had her driver’s license, pen and paper and phone charger, then told her to get in a cab.
Ms. Belis kept receipts for her taxi rides and an eventual two-night hotel stay and texted them to her scammer at his instruction. He would submit them to a courthouse for reimbursement, he said, a lie that gave her comfort he was who he claimed to be.
Her first stop was a Manhattan credit union where she and her husband had accounts including certificates of deposit.
Stand outside the bank, the scammer told Ms. Belis, don’t talk on the phone in the branch and don’t hang up. Send him a photo of the transfer request. If the teller asks, say the money is for apartment renovations.
Law-enforcement and bank officials said it can be difficult for banks to strike a balance between allowing consumers to do what they want with their money and asking questions to help them avoid scams, particularly when they are coached on how to answer compliance questions.
Many bank efforts to fight fraud take place after a transaction already goes through. In general, banks are required to report transactions of $10,000 or more. They must also report suspected money laundering or other crimes.
Many banks flag suspicious transactions of more than $5,000, and they must report certain types of activity that are atypical for a given customer. International transfers are typically blocked if the recipient is on a sanctioned list but otherwise usually proceed, even if they involve large amounts of money.
Ms. Belis initiated two transfers that February afternoon to accounts given to her by the scammer at Bank of America that totaled $40,450, her financial records show.
The scammer told Ms. Belis she was being watched by another agent and, as the bank closed for the day, instructed her to rent a hotel room. She told her husband she had to stay the night at work.
Instructions resumed early the next morning. The scammer told her to take a taxi to a credit union where she had an account in New Jersey.
She waited for an hour outside the bank for instructions on where to send the next chunk of money—an account at Panamanian bank Banistmo SA. Ms. Belis bought the taxi driver a cup of coffee and doughnut while they waited.
After sending $19,950 from the New Jersey credit union to the Panamanian account, Ms. Belis headed to Citibank, where she sent $30,500 to a Bank of America account—a different account number from those used the day before but carrying one of the same names.
Her family, meanwhile, was growing worried. She had never spent a night at work and hadn’t been in touch that day with her elderly mother, whom she called daily.
Ms. Belis asked the scammer for permission to call family members, and he told her that her cellphone was wiretapped. She should only use her phone to call him. She stayed another night in the hotel.
The next morning, Friday, brought what appeared to be good news: The agent said he had started to cancel the arrest warrant and the process would be complete once the transfers went through. He asked her to stay at the hotel for another two nights.
Ms. Belis said she became angry and so upset that she shook and asked to go back to her family. She told him she would rather be arrested than stay away from home longer.
The scammer eventually agreed but said she must not discuss the Social Security number issue.
When she returned home, her husband met her at the bus stop and said she looked pale. He had called her co-worker to ask if spending the night at work was normal, and the colleague said no, but he trusted his wife. He thought about going to see her, and then decided that she would likely be home in the morning.
Inside their apartment, Ms. Belis told him her identity had been stolen. While he had some doubts, he believed her and saw that she was scared. She didn’t tell him anything about moving money out of their accounts.
He told her that law-enforcement officials were responsible for investigating the identity theft she described, but she wanted to clear her name. His wife continued to receive calls from a person she said was investigating her case.
Later, at journalist’s request, executives at robocall-blocking services that study telephone network traffic looked at records tied to the phone number Ms. Belis’s caller used. The number was linked to other user-reported scams around the same time, they said.
Jim Tyrrell, senior director of product marketing at TNS Inc., said his company, which works with large carriers, detected about 100 calls from the number in February and a smaller number since then. That is a sign that the number was used for what is called “snowshoe spamming,” he said, in which scammers originate a small number of calls from a large group of phone numbers—spreading out calls to avoid detection, the way a snowshoe spreads a person’s weight out to make it possible to walk on top of snow.
The calls in question appear to have originated in India, said a spokesman for AT&T, Ms. Belis’s carrier at the time, and the number had previously been reported to law-enforcement officials.
Internet-calling technology helps facilitate another tactic popular with scammers: “neighbor spoofing,” in which scammers spoof or fake the number appearing on your smartphone screen to make it look like the caller is close to you. That makes many people more likely to answer the phone.
The number used to scam Ms. Belis was disconnected on Sept. 18 after the Journal notified the company that controlled it that the phone number had been used in a scam. Legitimate companies that sell phone numbers and low-cost internet-based calling services can sometimes be used by scammers to acquire the loads of numbers needed for fraud. Ride-sharing services, school-closure robocalls and businesses often legitimately use the services.
Over the weekend, the scam against Ms. Belis continued. The person called her to ask about her retirement savings, and she filled him in with the details. He told her she had to transfer that money to the government-protected accounts, too.
She needed her husband’s authorization to withdraw those funds and persuaded him to sign, telling him that she would go to jail if she didn’t move the money. She told him about the transfers from the prior week but didn’t show him the documents, so he didn’t know some of the funds had been sent to Panama.
A customer-service representative at her retirement-account administrator asked why she was withdrawing the $273,000 in her account, but the scammer had prepared her to answer questions. She said she was using it to open a business—the fake agent had made her believe that everything about the purported identity-theft investigation had to remain secret. She paid more than $50,000 in taxes when she withdrew the retirement funds on Tuesday, and transferred the rest to her account at Citibank.
On Wednesday, Ms. Belis sent $190,000 from her Citibank account to a second account at the Panama bank Banistmo. She believed the ordeal was over.
After dinner on Sunday, she thought the transaction had cleared and told her husband she was feeling better. He asked to see the paperwork, and she showed it to him. When he saw that the money had been moved to a bank in Panama, alarm bells rang.
“I lost my speech,” he said.
He realized it was fraud, and the couple went to see one of their daughters. They called Citibank that night to stop the transfer, but the fraud department was closed.
They went to the police and filed a report at 8:30 p.m. It was 12 days since she first received the scammer’s voice mail. Ms. Belis’s losses, including taxes she paid when withdrawing her retirement funds, the banking fees and hotel and taxi costs, totaled $337,105.
A Citibank spokesman said the bank encourages customers to be alert to confidence schemes. “In this instance, the beneficiary bank reported that the recipient received the funds on the same day they were sent,” he said. Customers who receive unsolicited and suspicious requests should file reports with law enforcement and contact the bank, he said.
Self Reliance New York Federal Credit Union didn’t respond to requests for comment. Val Bogattchouk, chief executive of Nova UA Federal Credit Union, the New Jersey credit union, said: “Our credit union is very concerned about the ever increasing frequency of fraudulent financial schemes impacting unknowing individuals, including a member of our institution,” adding the credit union works to educate its staff and customers to be vigilant and encourages international regulators to investigate and pursue scammers.
A spokesman for TIAA, the retirement-account administrator, said “customer security is a top priority, and we have robust processes in place to authenticate clients’ transactions.”
A spokeswoman for Banistmo declined to comment.
Ms. Belis said the FBI and NYPD have so far helped her recover about 8% of her money, and she recently learned she may be eligible for part of an additional $10,000 that law-enforcement officials recovered.
The family is in touch with a Citibank manager who works on security and investigations after emailing top executives about the scam. Law-enforcement officials have told her it is unlikely she will get back additional assets, particularly money sent overseas. The FBI declined to comment on the investigation.
The family has changed Ms. Belis’s phone number and purchased a robocall-blocking app. The police told them victims of fraud are far more likely to be approached by new scammers, and to fall for fraud again.
Ms. Belis said she is embarrassed but decided to share her story to help others avoid becoming victims. She had hoped to help raise her grandchildren and travel in retirement but knows those things are no longer possible. She will have to keep working.
“I know my kids won’t leave us alone, but I don’t want to use their money,” she said. “I pray to be able to work full time as long as possible.”
How To Avoid Robocall Scams
Social Security Administration employees do contact citizens by telephone—typically people who recently applied for a benefit or who have requested a call—but never threaten people for information, an agency spokesman said. The agency won’t tell you your Social Security number has been suspended, threaten you with arrest or ask for personal information over the phone, he said. Many agencies, like the Internal Revenue Service, will never call consumers.
Don’t Answer Calls From Numbers You Don’t Recognize
If you receive an unexpected call from a government official, call the agency directly to verify that the individual works for them and that their call to you was legitimate.
Don’t dismiss scams as impossible. While many are skeptical that they would ever fall for such scams, Deputy Inspector Jessica E. Corey, commanding officer of the NYPD’s crime-prevention division, said she reminds them to “think about the people it could happen to in your sphere.”
Read warnings. The NYPD’s Deputy Inspector Corey met with the New York Bankers Association in September to discuss what questions retail bankers should ask customers making transactions that are unusual in scale or destination. The organization made scam warning materials available to its members to show their customers.
Victims of phone-based law-enforcement impersonation and other scams can report incidents to the Federal Bureau of Investigation by calling 1-800-CALL-FBI (225-5324) or going to https://www.fbi.gov/tips, an agency spokeswoman said.
When you report crimes to the FBI include as much detail about the incidents as possible, such as that you have been harmed by a “government official impersonation telephone scam,” and include screenshots or other documents you may have.
The Social Security Administration recently launched an online form at https://oig.ssa.gov to allow consumers to report social security-related scams. The website creates a personal identification number so that if investigators contact the consumer who filed a report, they will know the call is legitimate.
The Federal Trade Commission and Federal Communications Commission also offer websites where consumers can report unwanted calls (https://donotcall.gov/) and consumer complaints (https://consumercomplaints.fcc.gov).
Washington’s New Anti-Robocall Law Won’t Stop the Calls. Here’s Why
Some robocalls are legitimate, and additional prosecutions doesn’t prevent more bad actors from popping up.
In a rare bipartisan achievement, Congress has moved to combat the scourge of robocalls inundating Americans.
Just don’t expect the phone to stop ringing any time soon.
The robocall law, which passed both the House and Senate by wide margins, prods phone companies to cut off illegal marketers or scammers before the phone rings by spotting suspect traffic.
The legislation also boosts penalties for breakers of telephone consumer-protection laws and mandates that government agencies and companies work more closely together in stemming robocalls. The bill must still be signed by President Trump, which is expected given the near-unanimous support by both parties.
Lawmakers, industry and consumer groups say the bill represents significant steps forward, but they also concede that the calls are likely to continue—a reflection of how a lasting solution continues to elude the companies and regulators that control the telephone system.
“This isn’t going to eliminate every robocall,” said Sen. John Thune (R., S.D.), one of the bill’s prime sponsors, in an interview. “But we think it will go a long way toward getting at some of these not only annoying nuisance calls, but more importantly a lot of scam artists that prey on vulnerable populations.”
Even the new law’s name—the TRACED Act, for Telephone Robocall Abuse Criminal Enforcement and Deterrence—makes clear the goal is to deter robocallers rather than eradicate them.
Lawmakers have previously tried and failed to stop robocalls, most prominently with the opening of the National Do Not Call Registry about 15 years ago. (Criminals ignore the list of off-limits numbers.)
Implementing this latest anti-robocall law is likely to take years, telecom industry executives and robocall experts say. New consumer-protection rules will take months to craft and longer to implement. Lawmakers also left aspects of the problem for future study, calling for eight new reports and two new working groups.
Some of the billions of robocalls Americans receive are legitimate, such as calls from a pharmacy telling a customer a prescription is ready. The calls are illegal when used for scams, or when they violate consumer-protection rules such as those against calling someone without their permission using a recorded message.
Here Is A Look At What The Traced Act Does, And What It Doesn’t Do:
What the act does: The Federal Communications Commission now has a longer shot clock to bring a robocall case—up to four years, instead of one or two currently. In an effort to speed up enforcement, the agency also now may take legal action against violators without issuing a warning first, as they have previously been required to do.
The law is designed to push prosecutors to jail violators of telephone consumer-protection laws, recognizing that the government struggles to collect on big-ticket fines from civil litigation. The new law requires the FCC to share evidence of robocall violations with the attorney general, and to disclose how often it does so.
What it doesn’t do: More prosecutions won’t necessarily solve the “Whac-A-Mole” problem: Mass dialing with internet-based technology is so easy that bad actors pop up constantly using new names or locations.
The FCC doesn’t shut robocallers down immediately, instead following an enforcement process that takes months, if not years to play out while authorities gather evidence and make legal filings. On Dec. 12, the agency proposed a roughly $10 million fine for calls that occurred in May 2018. An FCC official said the agency must follow due process.
What the act does: The FCC must empower phone companies to block more calls without fear of a lawsuit, all while not adding new line items on consumers’ bills. The agency has already written some rules with these goals in mind.
The law also backs new requirements to prevent “spoofing,” a practice where robocallers mask their identity with a faked caller ID. Major phone companies have already promised to use call-authentication technology, known as Stir/Shaken. Under the new law any laggards who don’t adopt this technology would have to show the FCC how they are mitigating robocalls.
What it doesn’t do: It isn’t known yet whether the bill will overcome carriers’ historic fears about blocking legitimate calls. For example, phone companies are loath to stop emergency calls, but those calls can be hard to identify.
Curbing “spoofing” also won’t stop swindlers entirely, experts say. Robocallers could obtain blocks of real phone numbers, which are available for rent, and make millions of calls. The new law leaves this issue for future study and gives the FCC regulatory authority to address it.
Lawmakers also dropped from the final bill a provision clarifying the legal definition of “auto-dialer” technology, the equipment used to make robocalls. Proponents of that provision said it would resolve conflicting court rulings about how businesses can legally contact consumers and ensure robocallers can’t tailor their dialing technology to get around telemarketing rules. Mr. Thune believes the FCC should address this issue, a spokesman said.
What the act does: The new law tells the FCC it may publish a list of phone companies found to be facilitating robocalls and “take appropriate enforcement action.” Scammers rely on such companies, paying them fractions of a cent for each call they send through.
What it doesn’t do: Publishing the list isn’t mandatory, and authorities have generally been reluctant to hold phone companies accountable for things their customers do.
In one recent exception, the Federal Trade Commission and Ohio attorney general moved to shut down an internet-based phone company for allegedly participating in a robocall scheme—a first-of-its-kind action.
A senior FCC official said the agency is weighing what it can do when a company is found to be facilitating illegal calls. Options under consideration include taking enforcement action against the firms, or greenlighting phone companies to block calls from problem companies, the official said, without giving a timeline for drafting them.
FCC Seeks $225 Million Fine From Telemarketer Accused of Making 1 Billion Robocalls
Regulator says Texas company flooded consumers with unwanted calls that marketed health insurance plans.
The Federal Communications Commission will seek up to $225 million from a Texas company accused of marketing health care plans through a flood of misleading robocalls, a sign of the telecom regulator’s stepped up campaign against the nuisance.
Houston-based Rising Eagle Capital Group LLC made about 1 billion spoofed calls during the early months of 2019 on behalf of clients that offered short-term health insurance plans, the commission alleged Tuesday.
The regulator said the company’s prerecorded messages purported to offer “affordable health insurance with benefits from a company you know,” such as Cigna Corp. and CVS Health Corp. ’s Aetna before steering the recipients to call centers that pitched Rising Eagle’s other clients.
The commission’s enforcement bureau said Rising Eagle and its affiliates violated the Truth in Caller ID Act by spoofing its caller ID information and by calling phone numbers on the national Do Not Call list.
Attorneys general from seven states also filed a federal lawsuit Tuesday against Rising Eagle and its founders, John Spiller and Jakob Mears. The civil action, filed in U.S. District Court for Texas’ Southern District, accused the two of directing tens of millions of unwanted calls to state residents.
Mr. Spiller didn’t immediately respond to requests for comment. Mr. Mears couldn’t be reached. Representatives of Aetna and Cigna, which had no apparent business with Rising Eagle, didn’t immediately respond to requests for comment.
Lawmakers in Washington have passed new rules designed to make it easier for law enforcement to pursue nuisance calls. A robocall-tracing group created by USTelecom, an industry trade association, has also given phone companies more leeway to track possibly unwanted phone calls on their networks.
The FCC called Tuesday’s proposed fine a record for the federal agency. The notice of apparent liability for forfeiture is the first step in a process that allows targeted companies to contest the charges against them. If the commission finds a company or person liable, it falls to the Justice Department to collect the penalty.
Commissioner Jessica Rosenworcel, a Democrat, praised Tuesday’s enforcement action but said the Justice Department was missing from the state lawsuit. She called on the department to step up robocall enforcement, noting that “so far collections on these eye-popping fines have netted next to nothing.”
Where Robocalls Hide: The House Next Door
Mom-and-pop carriers are a key link in the telecom system. They can also open the door to scams.
When you receive a robocall, chances are someone like Nick Palumbo collects roughly $0.0024 a minute. Those fractions of a cent can add up to millions of dollars. Mr. Palumbo accumulated more than $3.2 million on the hundreds of millions of calls routed through a telecom operation based in his Paradise Valley, Ariz., home last year.
Two phone companies run by Mr. Palumbo are among dozens of little-known carriers that serve as key conduits in America’s telecom system. But the rise and fall of those companies also illustrates a flaw in that system: The business model of these carriers can support fraud on a massive scale.
In the span of a few years, one of Mr. Palumbo’s carriers became the largest conduit for Social Security impostor calls coming into the U.S. from overseas, according to authorities. It connected swindlers posing as officials from the Social Security Administration with victims who relinquished their money or personal information.
Such scams in total bilked U.S. consumers out of at least $38 million in 2019, according to Federal Trade Commission data and government officials.
More government impostor robocalls were traced to Mr. Palumbo’s carriers than any other phone company for much of 2019 and the early months of 2020, according to USTelecom, a trade group that runs a call-tracing system. He says he didn’t know the calls were scams when his companies passed them along.
On March 24 a federal judge temporarily barred Mr. Palumbo’s phone operations from carrying any more calls in the U.S. following a civil lawsuit from the Justice Department. He shut down Ecommerce National LLC, which did business as TollFreeDeals.com, and SIP Retail LLC, his lawyer said.
Mr. Palumbo and dozens of other little-known telecom carriers work in the shadows of giants such as AT&T Inc., routing phone calls in bulk from one part of the telephone network to another and charging customers a fraction of a cent each time.
These small carriers took hold in the decades following the 1984 breakup of AT&T’s phone system monopoly, which was designed to lower the costs of long-distance calls. They mushroomed during the introduction of internet-based calling services in the 2000s.
The emergence of these small phone companies was in many ways a positive development for consumers who now pay less for long-distance calls. The downside is that the system wasn’t designed to discern between legitimate and illegitimate calls, which are sometimes mixed together as they are passed along.
U.S. regulators generally didn’t require these carriers to block calls and in some cases forbade them from doing so as a way of limiting anticompetitive behavior. Some telecommunications experts say that opened the door for smaller carriers to hustle business from robocallers, or simply turn a blind eye to suspect traffic.
Big carriers thus far have largely been able to avoid government penalties by demonstrating their efforts to verify legitimate traffic, in some cases hiring third-party companies to spot bad calls and flash a “Scam Likely” message to your phone.
Here is how the scams typically work: First robocallers blast out a large number of calls embedded with a prerecorded message claiming to be a representative of the Social Security Administration or another government agency. If the calls originate overseas, as many do, foreign carriers forward them to U.S. carriers that contract with each other to send and receive the traffic over the internet, using routers to find the cheapest path. A major U.S. carrier then typically makes the final connection to your phone.
When you answer, the prerecorded voice on the other end of the line claims you’re the victim of a stolen identity or a participant in criminal activity and that you need to call a number to fix the issue. If you fall for that premise, a swindler will use a mix of threats and reassurances during a live conversation to extract as much of your personal information or money as possible in exchange for supposedly clearing your good name.
Smaller carriers say the U.S. government should be going after scammers who are originating these robocalls. Law-enforcement officials say it is difficult to punish scammers directly, in part because many are based overseas.
Instead authorities are targeting the small domestic telecom carriers that carry the calls into the U.S. and testing a relatively new legal argument in the telecom world: that carriers should be held responsible for policing any bad behavior that passes through their networks.
Federal agencies have over the last year won injunctions curtailing the business of two other carriers, and have written warning letters to dozens of others.
One of the earliest targets of the government’s crackdown was the 39-year-old Mr. Palumbo, a well-known figure within this community of tiny phone carriers that swap tips and cut deals in online forums or annual telecom conferences in Las Vegas. There are varying views within that community about his level of responsibility. Some said he should have vetted his customers more carefully or cut them off when he saw red flags; others said he followed standard industry practices.
Mr. Palumbo said there are many legitimate uses of robocalls, such as telemarketing, and because he relayed calls rather than placing them, he had no way of knowing which calls were scams. “We can’t listen to the calls,” he said in an interview. “The system doesn’t allow us to, nor do we have the authority to.”
Mr. Palumbo’s lawyer said his client acted appropriately after receiving warnings about problematic calls, including notifying the customer who sent the calls. Even if his companies did more vetting, Mr. Palumbo says he wouldn’t know the source of calls because his clients were telecom carriers, not call originators. “It is really difficult to know who the customer’s customers are,” he said.
In Search of $250 Million
Long before he got into the telecom industry Mr. Palumbo knew he wanted to make an impact in the business world.
He started at eight years old, while growing up outside Buffalo, N.Y., “selling suckers, hawking pencils, clipping lawns [and] snowplowing,” he wrote in an autobiographical essay published in the 2014 book “Rainbows In Cobwebs.” “Anything that would earn some money.”
In college, he worked as a nightclub bouncer and started a business selling paintball supplies online, staying up late drinking Red Bull and working on the product catalog. He recalled telling a friend he would be worth $50 million someday, but secretly set a goal of $250 million.
His introduction to the telecom industry came in 2003, when he began selling access to toll-free numbers. In 2009, he moved to Arizona and began working as an agent arranging call-routing contracts between telecom carriers. He met his future wife, Natasha, in 2013 on a friend’s boat on Lake Pleasant near Phoenix. The following year he hired her.
One Arizona couple relayed overseas robocalls that prosecutors say bilked U.S. consumers. Nick Palumbo, who led the operation, said he didn’t know the calls were illegal and took action when he learned they had been used in scams. Natasha Palumbo declined comment.
Business was good, but unsteady, Mr. Palumbo said in the interview. In 2016, several deals he arranged fell apart, robbing him of expected paydays. He decided to become a carrier himself.
He was able to do so from his home. He created an account with SipNav LLC, a company that leases access to call-switching equipment and software. SipNav accounts start at a minimum of 2,000 simultaneous calls for $1 a month, according to its website. Starting a phone company that operates over the internet—known as a voice over internet protocol or VOIP provider—takes at least $10,000 because of the need to prepay vendors before ramping up call volumes, he said. He declined to provide his exact costs.
“SipNav has no tolerance for Illegal robocalls” and is “doing everything in its control to help mitigate these illegal actions,” the company said in a statement.
Outfits like SipNav provide another important link in the robocall supply chain. They provide online portals for small telecom carriers to configure pricing, track call traffic and onboard clients. Mr. Palumbo had to find customers – or set up a website and let them find him.
Mr. Palumbo said his business took off, thanks to contacts in the telecom industry, trade shows, and customers who found him through online searches or LinkedIn.
His clients included phone companies in India, which authorities say is a hot spot for robocalls. Gaurav Soni, the owner of one of those clients, ICore VOIP, found Mr. Palumbo via a Google search for U.S. telecom companies in early 2019, Mr. Soni said in an interview. “There are so many companies who are working like Nick,” Mr. Soni said.
Mr. Soni said he signed up with Mr. Palumbo online. Mr. Palumbo didn’t ask about the origin of the calls ICore would be sending, Mr. Soni said. Mr. Soni said he ran a phone company, not a call center, and wasn’t aware of the content of calls sent to the U.S. He said he understood his customers to be legitimate call centers that offer services such as information-technology help.
Mr. Palumbo eventually attracted enough clients to become the connection point for billions of calls to the U.S. telephone network. At their peak, Mr. Palumbo’s businesses had 38,000 phone lines, paying 80 cents per line a month. Clients paid about $0.0024 per minute for internet-based calling, according to business invoices included in court documents.
His businesses pulled in $3.2 million of revenue in 2019, or $266,000 a month.
A Morning Raid In Arizona
That good fortune ended on the morning of January 28, not long after Mr. Palumbo and his wife completed an ordinary morning of watching TV, having breakfast and preparing their daughter for preschool.
As Mr. Palumbo carried his 3-year-old to the car, federal agents stood at the gates of his property with their guns pointed at him, he said in an interview and court documents.
“Put your daughter down,” one said, as Mr. Palumbo recalled it. He says he spent the next 90 minutes in handcuffs while officers searched the $2.3 million home, hauling out computers and paperwork.
Mr. Palumbo’s wife was also named as a defendant in the government’s case and was CEO of one of the companies involved. She declined to comment through a lawyer.
One alleged victim of a scam that started with a call transmitted by one of Mr. Palumbo’s companies was John Knox, a retired fire marshal who died in March.
He sent $9,800 to a scammer who called him on May 23, 2019, according to court filings and a February interview with Mr. Knox. The swindler, whose call was passed along by the company, left a voice mail saying Mr. Knox’s Social Security number had been compromised.
“I’m usually sharp as a tack. That day they caught me,” Mr. Knox said in an interview, adding that he had been dealing with family turmoil at the time.
After the raid on Mr. Palumbo, the Federal Communications Commission in February began sending public warning letters to other small carriers. One was Karl Douthit, CEO of Los Alamitos, Calif.-based provider Piratel LLC, who says the FCC singled him out unfairly.
Piratel hasn’t been associated with nearly as many robocall traces as Mr. Palumbo’s companies, and has long been vetting customers to avoid getting stiffed on bills, he said: “We have turned away more customers than we have kept.”
Mr. Douthit said the business of connecting calls over the internet is rife with opportunities to make a “quick buck” routing a high volume of calls without asking questions. He said he didn’t work with Mr. Palumbo.
Others defended Mr. Palumbo. Dean Hansen, a telecom consultant who filed a court brief in support of Mr. Palumbo as part of the government’s case, described him as a friendly, savvy businessman who followed standard industry practices.
Tracking The Fraud
Prosecutors said they uncovered the participation of Mr. Palumbo’s companies using a process called “traceback,” a system developed by trade group USTelecom that follows a call backward to identify the phone companies that connected it. USTelecom had traced many such calls to the companies and notified Mr. Palumbo each time, according to court filings.
Mr. Palumbo didn’t dispute receiving notifications from USTelecom, but said USTelecom never told him he was an outsize conduit of suspect calls until after the government brought its case.
Sometimes the traffic had obvious red flags, such as calls coming from overseas posing as 911, the Justice Department said. Mr. Palumbo’s lawyer said he blocked the 911 number after receiving a complaint and acted appropriately after receiving the USTelecom warnings. Each time, he warned the carrier who sent the problematic call and blocked the phone number in question.
But prosecutors said the scam calls continued for months over Mr. Palumbo’s network, even after the warnings. And they pointed out during the case that scammers can easily switch numbers once one is blocked.
In one June 2019 episode, USTelecom notified Mr. Palumbo of a Social Security scam call that had been relayed by his company, and he identified the source of the call as a customer from India. A USTelecom representative emailed back with a warning: The calls were “a massive illegal calling campaign.”
Mr. Palumbo replied that he reamed out the client, according to court documents. In an interview this week, he identified the client as Mr. Soni, the ICore owner who found him on Google.
Mr. Soni said he shut down the account of the customer who sent the call Mr. Palumbo identified. The pair continued doing business through 2019, they both said.
Mr. Palumbo could’ve blocked ICore’s account if he was worried about the calls, Mr. Soni said. “How would I force him to open my account?” he said. “They never used to ask, ‘Who are you?’ They want the money and the calls, that’s it.”
Mr. Palumbo’s lawyer says his client acted appropriately by notifying ICore, and he understood that problem accounts had been shut down.
Mr. Palumbo’s companies didn’t have a compliance program, his lawyer told the federal judge, though it did have a template for onboarding new clients. Mr. Palumbo said in an interview that he checked customers’ references but it was possible for clients, including international ones, to sign up by filling out an online form.
Industry standards on how much vetting is required are vague or nonexistent, Mr. Palumbo’s lawyer said. Government rules encourage carriers to connect calls regardless of their origin rather than ask questions, executives at other telephone companies said.
“We connect calls. We do not block calls. That goes against our complete DNA,” said Lamar Carter, CEO of All Access Telecom Inc., a VOIP provider based in Forney, Texas.
The FCC in July asked for public input on the idea of requiring phone companies to conduct due diligence on high-volume customers.
Those regulations, which the FCC hasn’t formally proposed, could require phone companies to ask questions about whether a customer is running a legitimate business before they allow someone to make high volumes of calls.
The shutdowns of Mr. Palumbo’s companies haven’t ended the flow of robocalls in the U.S. Volumes are on the rise again following a significant slowdown during the beginning of the coronavirus pandemic. From March to May, government agencies moved to quickly tamp down on Covid 19-related scams, and global shutdowns stymied some fraudsters’ ability to access call centers.
“The worry for us is of course that the volume just shifts to another player. That very well may be what’s happening,” said Gail Ennis, inspector general at the Social Security Administration, which assisted the Justice Department with the Palumbo case. “It’s going to be a marathon, not a sprint.”
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