Fraud at Obamaphone, Inc.
A provider of government-subsidized cell phones cuts plenty of corners in its applications.


Jillian Kay Melchior

Street-level vendors for TerraCom, Inc., a provider of government-subsidized phone service, were trained to forge signatures and falsify data, a former employee has told National Review Online and the Scripps National Investigative Team.

The federal government’s $2.189 billion Lifeline program, which is supposed to provide subsidized phone service to the poor, has become notorious for fraud and abuse. Earlier this year, the Federal Communications Commission reported the results of an audit of the top five Lifeline providers: It found 41 percent of beneficiaries — approximately 6 million subscribers — hadn’t proven their eligibility.

A new report from Scripps National Investigative Team, which airs on September 15 and 16, reveals more troubling details about potentially fraudulent applications from Lifeline provider TerraCom, which made $52.3 million off the program last year, up from $32.6 million in 2011.

“It raises a lot of questions about where the information comes from,” says Jim Osman, Scripps TV’s national investigative correspondent. “Did the company get reimbursed for those applications?”

Reginald Strode began working on commission for TerraCom in the late spring of this year, earning $3 for each Lifeline phone he distributed. Strode, a three-time felon, says he was not required to pass a background check before he began work handing out subsidized mobile phones.

“Part of the problem is that we were taught go, go, go, go, go, as many clients — like 25 to 45 people a day,” Strode tells National Review Online. “You gotta get that money. . . . Basically, we were rushing through the process. That’s another reason I believe we were never taught to have the client fill out that information.”

Strode says managers instructed him to sign Lifeline applications himself, rather than allow the prospective subscribers to sign.

Furthermore, Strode says, “there was one box that said, under penalty of perjury, that [applicants must] declare that all the information was correct. . . . I was the one clicking all the information. The client was not. And we were not even reading off the information to the client at all. We were just clicking and going.”

Strode says he asked questions to determine eligibility and then submitted the application online for approval. If an application for a subsidized phone was not approved using the personal information the prospective subscriber had provided, he says, “there was a way that [TerraCom managers] taught us to go around it, which was go pick a random address off a website . . . just to push it through.”

Strode provided National Review Online with a video he had recorded of a Lifeline employee training other workers to find an address at random to use for problematic applications. Addresses on Lifeline applications must be residential, but in the video, the trainer notes that for one applicant, “the address that he used was a business address, so I went and found an address on this site. . . . Hope he gets a phone.”

Phone companies make about $9.25 per month for each customer they enroll in the Lifeline program. On June 25, the FCC’s Enforcement Bureau issued an advisory reminding Lifeline providers “that they are liable for any conduct by their agents, contractors, or representatives (acting within the scope of their employment) that violates the FCC’s Lifeline rules.”