TracFone settles fraud allegations for $13.4 million

by Ben Vernia | April 14th, 2022

On April 4, the Department of Justice announced that the mobile phone provider TracFone has agreed to pay $13.4 million to settle fraud allegations, originally brought by a whistleblower, that the company enrolled ineligible persons in the FCC’s Lifeline program. According to DOJ’s press release:

TracFone Wireless Inc. (TracFone) has agreed to pay $13.4 million as part of a civil settlement to resolve allegations that TracFone violated the False Claims Act by signing up more than 175,000 ineligible customers in connection with the Federal Communications Commission’s (FCC) Lifeline Program (Lifeline).  

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

The United States alleged that between 2012 and 2015, TracFone, a telecommunications carrier based in Miami, impermissibly signed up more than 175,000 subscribers who were ineligible for the program. TracFone hired independent third-party sales agents, including agents hired by Elite Promotional Marketing Inc. (Elite), to enroll these customers. These agents learned that TracFone’s computer software contained a glitch that allowed ineligible persons to enroll in Lifeline. Some agents in Florida then exploited the glitch to increase their consumer enrollments and commission payments. The government alleged that TracFone failed to adequately review the applications and did not properly investigate reports of clearly ineligible subscribers enrolled in the program that would have revealed the glitch. After TracFone eventually discovered the software glitch in August 2015, it repaid more than $10.9 million to Lifeline, an amount that was credited as part of the $13.4 million settlement.

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DOJ announced that the relator, a former sales representative at Elite, will receive $462,500 of the settlement (a 3% relator’s share).

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