TracFone to Pay $13.4M to Settle Claims FCC Free Phone Program Misused

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TracFone Wireless FCC Settlement Overview:

• Who: TracFone Wireless, a unit of Verizon, will pay $13.4 million in a settlement with the Department of Justice and a former employee-turned-whistleblower.
• Why: The whistleblower alleged that TracPhone knowingly allowed more than 175K ineligible customers to sign up for Lifeline, a federally funded free-phone program, to increase its own commissions.
• Where: The case was settled in Florida federal court.

TracFone Wireless has agreed to pay $13.4 million to settle claims it knowingly allowed ineligible customers to get free phones through a federal program for low-income people to get more enrollment and commission payments for itself.

The U.S. Department of Justice (DOJ) announced the settlement with TracFone Wireless Inc., a unit of Verizon, on Apr. 4, and said the company has also agreed to enter into a corporate compliance plan with the Federal Communications Commission (FCC).

The settlement stemmed from a lawsuit filed by a former TracFone sales rep and whistleblower Farrell Gordon in 2015 and a subsequent lawsuit filed by the DOJ.

Gordon alleged that TracFone violated the False Claims Act by signing up more than 175,000 ineligible customers for the FCC’s low-income subsidy program, Lifeline.

Gordon worked as a Lifeline sales rep under Elite Promotional Marketing Inc., which provided third-party sales agents to TracFone, where he said he saw the alleged behavior first-hand, according to the DOJ.

TracFone Lifeline Phones Were for People With Low Incomes Only

Lifeline was created by Congress to provide nearly $2 billion each year to assist low-income consumers to get free cell phones provided by cell phone carriers and free monthly cell service provided by the government, according to the DOJ.

To qualify for the program, a customer’s income must be at or below 135% of the Federal Poverty Guidelines or the customer must receive benefits from certain federal assistance programs.

The DOJ says Elite sales reps hired to enroll Lifeline customers learned that TracFone’s computer software contained a glitch that allowed ineligible people to sign up. 

It alleged that certain sales agents used the glitch to increase their enrollments and commission payments, and that TracFone failed to review the applications of customers properly and did not investigate reports of ineligible customers.

The company realized the glitch in August 2015 and repaid more than $10.9 million to Lifeline. This amount was credited as part of the $13.4 million settlement, the DOJ says. 

Elite previously settled with the government for $95,000. As part of the current settlement with TracFone, Gordon will receive $462,500.

TracFone does not admit to, or deny, the allegations. 

The news comes after TracFone Wireless was hit ​​with a class action lawsuit in 2019 claiming that the prepaid mobile phone operator violated the Telephone Consumer Protection Act by sending mass texts advertising its goods and services.

What do you think of the settlement in this case? Let us know in the comments! 

The government is represented by Jeremy Ronald Bloor of the U.S. Attorney’s Office. Gordon is represented by Erika A. Kelton of Phillips & Cohen LLP.

The TracFone Wireless Settlement is United States of America et al. v. Tracfone Wireless Inc. et al., Case No. 6:15-cv- 01457, in the U.S. District Court for the Middle District of Florida.

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