Anyone who has spent any time looking at their phone bill probably has noticed several taxes and fees. The oldest of those fees is the Universal Service Fund (USF). Unlike traditional taxes that get pocketed by Uncle Sam, however, the USF monies collected from customers are supposed to be reinvested in the community for a wide variety of services. Unfortunately, some carriers pocket the money or fail to use it for its intended purposes. Both may give rise to a whistleblower reward opportunity under the federal False Claims Act.
History of the Universal Service Fund
During the Great Depression, Congress passed the Communications Act of 1934. As part of that law, Congress decreed that all Americans should have access to rapid, efficient, nationwide phone service and at reasonable prices.
Over the years, the Universal Service Fund came into being. At first it was assessed against long distance carriers and used to subsidize phone service to low income households and high cost areas. [The author of this post lives 11 miles from the nearest landline, certainly a high cost should I elect traditional wireline phone service.]
Everything drastically changed in 1996. Faced with a rapidly evolving telecommunications landscape, Congress engaged in a complete overhaul of telecommunications law and passed the Telecommunications Act of 1996.
The new law expanded the goal of universal service to include increased access to both telecommunications and advanced services – such as high-speed Internet. As part of the overhaul, the FCC established four programs within the Universal Service Fund to implement the new law. The four programs are:
- Connect America Fund (formally known as High-Cost Support) for rural areas;
- Lifeline (for low-income consumers), including initiatives to expand phone service for residents of Tribal lands;
- Schools and Libraries (E-rate); and
- Rural Health Care
The number of companies paying into the Universal Service Fund was also expanded. In addition to long distance carriers, the Fund now reaches all telephone companies, including wireless, wireline and interconnected Voice over Internet Protocol (VoIP) providers. That means cable companies that provide voice service also must collect from customers for the Fund.
The taxes or fees are collected from customers and can be used for any of the purposes above.
The law was modified slightly in 2009. That year Congress created the National Broadband Plan to extend Internet to everyone in the country. Much of the USF monies today go to extend fiber optics and cable to unserved areas.
Dishonest Telecommunication Companies
Most telecommunications try hard to meet the mandates of Congress. Companies can receive money from the Universal Service Fund to build out or improve their networks, particularly in an underserved areas. A few companies, however, pocket those monies or use the money for improper purposes
Earlier this year, the FCC ruled against Sandwich Isles Communications Inc, a Hawaiian telco.
According to an FCC decision issued January 3rd, Sandwich Isles received $250,000,000.00 in Universal Service Funds between 2002 and 2015. The funds were to be used to provide service to people living in the Hawaiian Home Lands. The Hawaiian Homes Commission was established in 1920 to administer public lands for native Hawaiians.
An investigation in 2015 revealed that Sandwich Isles Communications delivered only a small fraction of the service that had promised and had been overpaid by $27 million. The state Public Utility Commission separately found that the company wasn’t properly using government monies as required.
The FCC thereafter found that Sandwich Isles was improperly inflating costs attributable to the Universal Service Fund. Dishonest companies do that as a way of hiding their non-compliance with Fund monies.
After being ordered in 2016 to repay the $27 million and face fines of $49 million, the company appealed. The full Commission denied Sandwich Isles appeal on January 3of this year. In upholding the earlier 2016 order, the FCC reaffirmed its commitment to extending service as required by the law. “Under the Act, carriers receiving high-cost universal service support must use it ‘only for the provision, maintenance, and upgrading of facilities and services for which the support is intended.’”
Whistleblower Rewards and the Universal Service Fund
The Sandwich Isles case was resolved by the FCC itself through an administrative proceeding. The case began with both an audit and a review by the Hawaii PUC.
In our opinion, regulators got lucky. Industry folks tell us there is a lot of creative accounting in the telecommunications world. We know of one company that used Universal Service Fund monies to buy equipment but then redirected that equipment to more profitable business lines. In effect, they were double dipping.
Under the Civil War era False Claims Act, whistleblowers with inside knowledge of fraud involving public funds can claim a reward based on how much money is collected from wrongdoers. Rewards range from between 15% and 30%. [In the Sandwich Isles case, that would have meant an award of between $11 and 22.8 million. Not a bad pay day for helping stamp out fraud.]
The monies collected from phone customers are taxes. But there is a possible rub.
Once the money is collected from customers, it is given to a nonprofit created by Congress fittingly called the Uniform Service Administrative Company – “USAC.” This company doles out the money for projects and performs the audits.
Because the money flows through a nonprofit, a federal appeals court ruled in 2014 that the funds were no longer federal when given to companies like Sandwich Isles.
The 2014 case involved Cisco Systems and two other companies. That particular case involved Universal Service Fund monies being used for schools (e-rate program) and not the Connect America fund at play in the Sandwich Isles case. The legal theories are the same.
The court making that decision was the Fifth Circuit Court of Appeals. Their decision is now the law of the land in Mississippi, Louisiana and Texas.
So, are whistleblower reward cases under the False Claims Act dead? Not at all.
There have been similar cases in DC, Missouri and Wisconsin that have been allowed to proceed as well as cases under other phone surcharges such as the 911 surcharge.
In August of 2017, a U.S. District Court was faced with the identical issue confronted by the Fifth Circuit Cisco Systems. And thankfully, it came to the opposite conclusion.
In the Missouri case both the whistleblower and Justice Department said that funds administered by USAC should be considered federal funds meaning the whistleblower reward law would apply.
“[The whistleblower] and the Government both argue the holding in [the Cisco case]is flawed and should not be followed. [Whistleblowers] argue the USAC is not a private charity, and it would not have access to the billions of dollars the E–Rate Program distributes annually, but for the Government making those funds available to the USAC. They believe this relationship between the Government and the USAC is equivalent to the Government providing funds for the E–Rate Program. In addition, they argue the requirement the funds must come from the U.S. Treasury is not found in the statute and runs contrary to the decisions of other courts that have found no such requirement.”
The court agreed meaning the whistleblower could proceed with the case.
A recent case in Manhattan resulted in a $30 million recovery for misuse of Universal Service Fund monies. Total Call Mobile admitted it solicited thousands of ineligible participants into the Lifeline program which provides low cost cell phones to people on government assistance.
Obviously, we have to tread carefully but it isn’t all that unusual to find courts disagreeing with one another.
Call for Telco and Phone Surcharge Whistleblowers – Universal Service Fund
We are looking for telecommunication workers with knowledge of misuse of Universal Service Fund monies and misuse of other phone surcharges.
We are aware of active cases involving phone companies pocketing these surcharges. We are also aware of companies misusing Universal Service Fund monies.
Actual examples include:
- phone companies not collecting 911 surcharges (allows the company to charge less than competitors
- phone companies collecting but not remitting surcharges (theft, pure and simple!)
- phone companies misusing USF monies for more profitable business lines
- telecommunications companies pocketing USF monies
- telecommunications companies misusing USF monies
- companies using creative accounting to shift normal operations onto government funds
All of these schemes are illegal and in many states, they are actionable.
As noted above, whistleblowers can receive 15% to 30% of whatever the government receives from wrongdoers. Considering the government redistributes billions of dollars of Universal Service Fund monies, the possible rewards are huge.
Huge awards, okay but is there a big problem out there? Yes! The problem is so bad that the FCC created a Universal Service fraud strike force. The Comm Law Blog said this, “When so much money is doled out anywhere, you can pretty much count on people trying to get their hands on more than they’re entitled to. And sure enough, there has historically been no shortage of fraudulent claims presented for USF disbursements.”
Worried about retaliation? We get it and so does Congress.
First, False Claims Act clams are filed in court and under seal. That means they are secret while being investigated. You can safely figure at least 6 months and probably more when no one will know that you filed a claim. Plenty of time to find a new job if that concerns you.
Second, the Act has tough anti-retaliation provisions that provide double lost wages (including future wages) and attorney’s fees.
To learn more, give us a call. There is no obligation and if we take your case, we only get paid if you win and collect. For more information, contact us online, by email or by phone at 414-704-6731 (direct).