A company that the government paid to distribute “Obamaphones” — the nickname critics gave to government phones given to poor people — has agreed to pay $13.4 million to settle a case alleging that it doled out devices to tens of thousands of people who didn’t deserve them.
TracFone Wireless signed up more than 175,000 ineligible customers for the program between 2012 and 2015, according to the allegations the company paid to settle.
Officially known as the Lifeline program, it became known as the Obamaphone after news reports showed recipients thanking then-President Barack Obama for giving them phones. That sparked a debate about the generosity of the American welfare system.
Under the program, the Federal Communications Commission paid companies to sign people up and provide service for the subsidized phones. The philosophy was that a phone was critical to connecting with family and friends or applying for jobs, and should be available to those on welfare.
TracFone, through its SafeLink line, is the most prominent provider of Lifeline devices.
The Justice Department said TracFone hired sales agents to recruit customers, and some of those agents in Florida realized TracFone’s computer system allowed ineligible people to be enrolled.
Federal prosecutors say TracFone ignored warnings about the lapse for years, but eventually fixed its system in 2015, repaying $10.9 million for the bogus accounts. That money is credited to the $13.4 million settlement reached last week.
“Lifeline providers have a duty to ensure that only eligible subscribers are enrolled in the Lifeline Program,” said Michael D. Granston, deputy assistant attorney general in the Justice Department civil division’s commercial litigation branch.
The lawsuit was brought by a former Lifeline sales representative in Florida, Farrell Gordon, under the False Claims Act. The law allows private parties to sue over alleged wrongdoing on behalf of the federal government, and to claim a share of any settlement.
Mr. Gordon stands to get $462,500 from the TracFone settlement.
In court documents, he said he was deployed to soup kitchens and shelters to find low-income folks he could sign up. He was then assigned to sign people up at veterans’ hospitals.
He said his supervisors told him people getting veterans’ benefits or Medicare were categorically eligible for a Lifeline phone. In fact, those categories have nothing to do with the program.
They were told to fudge the qualifications and sign veterans up as Medicaid or Supplemental Security Income recipients, Mr. Gordon said.
• Stephen Dinan can be reached at [email protected].
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