August 9, 2022

Getty Images | Jeffrey Coolidge

An Ohio man created a fake broadband provider in order to scam low-income consumers who thought they were getting government-funded discounts on Internet service and devices, according to the Federal Communications Commission. In a Notice of Apparent Liability for Forfeiture released Friday, the FCC proposed a fine of $220,210 against alleged scammer Kyle Traxler.

Traxler created an entity called Cleo Communications that sought authorization to be a provider in the FCC’s Emergency Broadband Benefit (EBB) program, which provided $50 monthly discounts on Internet service and discounts for devices. “Cleo apparently existed for the sole purpose of taking financial advantage of customers under the disguise of being a legitimate EBB Program provider,” the FCC notice said. “Cleo Communications has had no business activity outside of the EBB Program and no other business purpose.”

The FCC began investigating after receiving complaints from consumers in at least eight states who ordered devices and/or “hotspot service.” In some cases, consumers said that Cleo threatened to sue them after they asked for refunds for items and service they didn’t receive.

Cleo’s terms of service stated that it never issues refunds and that attempting to get refunds via bank chargebacks is a “breach of contract,” according to the FCC. The FCC said it got no response to a subpoena it issued to Traxler and Cleo in December 2021.

The now-discontinued EBB program and its replacement, the $30-per-month Affordable Connectivity Program, have provided money directly to participating broadband providers that offer monthly discounts. Some forms of telecom fraud involve the use of fictitious, ineligible, or duplicate customers to obtain payments from FCC programs, but the FCC said Traxler instead scammed consumers directly:

While Cleo never filed for or received disbursements from the EBB Program, Cleo promised consumers that they would receive EBB Program-discounted broadband services and devices in exchange for online electronic payments to Cleo, but the company never delivered the broadband services or devices. Cleo’s schemes to defraud consumers under the pretense of participating in the EBB Program caused severe harm not only in monetary terms to the low-income consumers it preyed upon, but also to the trust and goodwill this or any program needs to achieve its purposes effectively.

FCC alleges “multiple wire fraud violations”

The FCC said it doesn’t know the full scope of the harm because “many consumers may have been victims of its fraud but did not file complaints,” and others may have chosen not to apply for discounts with other providers “due to their experience with Cleo or due to hearing about other consumers’ experiences with Cleo.”

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The FCC’s Notice of Liability is the first major step toward issuing a fine. The FCC has a poor track record for collecting fines because of its limited enforcement authority, but the Justice Department has the power to collect unpaid penalties when the FCC refers a case to that agency.

Criminal charges are a possibility here. The FCC said applicants to the EBB program were warned that submitting a false certification could result in “criminal prosecution and/or liability under the False Claims Act.” Wire fraud can also result in prison sentences of up to 20 or 30 years, and the FCC said Cleo “apparently committed multiple wire fraud violations” by taking payments through interstate wire transactions and never delivering the ordered services or devices.

Traxler’s scam lasted from May to August 2021, during which time he “repeatedly engag[ed] in conduct that violated the federal wire fraud statute and the Commission’s rules,” the FCC said. The proposed $220,210 forfeiture penalty is “the statutory maximum we can impose, [and] reflects the scope, duration, seriousness, and egregiousness of Cleo’s apparent violations,” according to the commission.

When Cleo applied to be in the EBB program, the FCC initially told the entity that its application would be “denied as it lacks sufficient information for approval.” But Cleo subsequently gained FCC approval to participate in the EBB by offering documents including copies of two invoices “with customer-identifying information removed, which Cleo claimed was ‘due to CPNI and privacy.'” Cleo also claimed to the FCC that it “had been providing high-speed wireless Internet” to 500 customers.

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