The US Federal Communications Commission (FCC) has proposed a USD8,083,992 fine for K20 Wireless and its CEO because they knowingly claimed subsidies from the Affordable Connectivity Program (ACP) with respect to customers who did not qualify. ACP was established in 2021 with the intention of keeping low-income households connected to the internet whilst they were locked down during the pandemic. Service providers claimed ACP subsidies for more than 15 million American households by the end of 2022. The ACP permits up to USD75 per month to be claimed for each household living on the tribal lands of native Americans, and USD30 per month for low-income households elsewhere. K20 abused this scheme by porting in subscribers who were already listed in the national database of households that received subsidies, but without asking subscribers to consent to the change in their broadband provider. More than 85 percent of all ACP subscribers were attained in this fashion. The status of half of the ported-in customers was then changed to false addresses on tribal lands so ACP could claim the higher rate of subsidy. These frauds enabled K20 to wrongly obtain USD1,685,340 in ACP subsidies.
K20’s subsidy abuses began at least in June 2022, if not earlier. The FCC finally acted to stop them in April 2023, locking out K20 CEO Krandon Wenger from the national subsidy database he had accessed in order to enroll and change subscriber records. Previously claimed subsidies that were due to be paid to K20 were also put on hold at that time. This did not discourage K20, who submitted fraudulent claims for an additional 1,603 subscribers during the following month, all of whom had been transferred from another ACP provider without their consent and assigned to addresses on tribal lands. The subsidies for just these claims would have been worth USD120,225 per month, or over USD1.4mn per year.
The eventual investigation of K20 found that more than 99 percent of payments made into the company’s bank account came from the ACP subsidy program. Of the money paid in, over USD350,000 was paid out directly to Krandon Wenger, over USD100,000 was spent on non-business expenses for Krandon Wenger and other family members, and over USD500,000 was used to pay off a mortgage on a family house.
It should not have been difficult to identify the deceit. The contact details for hundreds of households were changed to email addresses that used a ‘k20’ extension to ensure they would not be received by the subscriber. Most of the false addresses used on tribal lands belonged to empty lots, or to businesses like restaurants and public buildings like libraries. 546 different subscribers were listed as living at a single address where no building exits. Customers who were ported in would also be ported out after a while, which would have helped to reduce the chances of the deception being identified. However, the addresses of customers who had been wrongly assigned to tribal lands would be changed back to the correct address by the next broadband provider. Just 2.5 percent of subscribers transferred into K20 had been listed at a tribal address beforehand. Simple anti-fraud analytics could have identified such obviously anomalous patterns in the data, which was all maintained through the national subsidy database.
The FCC proposed its USD8mn fine in a Notice of Apparent Liability for Forfeiture (NALF) issued on May 10, although they later spotted a clerical error that required them to issue an erratum. It says a lot about the FCC’s operational priorities that they can identify a single-digit error in a filing number within one week but it takes them 9 months to notice an obviously fraudulent pattern of subsidies paid to a dodgy telco! Issuing the NALF is not the end of the process for fining K20 and Krandon Wenger. They have the right to challenge the NALF, which may result in it being cancelled or reduced, but an eventual fine can never be higher than that proposed in a NALF.
The US telecoms industry must know it is rotten. It takes little skill to compare what the FCC publicly says about ‘cracking down’ on many different kinds of fraud with the stream of official updates that prove the FCC is itself defrauded on a regular basis. Regular Commsrisk readers may remember the USD200mn settlement agreed by T‑Mobile US in 2020, the USD23.5mn fine for TracFone Wireless issued at the end of 2023, and the USD17mn penalty proposed for City Communications just a few months ago. All of these punishments related to subsidies that were claimed by telcos and paid by the FCC before somebody did the audit work required to show the associated subscriber was ineligible. These subsidy programs have a history of lax controls that goes back decades, but instead of implementing proactive checks to prevent fraud before it occurs, or to identify fraud soon after it occurs, the FCC continues to rely on consumers to report abuses. New stories about public money being wrongly paid to telcos occur with troubling frequency, but are never amplified by the press nor commented upon by the gaggle of anti-fraud ‘experts’ who slavishly boost every FCC announcement about protecting the public from scams. Does it seem likely that the US regulator has the skills and the mindset necessary to protect the public from telecoms fraud when it has a long history of falling victim to scams run by telcos?
