A Thing
The Green SheetGreen Sheet

Thursday, May 22, 2008

Prepaid phone trafficker convicted

Muhammed Mubashir of Sugar Land, Texas, pled guilty in the U.S. District Court for the Southern District of Texas on May 19, 2008, to two charges of criminal contempt for disobeying a federal injunction prohibiting him from purchasing or exporting prepaid mobile phones.

With this conviction, wireless prepaid mobile phone companies scored a victory in their continuing efforts to turn the tide of scammers in the United States.

Since November 2007, TracFone Wireless Inc., the nation's largest prepaid mobile phone provider, has filed 39 lawsuits in federal courts in Texas, California, Florida and New York against companies that profit from illegal mobile phone trafficking. Mubashir's conviction is the first of its kind.

"It's important to understand that he is one of many, many people who are involved with this all over the country," said James Baldinger, a Commercial Litigation Attorney with the Florida-based Carlton Fields law firm.

Scam preys on U.S. tradition

"What this scam really does is prey on the fact that the prepaid wireless providers in the U.S. have historically subsidized the price of the phones at one-third the manufacturers' cost for consumers who can't otherwise afford cell phones," Baldinger said. "Wireless providers recoup this subsidy as more airtime is purchased."

Traffickers set up companies, then advertise themselves as retailers and exporters of U.S.-made mobile prepaid phones that ship to destinations worldwide. Mubashir did this with a company he called World MMP Inc.

Such companies operate sophisticated fraud rings that employ dozens of runners who go from store to store buying the prepaid mobile phone purchase limit of two per customer. Runners in groups of up to 16 ride in vans and buy hundreds of prepaid phones daily.

The phones are sold to middlemen who open the packaging, seal the phones and batteries in another box with a different company's name, put in a charger that is compatible with a country's local voltage, insert a manual written in the country's native language, and then sell it as a new product in packaging that has never been opened.

Other middlemen hack the phones and unlock the proprietary software, enabling the phones to work on any network except the original manufacturers'.

The phones cost $40 to $50 to manufacture, but they are subsidized at $12 to $15 apiece, "so there's a lot of room in there for each guy to make a few dollars profit per phone," Baldinger said.

So, every step along the way, each player makes a few dollars by selling the phones to the next rung up the trafficking ladder.

Phones shipped illegally worldwide

Packages with 100 to 200 phones are shipped overseas to myriad destinations. Traffickers can even make a few pennies on each original manual and charger by selling them separately in the United States.

Virgin Mobile USA LLC filed a civil action against Mubashir for copyright infringement in August 2006; he was charged with civil contempt. A permanent injunction prohibited him from purchasing, tampering with, reselling and shipping phones. This, however, did not stop him. He started another company, America's Wireless, in San Antonio, Texas.

Injunction junction

On May 9, 2007, a U.S. Immigration and Customs Enforcement agent examined a shipment set for export to Hong Kong from America's Wireless that contained 1,300 TracFones and dozens of Virgin Mobile phones. The agency seized the shipment and contacted TracFone.

"We got a judge in Houston to issue a temporary restraining order that stopped the phones from leaving the country," Baldinger said. "We ultimately recovered all those phones and subsequently filed suit against Mubashir in November of 2007."

A second stipulated injunction got the attention of the U.S. District Attorney, who filed criminal contempt charges. TracFone obtained documents that verified Mubashir sold and shipped approximately 9,000 TracFones, representing more than $1 million in losses for the company.

Judge's sentence will send message

Baldinger isn't sure what sentence may be imposed; there are no sentencing guidelines for criminal contempt. However, Carlton Fields is filing a victim impact statement with the U.S. Probation Office on behalf of TracFone that lays out the financial harm done to the company.

"This case is just about Mubashir, and we expect there will be many more," Baldinger said. "But I think people engaged in this conduct are starting to get the message that this is not a wise business for them to be in."

end of article

Editor's Note: This article first appeared in the Selling Prepaid E-Magazine, May 21, 2008, issue 08:05:B. To read more news and educational articles pertaining to the promising prepaid sphere, visit www.sellingprepaid.com and click on the E-Magazine link.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
A Thing