2. Background3
Americatel Corporation (Americatel) is a Delaware corporation with offices in Maryland. Currently, the company is primarily held and controlled by Platinum Equity, a Delaware holding company with headquarters in Beverly Hills, California.
In December 1997, the Commission granted Americatel a certificate of public convenience and necessity (CPCN) to be a switchless reseller of inter-Local Access and Transport Area (LATA) telecommunications services and to provide intra-LATA services offered by communications carriers in California.4 In addition, the Federal Communications Commission (FCC) has authorized Americatel to provide interstate and international services and intrastate long distance services throughout the United States. From the time it began to provide telephone services in California, Americatel has not been the subject of any other enforcement proceeding in California, or the subject of any informal inquiry of consequence at the FCC.5
Americatel primarily works with Hispanic customers seeking telephone connections to Central and South America.6 The company provides a dial-around service where customers place long distance calls by dialing an access code (10-10-123).7 Customers may choose between different rate plans, including plans with no monthly fees, or plans with a monthly fee and reduced per-minute rates.8 Monthly fees, assessed regardless of whether the customer places any telephone calls, are billed through local telephone companies and appear as a line item on the customer's local bill, including any usage in accordance with their selected plan.9 Americatel's service does not require the customer to change its preferred interexchange carrier.10
Following an executive search and review of the principals' resumes, Americatel decided to engage a third-party vendor to market its services.11 On February 1, 2008, Americatel and Bravo Marketing, Inc. (Bravo), a recently formed Florida corporation, entered a marketing agreement which required Bravo, inter alia, to "promote and market Americatel's Calling Plans to consumers at public events and through face-to-face contacts."12 The agreement contained provisions that required Bravo to comply with state and federal laws, including that each customer had to execute a Letter of Authorization on Americatel's form or complete a sales call with Americatel's call center.13 Bravo was to be paid a commission for each sale, but no commission would be paid if the customer cancelled within a specified period.14 The agreement also provided for Bravo's indemnification of any Americatel losses as a result of fraudulent sales, failure of Bravo personnel to comply with Americatel's Authorized Sales Procedures, or other errors in the sales process.15
Bravo started to sell Americatel services in March 2008, but sales increased significantly in April and May following its sales presence at some large street festivals.16 Americatel executives attended two or three of these festivals and observed Bravo employees selling Americatel's services in compliance with the agreement.17 Bravo may have employed at least one subcontractor in California in May 2008.18 Shortly thereafter, the Commission's Consumer Affairs Branch (CAB) began receiving a large number of complaints alleging unauthorized charges by Americatel.
In late July 2008, CAB notified CPSD that it had received a significant increase in what it characterized as "cramming" complaints, i.e., the placement of unauthorized charges on a customer's bill, against Americatel. Following a data request to Americatel, its general counsel, Robert Felgar, sent a letter on July 31, 2008 notifying the Commission that it had received an unusual volume of complaints from consumers who claimed to have been enrolled in one of Americatel's plans without their authorization.19 Felgar said that Americatel had observed its own rise in complaints, had already initiated its own investigation, and intended to make all complaining consumers whole. Felgar attributed the surge in complaints to "some breakdown in the systems and procedures of one of Americatel's third party vendors."20
Americatel subsequently determined that Bravo committed widespread fraud on many Americatel customers by forging Letters of Authorization (LOA).21 Americatel had received thousands of LOAs from Bravo, although at some point Bravo started providing electronic copies of the LOAs and ceased providing hard copies. Americatel terminated its marketing agreement with Bravo in June 2008, although the effective date stretched into July. It did not bill customers signed by Bravo in July 2008 or thereafter and commenced providing credits to every customer Bravo had signed up, although some customers appeared to be legitimate in that they used and paid for the services.22 Americatel eventually fired its Vice President for marketing, although it uncovered no evidence he financially benefitted from Bravo's scam.23
CPSD continued its investigation into Americatel's activities and issued an Investigative Report in December 2009 (Staff Report) that concluded Americatel had violated Pub. Util. Code §2890(a)24 and §451.25 The Staff Report made preliminary findings that Americatel had "crammed" 61,097 California consumers as a result of Bravo's forgery of LOAs, of which more than 71% occurred during May and June 2008. CPSD also faulted Americatel for failure to perform adequate due diligence in selecting Bravo and in monitoring its marketing activities. It is undisputed that Americatel cooperated with the investigation and that it refunded a total of $1.5 million to California customers, and a total of $1.9 million nationwide. CPSD disputed that the refunds were complete and claimed that not all customers entitled to refunds had received them, and that some billing occurred after cancellation was requested.
In addition, CPSD discovered that Americatel had also issued approximately $2 million in refunds during 2008 to about 300,000 California customers due to two billing errors. In August 2008, Americatel's billing system applied a default 100%, rather than 11.4%, of July 2008 revenue for its Universal Service Fund (USF) rate.26 The error was promptly caught and reversed resulting in $1.8 million in refunds. In October 2008, another human error resulted in select call charges to 2,665 customers for one of its dial-around plans using erroneous per minute rates.27 The error, which led to $70,134.93 in overcharges to the impacted customers, was promptly discovered and reversed.28
The Staff Report asked the Commission to open an Order Instituting Investigation (OII) into Americatel's actions, and if the Commission found that violations had occurred as described, CPSD recommended that penalties and other sanctions be imposed.
3 The facts set forth are based on a combination of jointly stipulated facts and jointly submitted undisputed direct testimony. Each individual witness's testimony is identified by exhibit number in Attachment B.
4 Decision (D.) 97-12-128.
5 Settlement Agreement at 2:19-23.
6 Testimony of Robert Felgar (Felgar Testimony) at 2:9-11.
7 Testimony of Nermin Selimic (Selimic Testimony) at 1.
8 Ibid.
9 Id. at 1-2.
10 Settlement Agreement at 2:11-18.
11 Felgar Testimony at 4-5.
12 Felgar Testimony at 5:21-24.
13 Testimony of William R. Schulte (Schulte Testimony) at 10.
14 Ibid.
15 Ibid.
16 Ibid.
17 Felgar Testimony at 8:5-16.
18 Id. at 8:20-23.
19 Staff Report, Attachment G to Attachment E-2, Americatel's Data Response.
20 Investigative Report on Americatel Corporation (Staff Report), December 2009 at 9.
21 Schulte Testimony at 12.
22 Id. at 14.
23 Felgar Testimony at 18:19-22.
24 Pub. Util. Code §2890(a), "A telephone bill may only contain charges for products or services, the purchase of which the subscriber has authorized."
25 Pub. Util. Code §451, "All charges demanded or received by any public utility...for any product or commodity furnished...or any service to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful."
26 Selimic Testimony at 11.
27 Id. at 12-13.
28 Staff Report at 20.
