V. CLEAR WORLD/MANCUSO CONDUCT SINCE D.03-02-066.
A. Slamming
This Commission has announced a "zero tolerance" policy for slamming and other "business strategies that are abusive of consumer rights."28 D.03-02-066 found that four Clear World customers had been slammed, but made no findings about the full extent of Clear World's slamming and customer abuse.
1. CAB Complaints, Clear World Denials, and TPV Tapes.
Staff reports that the number of complaints lodged against Clear World with the Commission's Consumer Affairs Branch (CAB) has increased steadily over the last three years, from 9 in 1999 to 105 last year, and that Clear World's slamming violations appear still to be widespread. SR II at § I(A).29
Staff attaches 69 new30 CAB complaints to its Staff Report on slamming, relating to slamming issues that seem to recur at Clear World. SR II, Att. 1. Staff reports that in most instances James Mancuso responded to CAB claiming Clear World had a third party verification (TPV) tape of someone at the customer's number "requesting" Clear World service. Id. (Attachment of customer complaints includes typical response letters).
Staff reports that customers in many of these cases are just as adamant that they never authorized Clear World service. Id. Staff offers an August 13, 2003 customer letter as a typical example. The customer complained about a fraudulently obtained TPV and an unauthorized change: "The lady then said nothing would affect my phone company and all she wanted to was [to get] information so that she could send me a pamphlet [about] Clear World Comm." Id. (Tab 67, case 03-03-6052). Staff believes this illustrates how Clear World may obtain a recording of "yes" to authorization questions even where there was no subscriber intent to authorize a carrier switch.
2. Testimony of Former Clear World Employees.
Staff presents the Declarations of five former Clear World employees who describe how Clear World's telemarketers used misleading sales tactics to acquire a customer's affirmative response on a TPV tape. SR II at §VI, Atts. 13-16. Three of the Declarations concern conduct at the Los Angeles telemarketing center in the latter part of 2003, one concerns conduct in the Fresno center in 2001,31 and one in Fresno in 2003. The Declarations aver that Clear World sells largely in Spanish to Spanish-language customers, and in some cases avoids English-speaking customers. Id. The Declarants all state that there was pressure on Clear World representatives to sell by any means possible, including misrepresentation of rates, assertions about free calls (when in fact only calls between Clear World customers were free), and statements that Clear World and its TPV vendors only needed the customer's address and acquiescence to send the customer free information. Id.
The employee-telemarketers provided handwritten sales scripts that had not previously been produced by Clear World in response to Staff requests. These Spanish-language scripts (and English translations) are found as Exhibits to the telemarketer declarations. Id. One script states in Spanish that "I am calling just to confirm that beginning next month you will have a reduction in your long distance bill. You will only pay $5.95, OK"; another states "Now I'm going to transfer [you] to a verifier for services of Clear World, so that he can make the change for you and eliminate the charges for long distance."
Staff alleges that these misrepresentations result in slamming by fraudulently inducing consumers to provide affirmative answers to authorization questions in the TPV recording.
3. LEC PIC Dispute Reports Showing Hundreds of Slamming Complaints Each Week; Other Evidence.
Staff presents slamming complaint or "PIC32 dispute" data compiled by the Local Exchange Carriers (LECs), showing that an average 5-6% of all Clear World PIC changes over the last two years have resulted in PIC disputes, i.e., for every 100 primary interexchange carrier changes initiated by Clear World, 5-6 are reported as disputed to the local exchange carriers. SR II at § II, Tables 2 and 3. The rate in 2003 was 6.23%. In absolute numbers, these reports show hundreds of California slams being alleged against Clear World each week. Id.
These reports build on evidence in A. 01-09-040 that the LECs reported over 47,000 PIC disputes involving Clear World in 1998-2000 (Exhibit CPSD-46), and 28,830 disputes in 2001 (CPSD-1, Attachment B). Staff in A.01-09-040 randomly tested the 2001 PIC dispute reports and found that the majority of complainants who responded substantively to Commission inquiries confirmed their belief that they had been slammed or had Clear World's rates misrepresented.33
Staff notes that WorldCom kept its own list of reseller PIC Dispute reports (derived from LEC numbers) between 1998 and 2000, and these consistently show "Clear World/DLD"34 and "Clear World/WorldTel"35 with among the highest slamming complaint numbers of all WorldCom resellers.36 Moreover, Staff believes that these LEC-derived slamming numbers may substantially understate the extent of Clear World's slamming problem.37
Staff also discusses WorldCom documents that show high levels of PIC disputes at DLD,38 and testimony of a former Amerivision employee who stated that Amerivision received and responded to complaints forwarded by this Commission to Amerivision regarding DLD customers in a way that hid DLD's role as carrier from the Commission. SR II at § I(C); see also Sections V(A) and VIII, below. If true, this would appear to be yet another instance in which Christopher Mancuso's operations were hidden from the Commission.
B. Failed Audit - Omissions in Compliance Filing, and Failure to Comply with D.03-02-066.
Staff alleges that Clear World failed to provide the complete and comprehensive audit required by D.03-02-066. In pertinent part, Ordering Paragraph 3 of D.03-02-066 required that:
Clear World shall conduct a complete, comprehensive audit of any and all business and consulting relationships, whether reduced to writing or otherwise, between Clear World, its officers and directors, and entities and persons associated with Clear World and with Christopher Mancuso (as well as any firm, company, limited liability company, partnership, corporation, or other entity of any nature that is, or was, associated with him, owned by him, or with which he has, or has had, a consulting or employment agreement), including loans of money or informal business relationships and shall list and describe in detail all such relationships, of any nature whatever. (Emphasis added.)
The audit submitted by Clear World and its accountants, however, states that it has "interpreted Ordering Paragraph 3" to limit the Commission's order in the following ways: (a) the "audit period" was declared to be January 1, 2002 through March 31, 2003; (b) the word "entities" was defined to mean only "affiliates or subsidiaries of Clear World"; and (c) the phrase "persons associated with Clear World" were deemed to be "persons and entities with which Clear World contracted as further detailed below."39
Staff reports that at no time did Clear World or its auditors approach the Commission or Staff for approval of these limitations. SR I at § XIV(C)(2). Staff opines that this unilateral narrowing and restating of the Commission's order resulted in something decidedly less than a "complete, comprehensive audit of any and all. . .relationships." Id.
Staff alleges that: the audit fails to admit, deny, or meaningfully address Christopher Mancuso's role in the formation of Clear World, or to address Clear World's acquisition of DLD, Clear World's payment of over $5 million to Christopher Mancuso, or Clear World's sale of wholesale long-distance service to (the Christopher-incorporated) Worldwide; the one-page audit disclosure provides no meaningful explanation of the relationships between Clear World and other entities known by Clear World to be related to Christopher Mancuso (WorldTech, for example); and none of the interrelationships described elsewhere in this OII and accompanying Staff Reports are found in the audit, nor is there any quantification of the monetary benefit flowing to Christopher Mancuso, i.e., there is no discussion of how much money he received in toto, either directly or indirectly, from the utility.40 In Staff's view, the audit does not comply with the Commission's Order in D.03-02-066, and has largely served to obscure, rather than clarify, Christopher's role in the various affiliates and Clear World. Id.
28 Rulemaking on the Commission's Own Motion to Consider Adoption of Rules Applicable to Interexchange Carriers, R.97-08-001, I.97-08-002, 1997 Cal PUC LEXIS 599, at *11-12.
29 Staff notes that it has asked Clear World for slamming cases or investigations against it in other jurisdictions, and that Clear World has not substantively responded. SR I at § XVII(A)(2). Staff reports, however, that in 2002 the FCC found Clear World guilty of slamming. In the Matter of Clear World Communications Unauthorized Change of Customer's Telecommunications Carrier, IC No. 02-S76504 (March 6, 2003); SR I at § XIV(B). 30 Staff reports these as "new" in that they were not included in the evidentiary showing in A.01-09-040. 31 Staff concedes this Declarant's narrative relates to conduct prior to D.03-02-066, but Staff includes it to show that the more recent conduct was not anomalous. 32 Primary Interexchange Carrier. 33 Such misrepresentations could also violate our slamming statute, P.U. Code § 2889.5, which requires the utility to "thoroughly inform the subscriber of the nature and extent of the service being offered." In order to test the 2001 PIC dispute reports, CPSD mailed letters to 1,804 of these reported PIC disputants, and contacted a further eight customers who had complained to CAB. See D.03-02-066. One hundred fifteen complainants responded to the mailing. Of these and the CAB complainants, CPSD was able to contact and interview 76 customers. Id. Of these, 54 confirmed that they were slammed, and another 19 said they authorized the switch but didn't receive the promised rates. Three said that they did not complain about Clear World. Id. at § II(A); see also Hearing Exhibits CPSD 1 and 2. 34 As the World Com Reseller PIC Dispute lists (at Hearing Exhibit CPSD-48) indicate, "Clear World/DLD" refers to slamming on WorldCom account 182806, which was the primary account for DLD from 1994-98, and then became Clear World's account in August or October, 1998. See discussion below. 35 "Clear World/WorldTel" refers to slamming activity on account 112904, which was associated with the Mancusos' other unlicensed operation under Worldwide. SR I at Att. 135; Hearing Exhibits CPSD 19 (CMT at 36:19-37:5), 46 (WorldCom Reseller PIC Disputes). 36 Hearing Exhibit 46. In many months, Clear World is recorded with the most slamming complaints (in absolute numbers) of any of the resellers. 37 Staff advances several reasons for this belief: (a) customers may not report the slam to the LEC, but merely ask their preferred carrier to switch them back; (b) other customers who were switched from one of WorldCom's resellers to another reseller may not have even been reported as a PIC change, a prerequisite to a PIC dispute report; and (c) some slamming victims abandon presubscribed long-distance service altogether, moving perhaps to dial around or calling card services, cellular phone service, or service in another name. SR II at § II(C). Staff also notes that PIC disputes may be underreported because the largest print name on the Clear World bill page is not Clear World but the billing aggregators (e.g., "HBS"). Id. at § I(B)(3). Finally, numbers provided by Clear World indicate a monthly churn rate of 24-33%, which might also evidence slammed customers returning to their carrier of choice. SR II at § VI. 38 SR II at § III. WorldCom, at least, was aware that these slamming complaints should be addressed to Christopher Mancuso. Staff presents newly discovered internal WorldCom memoranda showing high levels of Clear World, DLD, and NTC slamming allegations and chargebacks for same, including one document referencing "about 10,000 PIC disputes" on the January-June 2000 invoices for Clear World's accounts 182806 and 112904, stating "We should address with Chris [Mancuso]." SR II at § III(A). 39 SR I at § XIV(C)(2), and Attachment 71. Staff requested contracts, correspondence, and workpapers relating to this audit, but no contract or letter of engagement or other direction or explanation was produced. Id. at § XVII(A)(2)(b). 40 Decision 03-02-066 found that he had received at least $5 million in payments from Clear World. See Findings of Fact 103-106.
