Internet service provider Core IP Networks, which was raided by the FBI last April, has been charged with participating in a conspiracy to defraud more than US$15 million from companies such as Verizon, AT&T and XO Communications.
Matthew Simpson, 25, of Red Oak, Texas, is one of 19 people charged in the case, according to a grand jury indictment that was unsealed late last week.
His Dallas company, Core IP Networks, was raided by FBI agents on April 2, 2009. At the time, Simpson claimed that his company and nearly 50 of his customers were the innocent victims of another's actions.
"The only data that I have received thus far is that the FBI is investigating a company that has purchased services from Core IP in the past," he wrote in a note posted to Google Sites on the day of the raid. "This company does not even colocate with us anywhere."
But according to federal prosecutors, Simpson was an active participant in a long-running scam to set up companies that fraudulently obtain lines of credit and then resell telecommunications services before skipping out on the bills.
The operation was masterminded by Simpson's business partner Michael Faulkner, formerly of Southlake, Texas. According to court filings, Faulkner and his wife, Chastity, are both considered fugitives, but Simpson has been arrested he remains in custody.
The indictment cites email messages allegedly written by Faulkner, explaining how to manipulate shell corporations in order to obtain loans.
"As our clients pre-pay ... we can effectively catch up on all our bills, payroll and then some, and launch another profitable endeavor, long before we even get a bill from Verizon," one reads.
Another 2008 e-mail tells Simpson he can obtain CEOs for his shell corporations, apparently by using the identities of the homeless, paid off with cash and an inexpensive fortified wine drink known as "Mad Dog," or MD 20/20. "They each get $100 cash money and a bottle of MD 20/20," the e-mail stated.
Simpson, who is in custody, could not be reached for comment.
But one of his former customers said Monday that the April raid cost his Internet marketing company dearly. "We had to sue the federal government to get our key data storage units back," said Michael Daseke, president of Liquid Motors, which was knocked offline by the April raid. "We are still waiting on the government to give us some of our equipment back."
Total costs of the outage were well into the "six figure" range, he estimated. "I think the government messed up and the criminals messed up."
It's unusual for the FBI to shut down legitimate businesses when conducting raids, but it appears that investigators thought that Core IP -- which was renting out data centre space and Internet connectivity to Liquid Motors -- might have left some evidence on its customers' computers.
Daseke isn't the only person who says he was hurt by the scam. Several of the people charged by the government were simply well-meaning employees who had no idea they were working for a criminal enterprise, said George Milner III, a partner with Milner, Finn & Price, who is representing one of the accused, Brian Haney, of Plano, Texas.
Haney was a temporary employee who was laid off and rehired several times by Michael Faulkner. "He was out of work and found out about this job through a temporary agency" Milner said. "If he had a hand in what was going on, they wouldn't have laid him off."
In court, FBI Agent Allyn Lynd testified that the Faulkners absconded to Mexico before the April raid and are now operating a similar business out of Monterrey, Mexico, Milner said.
The Department of Justice (DoJ) is unsure whether Michael Faulkner is alive or dead however. In a press release, the DoJ cited an "anonymous Internet report" claiming that he was killed while trying to return to the US.
A DoJ spokeswoman refused to provide a link to this anonymous report or comment on the case.