The first business Daniel David and Scott Nisbet set up - selling Christmas ornaments that doubled as smoke detectors - was an unmitigated failure. Their second venture, collectible prepaid calling cards, was met with puzzled stares. But their third brainchild, a pay phone leasing scheme, raked in the cash. Too bad it also earned them a criminal indictment.
James Coleman
1-800-INDICTED: David and his partner are charged with fraud.
The idea was to take advantage of regulations that require US long-distance carriers to give pay phone owners 24 cents for every toll-free call. It was almost too simple: According to the feds, in 1999 David and Nisbet leased two dozen phone numbers and purchased an Audisys dialing system and a CD-ROM directory of 800 numbers. With his physics degree and a bit of wire, Nisbet, nerdy and quiet, had the equipment soldered together and online in a few weeks. It dialed toll-free business numbers 24/7 from an office in South San Francisco, California. At the end of six months, they'd collected $444,199.
Just one problem: An AT&T security official noticed "unusually large" checks being sent to the pair. An investigation revealed that the names used to lease the lines, Bill Jansen and Dave Jacobs, were fictitious, and that their business address in Scottsdale, Arizona, was just a rented box at Mail & More. Oh, and it seems an attorney was funneling the money through his account to David's.
Served with a 17-count indictment for conspiracy, money laundering, tax evasion, and fraud last year, David and Nisbet stood their ground, claiming they'd done nothing wrong. Today, their fate, which could include decades of jail time and millions of dollars in fines, is still undecided. (David just fired his third attorney, putting a court date on hold.)
The thirtysomething duo's defense is nothing if not original. According to David, perpetually slick in a pinstripe suit, the two had acted in the public interest, dialing up an estimated 2.6 million toll-free numbers as part of research for a planned $100 million class action against AT&T and others. "We didn't believe the phone company was reimbursing for every single toll-free call," he says, pointing out that, with annual pay phone compensation amounting to $1 billion, a discrepancy of 1 percent would be worth $10 million to long-distance carriers. "We were right. Our survey shows that they're only counting 70 percent."
And the fictitious names? The Arizona mail drop? The shell companies? All for the sake of accuracy, so the telcos wouldn't catch on and skew the results by reimbursing the full 100 percent.
The government isn't buying it. Assistant US Attorney Matthew Jacobs says he "can't comment on the evidence," but he's forging ahead with the case. David and Nisbet aren't taking any chances: They say all the money their business made - supposedly earmarked to help fight class actions after paying their "salaries" - is going to criminal attorneys.
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