Pay to Play

The son of a world—renowned chef says he wanted to reform the phone industry. The feds say he wanted to get rich quick.

" ... It was sort of lurking in the back of my head [that] if there is anything wrong with what's going on right now," David testified, "there is no way in hell I want to bring in anyone I know."

Cornet agreed to deposit the check in his law firm's trust account, a fund typically reserved for clients' monetary settlements and awards. Within a few days, he wrote a check in the same amount to David, who deposited it in his own bank account. In all, Cornet converted seven Jacobs-Jansen checks totaling $444,000 on David's behalf, a pattern that would result in felony money-laundering charges against David.

Cornet, who helped David for free and faced no criminal charges, declined to comment to SF Weekly. But on the stand he explained why he hadn't sought to meet Jacobs or Jansen before accepting the checks. "I had total trust in Danny."

For his part, David, aside from queasiness over using aliases, retained complete faith in the legitimacy of his and Nisbet's purported survey. The call logs they received with their checks showed that long-distance carriers failed to reimburse them for about 30 percent of their toll-free calls, David stated in court. That figure, if applied across the country, translated to a loss of $300 million in revenue to pay-phone operators.

In April 1999, seeking to elude the detection of long-distance carriers, Nisbet paid $10,000 to a tax accountant to create four shell companies in Nevada. The ruse aimed to reduce the suspicion of carriers — smaller dial-around payouts sent to multiple addresses would gain less notice than a large check mailed to the same location each quarter.

But by August that year, as their autodialer continued calling thousands of numbers a day, David and Nisbet learned that the long-distance companies under their gaze might be watching them. They received a call from a man who worked for one of the industry clearinghouses that collected their dial-around compensation. He sounded nervous, David testified.

" ... It was almost as if either somebody was sitting next to him or someone had told him not to talk to us, I don't know," David said. "But the message was, ÔThe telecommunication carriers are interested in using you as a test case.'"

The same month, as they later found out, an AT&T fraud investigator contacted the FBI to discuss a pay-phone anomaly in South San Francisco. He had discovered that each of the 23 lines at the location generated as many as 300 toll-free calls a day on AT&T's network alone. None of the calls lasted longer than 45 seconds, and the lines turned on and shut off in synchronicity every day. He surmised an autodialer at play — a violation of the federal telecom statute that bans the use of the machines for calling 1-800 numbers. The feds reviewed his analysis and launched an investigation.

In October 1999 FBI agents and South San Francisco police obtained search warrants for David and Nisbet's office. There was no autodialer. At David's trial, Steve Coffin, the FBI's lead agent on the case, stated that someone in the SSFPD called Nisbet a short time before the raid; David testified that the partners heard about the search from the building's landlord after it occurred. Either way, their operation ceased.

The feds built their case against David and Nisbet for more than two years. (Coffin eventually traced the autodialer's paper trail to the New York company where Nisbet bought it. At his trial, David said a friend had placed the machine in storage.) Rather than retreat during the probe, however, the two men renewed their efforts to bird-dog the telecom industry.

In February 2002, a month before a grand jury indicted them, David and Nisbet sued AT&T and the city and county of San Francisco. The pair alleged that prepaid calling cards jointly sold by the three parties failed to divulge the surcharge callers absorbed when using the card from pay phones.

The case settled a year later, after AT&T agreed to distribute $50,000 worth of free calling cards to low-income residents. The deal also required the carrier to disclose the pay-phone surcharge on vending machines nationwide where it sells the cards. (AT&T officials did not respond to requests for comment for this story.)

San Francisco attorney Charles Carbone represented David and Nisbet in the calling-card case. A telecom expert, he vouches for the authenticity of their dial-around compensation research, contending that the 60-page survey they produced bolstered their claims on the pay-phone industry as a whole. He further argues that David and Nisbet stopped shy of breaching the autodialer statute, which prohibits using the device for the sole purpose of generating revenue.

"These guys weren't just trying to make money," Carbone says. "They were performing a public service, as they did in bringing attention to the surcharge on [AT&T's] calling cards."

Nonetheless, a federal grand jury indicted the business partners in March 2002 on charges of mail fraud, money laundering, and using fictitious names for a fraudulent scheme. Prosecutors alleged that David and Nisbet bilked $444,000 from long-distance carriers and some 2 million toll-free subscribers, each of whom lost 24 cents apiece.

The vast majority of cases involving alleged violations of telecommunications law end up before the FCC. The agency tends to dispense justice by meting out fines and suspending or revoking operating rights, though it also can refer cases to federal and state agencies for criminal prosecution. Carbone believes David and Nisbet's case belonged before the FCC. The agency never saw it.

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