Feds Untangle $20 Million Scheme Against Telecom Companies

Dec. 24--For years, a dozen or more conspirators ran a scheme in North Texas to rip off some of the nation's telecommunication giants.

In the end, the $20 million cybercrime spree crumbled because of evidence painstakingly gathered from businesses and seized from the homes of conspirators, including a Southlake man who once boasted of concocting the "truly evil" plan.

Even then, as investigators sifted through the evidence, Michael Blaine Faulkner was trying to persuade his cohorts to lie to the FBI and hide assets, court records say.

This week, two conspirators, Nathan Todd Shafer, 32, of Irving and Matthew Norman Simpson, 26, of Red Oak, were convicted by a federal jury of one count each of conspiracy to commit wire fraud and mail fraud, federal officials said. Simpson was also convicted on three other counts.

Twelve others charged in the case have pleaded guilty to their various roles, including Faulkner and his wife, Chastity Lynn Faulkner.

Federal prosecutors could not be reached for comment Friday.

The fraud went on for years as the conspirators played shell games and ripped off telecommunication giants for services they seldom paid for, court records say. The scheme included using homeless people, fake tax documents, bogus financial statements and ever-changing addresses.

To prosecute the case, the government gathered a truckload of evidence. The list of its exhibits runs 76 pages. Each page is filled with about 30 numbered evidence items to present at trial: invoices, contracts and financials.

There were e-mails discussing subjects such as avoiding detection, due process, "burning cash," "flaming ferrets" and hiding spam.

Federal agents seized tax reports, passports, computers, memory sticks, hard drives and power supplies.

The trial of Shafer and Simpson spanned more than two months.

The government presented evidence that, as part of a conspiracy, the men lied to obtain goods, such as computers and telecommunication equipment. They also created and bought shell companies to hide the identities of the owners or operators of the companies.

"The conspirators paid ... homeless persons for the use of their identities to 'act' as the officers, directors or managers of the shell companies," a news release from U.S. Attorney Sarah R. Saldana said.

The conspirators defrauded companies including AT&T, Verizon, XO Communications, Excel Communications, Waymark Communications, Bandwidth.com and CommPartners, the government said.

Landlords were stiffed. Leasing companies and creditors, including Wells Fargo and AT&T Capital Services, weren't paid. Credit-reporting agencies, power companies, insurance and air-conditioning companies, and website developers were among those deceived.

Faulkner's role

Faulkner appeared to be among those calling the shots. The father of three, in his mid-30s, was already a convicted felon with a criminal history that included possessing machine guns and using pipe bombs to blow up mailboxes.

He was in a shootout that caused a woman to die after she was hit in the crossfire between Faulkner and another man. No one was convicted in her death.

A former federal prosecutor who handled several cases against him has described him as "highly intelligent." But former Assistant U.S. Attorney Tonda Curry has also said, "Faulkner was one of the few who were truly evil."

By October 2001, Faulkner began selling broadband Internet service in Longview. He used the name of a fellow offender he'd met in prison to obtain a credit card processing service.

In 2004, Faulkner moved his company to Dallas and rented office space. The Faulkners bought a house in Keller by falsifying tax documents and altering bank statements. Faulkner's company Aesir had a steady income source providing Internet services for people sending spam e-mails.

Through the years, Faulkner changed company names to avoid paying debts and sent e-mails to companies saying he had no connection to a company he once owned, court documents say. Faulkner also avoided paying bills by claiming an invalid contract, saying payment had already been made or threatening litigation if services were disrupted.

In a 2006 e-mail, he explained his business model: "Vendors ... we bypass. Usually, I leave these deals owing [money], and 50 percent of the time the company gets acquired, goes under or otherwise falls apart before they pursue collections."

Faulkner described the model as "not exactly 100 percent ethical."

In 2007, the Faulkners moved to Southlake, falsifying documents to obtain a loan for a half-million-dollar home. Two years later, the FBI raided it.

Faulkner fled to Mexico, followed by his wife, his children and his business associates.

All used aliases and false identification documents Faulkner created. An anonymous Internet posting said Faulkner had been killed by a border soldier at a crossing.

But Faulkner was in Cancun, where he and others "continued their operations in Mexico," according to government documents.

Mexican authorities extradited them to the U.S.

Faulkner, who pleaded guilty to conspiring to commit mail fraud and wire fraud and to obstructing justice by concealing assets, faces up to 20 years in prison for each count.

The jury in the Simpson and Shafer case found that $4.5 million in property primarily associated with Simpson will be forfeited. The two face maximum sentences of 20 years on some counts.

During the trial, two other defendants were acquitted.

Two others charged in the case are believed to have fled the country.

This report includes material from the Star-Telegram archives.

Darren Barbee, 817-390-7126

Twitter: @DarrenBarbee

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