Exclusive: Lawsuit says phone companies gouged FBI on wiretaps

A former New York prosecutor, John Prather, claims AT&T (s t), Verizon (s vz), Qwest and Sprint (s s) regularly charged law enforcement agencies 10 times what they should have for routine wiretaps. He’s now suing on behalf of the FBI and state and city police departments to recover many millions of dollars for overcharging that allegedly took place for almost 20 years.

The case provides a window on the evolving world of wiretaps during an era of increasing surveillance. But the case is complicated because Prather stands to get a big chunk of money if the case succeeds and, as the phone companies argue, he may not be a real whistle-blower in the first place.

Not your grandmother’s wiretap

The word “wiretap” itself harkens to an era when police who wanted to listen to suspects’ conversations had to physically tap a wire. In some cases, this involved climbing a telephone pole.

“In the old days, everything was copper and switches,” explained Lee Tien, a privacy expert at the Electronic  Frontier Foundation. “Now, it’s all by computers.”

To carry out wiretaps in the digital era, law enforcement agencies rely on “backdoors” built into networks and devices. The backdoors were built in response to a 1994 law called “CALEA” that required the telecom industry to make sure the government was able to monitor new technologies like VoIP and broadband.

Congress, realizing that it would be expensive for phone companies to make their equipment CALEA-compliant, authorized $500 million to help them carry out the upgrades. The law also permitted the companies to recover “reasonable” costs for carrying out wiretaps. It’s those “reasonable” costs that are the basis of the lawsuit.

Blowing the whistle

Prather, the former prosecutor, has taken on the mob and ran major law enforcement offices. In the 1990s, he headed up the New York Statewide Organized Crime Task Force under then-Attorney General Eliot Spitzer. During this time, his office conducted over 200 wiretap investigations a year.

After the CALEA law passed, Prather noticed that invoices from the phone companies spiked dramatically. He says that agencies typically requested the wiretap in the midst of an urgent investigation but that the bills would arrive months later. Despite what appeared to be a tenfold increase in prices, the bills provided no explanation of what exactly the phone companies were charging for.

In 2009, Prather brought his lawsuit to recover “potentially hundreds of millions of dollars” on behalf of the FBI, state governments and police forces in cities like Chicago and New York. The court sealed the case but finally opened portions of it two years later. Available documents include an amended complaint filed by Prather this summer. The complaint doesn’t list a specific dollar figure, but it’s possible to make a rough estimate based on reports from the courts and a watchdog group; the reports say judges authorize around 3,000 wiretaps a year at an average cost of about $50,000 each.

The complaint also argues that new technology means that wiretaps should now be cheap and easy:

This digital upgrade means that, today, all current wiretaps are performed by a simple flick of a switch by the Telecoms. Virtually no labor is necessary. All software and hardware necessary to make this change has been paid for by citizens of the United States via CALEA. This switch duplicates the call information from the targeted line (including both audio information and information such as caller identification) and forwards it along the Telecoms’ network to a Law Enforcement Agency’s call center, after which point the Telecoms perform no additional role in the eavesdropping service.

The complaint also accuses the telephone companies of using expensive and unnecessary techniques to tap conventional landlines. It says the companies pointlessly installing super-sized T-1 lines in cases when a regular residential line would have sufficed.

What’s a fair price price for a wiretap?

Prather’s complaint alleges that, on one occasion, a phone company billed the FBI $100,000 for a single, one-month wiretap and also cites a 2008 audit to claim that the average cost is $50,000.

In response to an email query, Verizon declined comment on the suit; AT&T stated that Prather’s complaint was “without merit.” Neither AT&T, Verizon nor Sprint provided information about what they charged per wiretap.

Public information obtained by the ACLU earlier this year, however, provides some details based on documents provided by the companies. As reported by Forbes: Sprint charges: $400 per “market area” and per “technology” plus $10 per day; AT&T charges a $325 activation fee, plus $5 per day for data and $10 for audio; and Verizon charges a $50 administrative fee plus $700 per month.

And in May, in response to a request from Congressman Edward Markey (D-MA), a Verizon letter stated that the company charges $750-$1,850 per month for an initial wiretap and $500 to $1,250 to renew a wiretap.

It’s not clear how long these prices have been in place. Prather’s lawyer, John Balestriere, wants the companies to explain their rates. He asks why law enforcement agencies must pay so much more than what their targets pay for their monthly phone bills. “There’s nothing special about a wiretap. Generally a wiretap is like a phone line,” said Balestriere. “The silence on this issue is deafening.”

A patriot or a parasite?

If Prather’s allegations are true, his suit could result in a big reimbursement to the federal government and the states — an action most taxpayers would applaud. But the process isn’t that simple.

Prather is coming forward as a bounty hunter through a rare legal procedure called a qui tam suit. Qui tam lawsuits grew out of the Civil War when unscrupulous military contractors overcharged the government for military supplies. The idea is to encourage private citizens to blow the whistle on fraud by allowing them to share in the money that the government recovers (awards are 15 percent  to 25 percent).

Typically, a qui tam bounty collector works for a private company — for example, a pharmaceutical or weapons executive. In the wiretap case, however, the phone companies have argued that Prather isn’t eligible to bring the case, in part because he was a government employee who should have reported any perceived overcharges as part of his job. That question is now before the judge.

Balestriere has blasted the phone companies for suggesting that his client is a parasite, and says Prather is an honorable public servant who is going to bat for law enforcement agencies and the taxpayer.