Lawsuit

03.06.12

Two Companies Accused of Fleecing U.S. Troops

A lawsuit alleges that members of a prominent Tijuana family are ‘defraud[ing]’ American military personnel going to and from the wars in Afghanistan.

During the past four years, roughly 800,000 members of the American military have passed through the airport in Leipzig, Germany—a popular refueling stop for soldiers going to and from the wars in Iraq and Afghanistan. Members of the armed forces who want to call home can use a pay phone service in the airport’s secure military lounge. But those calls may have been costing the service members dearly: according to a recent class-action lawsuit filed in U.S. District Court in Waco, Texas, the Switzerland-based company that runs the pay phone service—and its sister firm in California—have been “rigg[ing]” the phones to sometimes charge more than $40 for a call lasting mere seconds.

The two companies—BBG Global AG and BBG Communications Inc.—are owned, according to the lawsuit, by trusts belonging to the families of Rafael and Gregorio Galicot. The two, who are American citizens, are the sons of José Galicot, a prominent Mexican businessman and philanthropist known to some as the “godfather of Tijuana.” For years, the elder Galicot has been a relentless champion for the Mexican border city, touting its industries and culture and trying to help Tijuana shed its reputation for drug-related violence. In the fall of 2010, Galicot—who reportedly splits his time between Mexico and California —organized Tijuana Innovadora, a $5 million celebration; speakers included Mexican President Felipe Calderón, Al Gore, Larry King, and Mexican billionaire Carlos Slim.

Requests for comment from Rafael and Gregorio Galicot and from a representative of their trusts went unanswered. An attorney speaking on behalf of BBG Global and BBG Communications denied the allegations contained in the suit and has filed a motion to dismiss it.

Though both Galicot brothers reside in San Diego, their pay-phone empire appears to be a tangled web that spans continents. Gregorio and Rafael are president and vice president, respectively, of BBG Communications. The company, which is based in a gleaming office building in San Diego, operates broadband kiosks, prepaid card services, and public telephones, among other things, in Mexico and North America; clients include Panasonic, Marriott, and TelMex, the Mexican telecom giant owned by Carlos Slim, according to BBG Communications’ website.

BBG Global, which has a small, nondescript office in Baar, Switzerland, processes roughly 300 million minutes per month in 65 countries; the company provides service to more than 350,000 public pay phones and more than 2 million hotel rooms across the globe, according to its website. BBG Global’s staff can be elusive, however: recently an NBC News team investigating the allegations in the Texas lawsuit visited the BBG Global headquarters in Baar during normal business hours and found no one around; a building handyman told NBC that he rarely sees anyone in the office. No telephone number was listed on the company’s website as of this article’s publication.

An attorney speaking on behalf of both BBG Global and BBG Communications said that the Switzerland-based BBG is run by its managing director, Irene Fedier. Yet Gregorio Galicot is the company’s chief executive and chairman of the board, according to public records compiled by the firm Dun&Bradstreet dating from November 2011. In a signed declaration for the Texas case, Fedier stated that before board meetings, she forwards financial and company documents to Gregorio and the firm’s other board member. All of BBG Global’s back-office administrative duties, she stated in the declaration, have been outsourced to BBG Communications in San Diego. (BBG Global’s attorney says Rafael Galicot is not an employee of the company.)

Both BBG Global and BBG Communications denied that the family patriarch José Galicot works for either company—though as of press time, the elder Galicot had an automated message mailbox at BBG Communications Headquarters in San Diego. José also runs a business called G-Tel, which handles customer complaints for both BBGs, and he heads his own BBG-named firm, the Mexican pay phone company BBG Comunicación, according to the BBG Global and BBG Communications attorney. The elder Galicot was not mentioned in the lawsuit, but several sources who have worked with him, with BBG Global, or with its business partners, said the companies are all intertwined and that the elder Galicot is intimately involved in his sons’ enterprises. (José Galicot did not respond to requests for comment.)

The lawsuit—filed by a Texas-based military family on behalf of other military personnel—claims that BBG Communications and BBG Global are essentially the same operation and that the latter firm is merely “a Swiss charade.” A similar lawsuit filed in 2011 against BBG Communications and BBG Global in U.S. District Court in California, and subsequently settled, alleged that, since 2006, BBG Communications had registered dozens of fictitious business names in San Diego. John Mattes, the San Diego–based attorney who brought the Texas class-action suit to court, says he has discovered more than 80 such front companies.

“This scheme has allowed the Galicot family that owns BBG to pocket millions of dollars from our troops,” Mattes alleged in the Texas lawsuit.

On March 1, Sen. Barbara Boxer (D-Calif.) sent a letter to Gregorio Galicot saying: “No service member on deployment should face such excessive charges simply to talk to their loved ones. I urge you to end this deceptive practice.”

Though both Galicot brothers reside in San Diego, their pay-phone empire appears to be a tangled web that spans continents.
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Ananda Dinnis / Courtesy of Dharma Corder

An attorney for BBG Communications and BBG Global said that the two firms are indeed separate entities. Neither, the attorney said, determines the rates for the calls in the Leipzig airport and that BBG Global’s practices are in accordance with the law in Germany where the phones at issue are located. “Any accusation or inference that American military personnel are being targeted with inflated rates is untrue and offensive,” the attorney said. “There are costs associated with providing international operator-assisted credit-card calls. Payphones are old technology, and prices have not declined like with newer forms of telecommunication.”

The attorney said that customers are given the option to press number 3 for pricing information before a call is connected and that, according to the disclosed pricing structure, a call lasting seconds can cost as much as one that lasts up to five minutes. The attorney added that BBG Communications’ and BBG Global’s use of dozens of names is standard practice for corporations and not evidence of any wrongdoing.

Eric Sussman, a senior lecturer at UCLA’s Anderson Graduate School of Management, said that while it’s not unusual for companies to use various names for tax or liability reasons, for instance, more than 80 names “sounds like a heck of a lot.”

“I wouldn’t say it’s a smoking gun,” Sussman said. “But it has an odor to it.”

A spokesperson for the Federal Communications Commission, the government agency that regulates the pay-phone industry, said the FCC cannot comment on whether or not a company is complying with its rules.

Mattes had previously assisted plaintiffs in yet another lawsuit filed in U.S. District Court in California on behalf of nonmilitary families who sued both BBG Communications and BBG Global. The suit was dismissed for jurisdictional reasons, and the court ruled that BBG Communications and BBG Global were in fact separate entities.

The named plaintiffs in the Texas class-action case are Sgt. Richard Corder, an Army infantry squad leader, and his wife, Dharma. In an interview with The Daily Beast, in which he repeated many of the allegations contained in the lawsuit, Sgt. Corder said that when he returned for his third and final tour in Iraq last May, he called his wife after landing in Leipzig to reassure her one last time before he deployed.

Using one of the pay phones in the airport military lounge, Corder told The Daily Beast that he called the operator to see how much it would cost to talk to his wife in Texas. (There is no mention of Corder speaking to an operator in the lawsuit). The phone, he said, did not display the cost of the call and would not accept military calling cards. Corder says he found it odd that the operator would not give him the cost of the call and instead aggressively pushed him to connect. Like most troops, Corder didn’t carry an international cellphone because Skype and pay phones on military bases are cheap and readily available options. Eventually Corder said he acquiesced, and the operator connected him. His wife didn’t pick up, but he left a message.

The attorney for BBG Global and BBG Communications said that Corder never spoke to an operator or even attempted to. The attorney added that Avanticom, a German firm that owns the phones, sets the rates for calls. Mattes, Corder’s attorney, said that BBG Communications sets the rates. Avanticom did not respond to requests for comment.

When Corder’s wife received the bill for the call, she told The Daily Beast that she was shocked: a voicemail that, she said, lasted just three seconds cost $41. Deutsche Telekom, the largest phone company in Germany, told NBC News that it would have charged roughly $10 for a similar operated-assisted call to the U.S., but the BBG attorney said the rate Corder was charged is similar to all other pay phones in the country.

The bill Dharma received simply said “BBG” on it, according to the lawsuit, so she called BBG Communications in San Diego to complain. The company gave her a number for a call center owned by G-Tel, José Galicot’s company that handles complaints for both BBG Communications and BBG Global. The operator, Dharma said, wouldn’t help her because she didn’t have her husband’s debit-card number on hand. She then sent a formal letter of complaint and said she received no response. Irate, she Googled the firm and claims she discovered hundreds of similar cases from civilians and soldiers alike.

Over the past three years, the Council of Better Business Bureaus, a Virginia-based nonprofit that helps consumers find trustworthy firms, said it has received more than 450 complaints about BBG Communications. The company has received a grade “F” on the CBBB’s website.

According to the lawsuit, Mattes, the Corders’ attorney, has received many other complaints from military families about BBG Communications and BBG Global. Some claim charges of more than $50 for calls under a minute. Even customers who pressed 3 to receive an automated rate as advertised were offered a rate that was far less than the actual charges, according to the lawsuit. The attorney for BBG Global and BBG Communications disputed this claim.

Those, like Corder, who claim to have spoken to an operator, said they have been met with evasion. According to the lawsuit, BBG Communications and BBG Global conspired with a call center to “train operators who take calls from the troops never to reveal the true costs of the calls unless specifically asked.” A former employee of a call center that has a contract with BBG Communications and BBG Global supported this claim in an interview with The Daily Beast.

Pages of a call-center manual used for BBG Communications and BBG Global customers, which was obtained by The Daily Beast,  instructs operators to “Never quote [the] 10 minute rate!” which is a higher total dollar value than the one-minute rate. “We will never rate a call unless the customer has specifically asked for the data,” the manual also states.

The BBG attorney said this manual presents standard industry fare, and that BBG Global and BBG Communications have many repeat customers who know how much their calls cost before they place them.

Yet a former BBG Global employee, speaking on the condition of anonymity, sees things differently.

“It’s pretty simple,” the former employee said. “If someone knows the cost of the call they aren’t going to use the service.”