Two directors of dealerships selling mobile phone products and services for UK retailers such as Phones 4U have been sentenced to jail for abusing the introductory sales commission system. Jonathan Shulton and James Cahill, who pleaded guilty to fraudulent trading, were sentenced at Southwark Crown Court to two years, three months imprisonment and to 240 hours Community Punishment Order respectively.
The fraud involved abusing the clawback system used in the UK for selling mobile phone contracts. A retailer, or dealership would sell a subsidised handset and receive a sales commission from the network, which was dependent on the value of the contract signed.
If a customer either downgraded their contract tariff within a few months of signing up, or even simply didn't pay their bills - then the network operator would "clawback" a portion, or even the entirety of the commission paid.
As clawbacks are generally taken some 14 - 90 days after the introduction commissions had been paid, a degree of trust was involved between the parties, particularly the agent and the dealer. If the dealer failed to refund the introduction commission, the agent took the loss, as they had repaid or were obliged to repay, the mobile phone network company.
The Shulton and Cahill business operation
Shulton and Cahill managed and controlled a number of 'dealer' companies, and basically would sell a large number of apparent contracts, and collect their commissions. As the bulk of the sales were not valid, a large quantity of clawbacks would build up and the two men would liquidate the company, leaving the debt unpaid.
Various explanations were put forward to the liquidator for the collapse of these companies including, in the case of Bellstar Telecom Ltd, the "9/11" terrorist attacks in the USA. A new company was then incorporated and traded exactly as its predecessor.
This pattern repeated itself over a number of companies whereby the location remained at the same address employing the same staff. The only real change was often the company name above the door.
Each corporate failure of the Global Group of Companies left a large number of creditors; Royal Mail lost over £260,000 and Phones 4U lost nearly £210,000. Furthermore in some instances, small businesses nearly collapsed as a result of the fraudulent management of these companies. Those especially hard hit were small personnel agencies that placed staff with the Global Companies. The total loss to the creditors of the Global Group of Companies was £1,156,779 and to the creditors of Bellstar Telecom Limited the amount was £481,767, representing a total loss of nearly £1.6 million. A common feature of the investigation was the large sums of cash withdrawn from the Global Group of Companies' bank accounts before each company was liquidated.
Proceedings
The SFO began its investigation in August 2003. This was prompted by a referral from Hertfordshire Constabulary with whom the SFO worked throughout the investigation. The two men were charged in July 2006 and pleaded guilty in July and August 2008 just before their trial was due to commence in September 2008.
A third defendant, Gregory Life was acquitted on 4 July 2008 when the prosecution offered no evidence against him.
Confiscation proceedings to seize the assets the two men owned have been adjourned until 4th March 2009.
Posted to the site on 21st December 2008
Posted to: www.cellular-news.com/story/35273.php