(WEB HOST INDUSTRY REVIEW) — After refusing to comment to local news sources during a raid on the Texas data centers of colocation company Core IP last week, the FBI defended its raids this week in a lengthy and detailed article on the seizures posted within Wired’s Threat Level blog.
According to the Wired News article – which focuses mostly on an earlier seizure of equipment hosted by Crydon Technology that took place on March 12, but also deals with the Core IP raid on April 3 – the raids were part of an investigation into complaints filed by AT&T and Verizon of unpaid bills the companies claimed were owed them by smaller VoIP providers operating in the data centers.
Data center operators have complained that the telcos are using the FBI to address a situation that should have been settled in civil court. But on Tuesday, spokesman for the FBI’s Dallas office Mark White told Wired News the agency was working on a fraud case, and said a federal judge wouldn’t have signed a search warrant for a civil case.
According to Threat Level, companies whose equipment was seized – a list that includes local VoIP providers, a credit card company, a video game software developer and many others, according to Wired – say they have lost millions of dollars in equipment, and an incalculable amount of business, as a result of the raids.
The bulk of the story deals with the seizure of equipment from the colocation facility operated by Crydon Technology on March 12. FBI agents reportedly took about 220 servers belonging to the company’s owner Mike Faulkner, he says, as well as networking equipment, racks and even power strips. Faulkner says about $200,000 was seized from his business bank account, and claims authorities raided his home, seizing iPods and video game systems belonging to his children. He also says money was seized from his teenage daughter’s bank account, and the account of the elderly mother of his former comptroller.
Faulkner says he has lost millions in revenue as a result of the raids, and many of his affected customers have gone, or are at risk of going, out of business. Last week’s raid on Core IP is related to the Crydon seizures, though Core IP owner Matthew Simpson has been quiet on the matter, with the exception of a letter he posted online following the raid last week.
The Wired article includes a 39-page PDF of the affidavit in the case, which claims that a number of conspirators who may have connections to Faulkner conspired to acquire connectivity services from AT&T and Verizon in order to operate their VoIP services – providing forged documents in the process – and have since racked up more than 120 million “physical connectivity minutes,” but have not paid for the services, and now owe the telecommunications companies about $6 million in fees.
Faulkner was previously part owner of one of the companies mentioned in the affidavit, Premier Voice, but he sold his stake in the company about a year ago. He tells Wired that Premier did owe money to AT&T at one time, but the debt was taken on by the company’s new owner when he sold it. He adds that the money owing should be classified as “debt” and not “fraud.”
The implication of the statements by Faulkner seems to be that the treatment of the case as a fraud by the FBI, and by the telcos involved, is an example of a kind of big-business bullying that is nearly impossible to fight back against. He says he was never contacted by either company asking for debts to be repaid.
More significantly, he claims the FBI’s mishandling of the case – seizing everything in the facility rather than targeting the specific VoIP companies accused of fraud – has done irreparable damage to some innocent customers of his who have nothing to do with the case and just happened to be collocated at Crydon, in some cases literally putting them out of business.
A quote given by FBI spokesman White in the Wired story certainly suggests a problematic, if not outright callous, misunderstanding of some of the fundamental issues underlying the operation of a hosting business.
“My understanding is that the way these things are hooked up is that they’re interconnected to each other,” says White, quoted in the article. “Company A may be involved in some criminal activity and because of the interconnectivity of all these things, the information of what company A is doing may be sitting on company B or C or D’s equipment.”
Crydon customers say they weren’t able to convince FBI investigators that their equipment was separate from the case.
White goes on to say that the FBI is working with companies affected by the raids to provide copies of the data seized with their equipment so they can get their businesses operating again. He says the FBI has “repeatedly asked companies” to call and provide the information they need to return the data.
Faulkner says the accusations leveled against him in the affidavit by a confidential informant come from a disgruntled former employee who was fired after he failed to perform his duties.
About Liam Eagle
Liam Eagle has worked as a contributor to the Web Host Industry Review since its inception in 2000, and as editor since 2003. He has been editor of the WHIR's print magazine since its launch. His daily involvement in the gathering and reporting of Web hosting news and his regular interaction with Web hosting leaders gives him an uncommonly broad appreciation of the issues and tends facing the business. Through his WHIR blog, Liam spots Web hosting trends and offers opinions on the industry-wide impacts of major developments and the motivation behind big announcements. Follow him on Twitter @liameagle
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