Cells and resells
COLUMBUS, Ohio — People moving state to state, armed with cash and tricks to avoid scrutiny, are buying cheap prepaid mobile phones by the thousands with plans to sell them in Latin America and Hong Kong.
Cell phone companies say the practice is costing them millions of dollars, and some have hired private investigators to document what they say is illegal tampering with their phones. Wal-Mart, Radio Shack and other retailers are limiting how many phones they will sell at one time.
The buying has raised concerns the phones might be used to aid terrorism, though those in the trade say it’s nothing but capitalism at its best — no different from reselling stock for more than you paid.
The Federal Bureau of Investigation and Department of Homeland Security issued nationwide bulletins earlier this year warning police to be on the lookout for bulk purchases of cell phones. Authorities are worried that profits from the trade could end up financing terrorism or that the phones could be used as detonators in attacks.
The practice — at the center of court cases in Florida, Ohio and Michigan — appears widespread and in no danger of subsiding soon. Participants in the trade don’t appear very bashful.
“Don’t leave a phone behind. To make real money buy them all,” urged an e-mail by Larry Riedeman of Larry’s Cell in Altamonte Springs, Fla., that was included in a lawsuit against that entity by TracFone Wireless Inc. “Thousands a day if you can!”
Riedeman and other small companies are considered the middlemen in a system that starts with buyers snapping up phones at retailers such as Wal-Mart Stores Inc. and ends with resale of the phones overseas.
In Ohio, two men acknowledged last month to authorities that they had delivered 600 TracFones to a middleman over three months.
Also in August, three Dallas men briefly charged in Michigan with trafficking counterfeited goods told the FBI that several businesses in Texas buy telephones “from hundreds of people like themselves,” according to an FBI filing in that case. The phones are then sold to middlemen in California, New York or Miami.
Another buyer, Bilal Mustafa, 22, of Minneapolis, told the Associated Press he travels around the Midwest a week at a time in search of phones. He and a buddy will buy four to six at once at small-town department stores, as many as 250 a day.
Mustafa sells them to a cell phone business he wouldn’t identify. He says he’s doing nothing illegal and scoffs at FBI concerns that the practice could aid terrorists.
“If it did, I wouldn’t do it,” said Mustafa, a Palestinian immigrant from the West Bank. “I’m not stupid.”
Purchasing cell phones in bulk is not illegal and authorities haven’t had much luck trying to prosecute the buyers. Recently, a federal judge threw out the charges against the men in the Michigan case, saying there wasn’t enough evidence to take the case to trial.
The middlemen indicate an apparently insatiable hunger for the phones, with profits in some cases of 100 percent for a handset that retails for as little as $20.
The phones are so cheap because TracFone and other providers of prepaid cellular service sell them at a loss to create a market for their real profit maker, selling customers more call time.
Mustafa wouldn’t say how much he earns on each $20 phone but said it’s a reasonable profit.
“I don’t think I’ll make a million bucks,” he said. “Just enough to take care of my car, my gas, a hotel and make a little money.”