BellSouth Accuses Former Executive of $4.9 Million Incentive Swindle

BellSouth filed a racketeering lawsuit against a former executive, claiming she bilked the company out of $4.9 million through a complex scheme involving an outbound telemarketing incentive program, according to court documents obtained by DM News last week.

Patsy M. Cotter was a BellSouth employee for nearly 25 years and a manager in the Alternative Channel Group, which handles BellSouth's outbound telemarketing programs, when BellSouth fired her Oct. 23, 2003, according to the documents. In the lawsuit, filed June 3 in U.S. District Court in Atlanta, BellSouth alleged that Cotter funneled money from BellSouth's telemarketing incentive program to outside companies run by her husband and friends.

BellSouth, Atlanta, is suing Cotter, her husband and two others under the federal Racketeer Influenced and Corrupt Organizations, or RICO, statute. Congress created RICO to give law enforcement leverage against organized crime, but it has been expanded for use in other areas, including civil actions. The RICO act lets victims sue for triple the amount of actual damages.

Kevin Bahr, Cotter's attorney with Atlanta law firm Mason, Harris & Bahr, said Cotter is currently unemployed. He declined to answer questions but issued a statement that first appeared in the Atlanta Business Chronicle last week.

“The complaint only tells one half of the story,” Bahr said. “We look forward to filing our answer and responding to the allegations. Pat Cotter created an incentives program for BellSouth that exceeded all expectations. This is a business dispute, and we look forward to our day in court.”

The lawsuit centers on the BellSouth Bucks Program, which let telemarketing agents working for service agencies employed by BellSouth earn points on successful sales calls and trade them in for merchandise. Cotter initiated the program in November 2002 and was its exclusive administrator, according to BellSouth's lawsuit.

Cotter authorized an outside vendor, WRM Enterprises, Stone Mountain, GA, as a supplier of merchandise for BellSouth Bucks. From November 2002 to Cotter's firing, WRM received $4.9 million from BellSouth on invoices for merchandise, according to the lawsuit.

But the lawsuit alleges that WRM did not buy the merchandise for the incentive program. Instead, it provided cover for a company owned by Cotter and run by her husband, Paul, to take millions from BellSouth, the suit claims.

WRM's CEO was Lynn Moon, a friend of Cotter's for 30 years, according to the lawsuit. It formed in 1999 in South Carolina for the purpose of selling real estate, and it incorporated in Georgia solely to participate in Cotter's scheme, BellSouth alleged.

The company actually buying the merchandise was P2 Marketing, Snellville, GA, BellSouth alleged. Patsy Cotter owned 51 percent of P2, and her husband owned the rest and was the company's chief manager.

P2 Marketing bought merchandise for BellSouth Bucks at markups ranging from 15 percent to 8,509 percent, according to the lawsuit. It then would invoice WRM, which would mark up the total another 10 percent and invoice BellSouth for the whole amount, the suit claimed.

WRM kept 10 percent of the total invoice for itself and sent the rest to P2 and the Cotters via mail and wire transfer, BellSouth alleged. WRM is accused of acting as a “shell” to obscure that P2 was making the actual purchases at inflated and exorbitant levels.

Another part of the scheme involved a company called Custom Concepts, Cumming, GA, run by a woman named Debra Booth, according to the lawsuit. Custom Concepts also supplied items for BellSouth Bucks and billed the company for $900,000, but it failed to disclose that it paid Paul Cotter $230,000 in 2002 and 2003 as commission for selling merchandise to the program, BellSouth alleged.

Patsy Cotter made another $1.2 million in purchases for BellSouth Bucks on her own, buying “expensive and extravagant merchandise,” the lawsuit claimed. Items included remote-controlled airplanes, DVD players and Coleman grills for more than $100, Sony Playstations and digital cameras for nearly $300, home theaters for more than $400 and Hitachi personal DVD players for nearly $700.

According to the lawsuit, Cotter signed a statement at her termination acknowledging that she concealed her relationship with Lynn Moon and her husband's role in the program and described her conduct as “unethical.”

In a statement, BellSouth said it was continually reviewing and upgrading its security measures. In this case, the fraud was discovered and the perpetrator was terminated, the company said.

“Every corporation must deal with some degree of employee fraud,” the company said. “With the strong system of business controls that BellSouth has in place, fraud is rare and when found it is dealt with swiftly.”

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