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Falcon May Repay Black-Box Owners

8/29/1999 8:00 PM Eastern

Falcon Holding Group L.P. agreed to a lawsuit settlement in
Santa Clara County, Calif., which could give back the restitution paid by some consumers
who were caught with "black boxes."

According to the county district attorney's Consumer
Protection Unit, people who knowingly engaged in cable-signal theft would not be eligible
for money from a $57,000 fund set up by the MSO.

But consumers who prove to county authorities' satisfaction
that they were unaware that owning the illegal box was wrong, or that the device was not
recently hooked up to cable, could qualify to get back the money they paid to Falcon to
avoid prosecution.

Most of the funds, officials said, will probably go to
public libraries in two communities where Falcon conducted a signal audit.

In total, Falcon will pay nearly $150,000 in civil
penalties and court costs and to finance the $57,000 restitution fund.

Falcon released a terse statement indicating that the
company was happy to resolve the matter.

"It is unfortunate that one of our contract companies,
Signal Audit Services, failed to perform according to the standards that they had led us
to believe they would follow. We are glad the issues concerning our customers have been
resolved, and we intend to take further action to insure that SAS bears the ultimate
responsibility for their actions," the statement said.

Holding SAS responsible might be difficult. Reached in
Colorado, former corporate officer Mike Wein said SAS is "in limbo," and it is
not an operating company. He had no comment on the settlement or on Falcon's statement.

The seeds for the dispute were planted late in 1997, when
Falcon hired SAS, which had just expanded after acquiring a four-year-old existing firm in
California.

Falcon needed to assess and cut losses due to cable-signal
theft in its central California systems, which served communities including Morgan Hill
and Gilroy. Officials were reportedly dismayed by piracy losses there that were in the 20
percent range.

According to county investigators, SAS was not properly
licensed to do business in California. Investigators also faulted Falcon because the
subcontractors wore Falcon uniforms, and not those of the subcontractor's company.

Further, the district attorney's office opined that the
auditors should have told consumers that the primary purpose of the visit was to document
illegal connections and "black boxes." Instead, the auditors said they were
merely conducting a "cable-signal leakage" audit.

During the audit, in 1997 and 1998, consumers complained to
authorities that the subcontractors were misleading consumers in order to gain access to
homes. Consumers were allegedly told that if they surrendered their doctored boxes, they
would not be prosecuted criminally. They were angered by being threatened with civil
prosecution if they did not pay restitution.

According to the county, SAS entered 2,000 homes on
Falcon's behalf. In all, 90 set-tops were seized. Demands for restitution topped out at
$2,500, and SAS reportedly recovered $90,000.

But after an investigation by the county, it was determined
that two people who paid restitution because they feared legal action by the county may
not, in the opinion of authorities, have been guilty of signal theft.

One new resident was unaware of the illegal hookup, and the
second had a doctored box that was provided by the landlord, who passed along cable
charges to the tenant as part of the rent. Those two parties paid a total of $2,000 to the
cable operator to avoid prosecution.

Deputy district attorney Martha Donohoe issued a statement
saying that her office expects few customers to qualify for rebates because they would not
be able to meet the county's two-pronged test.

"The vast majority of subscribers were not engaged in
theft of cable service, and they did not pay any sum in settlement of a civil
demand," she stated. The majority of those who did pay were stealing cable, she
added.

Falcon may have felt pressure to resolve the issue so that
the specter of a legal proceeding would not cloud its pending sale and system transfer to
Charter Communications.

The Office of Cable Signal Theft within the National Cable
Television Association declined to comment specifically on the California case and the
impact its resolution would have on the fight against piracy.

The association did reiterate that signal theft is illegal,
and that it continues to cost the industry billions of dollars in lost revenue each year.

 

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