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Leap makes strides against fraud

SAN DIEGO—Leap Wireless International Inc. said it has made “significant progress” in mitigating the effects of recently reported fraud on its Cricket wireless service following the implementation of controls designed to detect fraud and screen out customers and dealers who engage in fraudulent activity.

The controls included improved credit card validation systems and processes that has reduced the percentage of transaction charge backs by nearly 80 percent since January; customer validation systems at the point of activation designed to prevent subscription fraud that has prevented the activation of or otherwise cleared more than 20,000 customers in the second quarter who were potentially involved in fraud; and dealer performance reviews that have eliminated approximately 15 percent of Leap’s indirect sales locations that were either under-performing or suspected of potentially fraudulent activity.

“We have instituted the necessary steps to reduce the effects of fraud while remaining focused on the growth and cost performance of our business,” said Susan Swenson, president and chief operating officer for Leap. “We have ceased doing business with a number of indirect dealers and we have been working with law enforcement as appropriate throughout this process to prosecute those who steal from our company.”

Leap also reported the progress in mitigating its fraud issues along with expectations that the business will continue to perform as planned should allow the company to meet all of its minimum earnings before interest, taxes, depreciation and amortization covenants added to its vendor facilities earlier this year.

The company did reaffirm it will have to either refinance its debt, obtain a waiver of the covenant from its lenders or raise $225 million in additional capital to pay down its debt in order to meet its total debt to total capitalization covenant by Jan. 1, 2004.

“We are optimistic that the vendors will work with us as they have done in the past, and we will be able to refinance our vendor facilities or simply amend this particular covenant if our business continues to perform as expected,” said Harvey White, chairman and chief executive officer of Leap.

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