The Federal Trade Commission announced today that the federal district court for the Southern District of New York has approved an agreement between the Commission and a major billing aggregator and its subsidiary, settling charges brought by the FTC for their role in an alleged illegal scheme misusing the international telephone billing system to charge consumers for "videotext" services - Internet-based "adult" entertainment - that the consumers never purchased or authorized.
Through the scheme, thousands of consumers were billed an average of $127 apiece for services that they did not even know had been accessed through their phone lines. The charges for the videotext services were represented as international telephone calls to Madagascar, an island nation off the east coast of Africa. Under the terms of the settlement, the companies will waive any claim to $1.6 million in payments collected from consumers for these videotext services.
In addition, the defendants are barred from billing or collecting any charge based on electronic capture of a consumer's phone number through automatic number identification (ANI) - a system like Caller ID - when the defendants know or should have known that the line subscriber (the person responsible to pay charges billed to that phone number), or someone authorized by the line subscriber, did not authorize the charge. To help ensure that the companies are aware of charges that are not authorized, the companies also will be required to investigate consumer complaints about unauthorized billing in the future.
According to the Commission, Integretel, Inc. and eBillit, Inc. (the Integretel defendants) illegally billed thousands of consumers for "videotext" services. In many instances a consumer was completely unaware that charges had been incurred based on his or her phone number - charges that had been incurred by someone else who used the consumer's computer and phone line without permission. In addition, when consumers called the defendants' customer service number to dispute the bills, they were falsely told that the charges were valid and that they legally obligated to pay them.
"This settlement serves notice to billing aggregators that if they support fraudulent activities, they will be held responsible for their actions," said J. Howard Beales III, Director of the FTC's Bureau of Consumer Protection. "It also points to the importance of consumers filing fraud complaints with the FTC. By spotting trends among the consumer complaints in our database, we were able to identify the fraudulent activity and put a stop to it in less than three weeks."
In late September of 2000, the FTC's Consumer Response Center began receiving numerous complaints about bills received for Internet videotext services. Based on these complaints, the Commission opened an investigation that led to charges being filed in early October 2000 against Verity International, Ltd. (VIL) and its principals, as well as the Integretel defendants for their involvement in an alleged illegal multinational Internet billing scheme.
The FTC's rapid-response investigation revealed that "dialer" software downloaded from teaser adult Web sites was causing charges to be billed to consumers' phone numbers. Many of the consumers who contacted the FTC had no idea why they were receiving the bills, as they had not authorized the charges. Others discovered that a minor in their household - without permission - had accessed the teaser sites and downloaded the dialing software. According to the complaint, the dialer program allowed Internet users to access the adult content without any means of verifying that the user was the telephone line subscriber or was authorized in any way to incur charges on the line subscriber's bill.
Once the dialer software was downloaded, it disconnected the consumer's modem from its usual Internet service provider, dialed an international phone number to Madagascar and reconnected the modem to the Internet from some overseas location. The line subscribers then began incurring charges on their phone lines for the remote Internet connection at the rate of $3.99 per minute.
In its complaint, the FTC alleged that although VIL's bills, which were mailed by the Integretel defendants, deceptively represented that the calls reconnecting consumers modems to the Internet terminated in Madagascar, in fact they were "short-stopped" in London or some other location. Thus, line subscribers were charged the rates to Madagascar at $3.99 per minute, compared to about $.08 per minute to London.
According to the Commission, the Integretel defendants, working on behalf of VIL, mailed consumers bills based solely upon the automatic number identification (ANI) of the telephones that connected to the Web sites operated by VIL's clients. The invoices included a toll-free number, which was answered by contractors of the Integretel defendants, that consumers could call if they had questions about the charges. As a result, after receiving the VIL bills, thousands of consumers flooded Integretel's call center with complaints. The FTC contends that even though in many cases the Integretel defendants knew that the line subscribers denied authorizing the charges, they told them that all of the charges were valid and had to be paid. This same information was conveyed to consumers who were placed on hold while waiting to speak with an Integretel representative.
Based on this alleged behavior, the FTC's complaint charged the Integretel defendants with: 1) billing line subscribers whose computer modems and telephones may have been used to access Internet Web sites by using the VIL defendants' dialing program, but who themselves did not access the sites; 2) misrepresenting to line subscribers that they were legally obligated to pay for that access, whether or not the line subscriber actually accessed the sites; and 3) misrepresenting on billing statements that calls for which the line subscribers were being billed terminated in Madagascar, while they actually were short-stopped in London.
Under the terms of the stipulated final order settling the charges, the Integretel defendants are barred from billing or collecting any charge that is based on ANI when they know or should have known that the line subscriber, or a person authorized by the line subscriber, did not authorize the charge. The order also will ensure that the Integretel defendants are unable to deny knowing such information, as it requires the defendants to obtain agreements from the vendors they bill specifying the minimum standards that must be applied in gaining the "express verifiable authorization" from line subscribers. In addition, the order requires the Integretel defendants to investigate and take appropriate action when complaints about unauthorized billing for any ANI-based charge for information or entertainment goods or services are made against a vendor and to forgive any ANI-based charge made to a consumer who files a declaration swearing that he or she did not authorize the charge.
Next, the order prohibits the Integretel defendants from misrepresenting any material fact, including, but not limited to the misrepresentations that were cited in the complaint. They also will release all claims to the $1.6 million consumers paid on the VIL bills, with the money transferred to an escrow account that the FTC will hold until the litigation against the remaining VIL defendants is concluded. Finally, the order contains provisions for compliance reporting, monitoring, and FTC access to the defendants' business premises as necessary.
The Commission vote authorizing staff to file the stipulated final judgment was 5-0. The stipulated final judgment was filed in the United States District Court for the Southern District of New York on November 20, 2002 and entered by the Court on November 21, 2002.
NOTE: Stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Stipulated judgments have the force of law when signed by the judge.
NOTE: Verity International, Ltd. is in no way affiliated with Verity, Inc., of Sunnyvale, California.
Copies of the documents mentioned in this release are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.
(FTC File No. X010001)