FTC Says Internet Scam Re-Routes "Surfers" to International Telephone Lines

The Federal Trade Commission today said it has won a federal district court order shutting down an Internet scam which has just emerged but already has generated numerous complaints, many from parents of Internet-savvy children. The scam involves a high-tech billing software program that subjects consumers to huge phone charges without their knowledge.

According to the FTC’s complaint in the case, consumers who visited one of the defendants’ adult "entertainment" Internet sites first had to download what the defendants termed a special "viewer" program called "david.exe." Before allowing consumers to visit a site, this program disconnected their computers from their own local Internet service providers and reconnected the computers to a phone number in Moldova, all without consumers’ knowledge because the software program turned off their modem speakers so they could not hear the disconnect or the dialing of the international number. The FTC also alleged that the program did not disconnect from the international number until consumers turned off their computers. Thus, consumers who visited the defendants’ web sites, but then left them to visit other web sites or to turn to other computer activities such as word-processing, continued to rack up international calling charges of more than $2 per minute. Thousands of consumers have incurred hundreds of thousands of dollars in international long distance charges as a result of the scam, the FTC said.

The defendants in the FTC case are Audiotex Connection, Inc., of Rockville Centre, New York; Promo Line, Inc., of Dix Hills, New York; Anna M. Grella, president of Audiotex; William Gannon, president of Promo Line; and David Zeng, who does business as "DaveZ" and is a manager or employee of one or both the firms. All the defendants did business as Electronic Forms Management, and as the web sites www.beavisbutthead.com, www.sexygirls.com and www.1adult.com, the FTC said. A judge has issued a temporary restraining order halting the scam and freezing the defendants’ assets pending a hearing on the case.

"We’re talking about a high-tech fraud that threatens traffic on the information superhighway," said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. "The defendants secretly loaded their software onto consumers’ computers, causing them to dial expensive Moldovan phone numbers; consumers didn’t find out until their phone bills came and then it was too late. The software program used by the defendants risks consumers’ sense of security about using the Internet. As in previous cases involving emerging technologies, our goal was to act as quickly as possible to prevent wide scale misuse of a sophisticated telecommunications technology to defraud consumers."

Bernstein also said she was very grateful for the substantial assistance the FTC received from AT&T in investigating this case.

According to the FTC complaint, the defendants’ web sites promised consumers that they could view "adult" images at the sites for free, instructing visitors that they first had to download a special "image viewer," which actually was the "david.exe" or "david7.exe" software program. The web sites did not disclose at all, prior to Jan. 23, 1997, that consumers would be disconnected from the local Internet service provider, reconnected to a foreign provider at a cost of more than $2 per minute, and not disconnected again until they turned off their computers or modems, the FTC charged.

Thereafter, according to the complaint, the defendants changed one or more of the web sites to state that consumers’ modems would be connected to a site in Moldova, but the sites still failed to disclose that the international long distance telephone connection would be maintained and that charges would continue to accrue unless and until the consumer turned off the power switch to his computer or modem.

Moreover, the FTC alleged, even the new disclosure contained a false statement. It claimed that consumers’ computer modems would be connected to a site in Moldova, but consumers actually were connected to a site in Canada. Nonetheless, consumers were charged the much higher per-minute rates for calls to Moldova, the FTC alleged. A number of complaints received by the FTC are from consumers who stated that their bills showed charges ranging from $80 to hundreds of dollars for calls placed to Moldova. According to the FTC complaint, the defendants earn money through the scam when they are paid a portion of the revenues received by the foreign telephone carrier to which the international telephone numbers are assigned.

The FTC cautioned consumers to be wary of downloading or activating any special "viewer" program, particularly if it carries the name "david.exe" or some variation.

The FTC filed its complaint under seal in U.S. District Court for the Eastern District of New York, in Hauppauge, on Feb. 13. The seal was lifted yesterday. The Commission vote to file the case was 4-1, with Commissioner Christine A. Varney dissenting, stating: "I am voting no today because I remain concerned that bringing this enforcement action is not the best use of the Commission’s limited resources."

Varney continued: "I believe that the technology involved here has the potential to cause tremendous consumer injury. In my view, however, other, non-enforcement fixes will more effectively prevent the spread of this technology to additional sites."

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the complaint are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326- 2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 972 3079)
(Civil Action No. C-97 0726)