Operator Who Crammed Unauthorized Charges For Web Site Services Onto Phone Bills Ordered to Pay $4.1 Million Over FTC Charges

A U.S. district court has ordered a halt to the illegal operations of a defendant who crammed unauthorized charges for Web site services onto the phone bills of hundreds of thousands of small businesses and non-profit organizations. The Federal Trade Commission charged that the operation violated federal law and, following a trial, District Judge Kenneth M. Hoyt ordered the defendant to permanently halt the unlawful practices and give up more than $4.1 million in ill-gotten gains.

In June 2006, the FTC charged a group of interrelated businesses and individual defendants with cramming unauthorized charges onto the phone bills of small businesses and nonprofit organizations for Web site services that, in many cases, they had not requested and did not know they had. The agency alleged that the operators used telemarketers to make cold calls to small businesses and non-profits, and offered a “free”15-day trial of a Web site design. The consumers were told there was no charge or obligation and that the Web site would be cancelled automatically if it was not approved by the consumers. The defendants made “verification recordings” that implied that the consumer agreed to be billed for the offer after the free trial, when they did not. Whether the consumers agreed or not, their phone bills often were charged. When consumers called to dispute the charges, the operators told them they had “verification recordings” of an employee authorizing the charges.

The complaint alleged that the defendants violated federal law by charging consumers’ telephone bills without obtaining their authorization or consent. The FTC also alleged that the defendants violated federal law by deceptively claiming that if a consumer agreed to a free trial Web site, the site would be cancelled automatically unless the consumer agreed to continue it. The court agreed, and at the request of the FTC, a U.S. District Court judge in Houston, Texas, ordered a halt to the unlawful operations, appointed a receiver to oversee the business operations, and froze the defendants’ assets, pending trial. Defendants WebSource Media, L.L.C., WebSource Media, L.P., BizSitePro, L.L.C., Eversites, L.L.C., Telsource Solutions, Inc., Telsource International, Inc., Marc R. Smith, Kathleen A. Smalley, Keith Hendrick, John O. Ring, and James E. McCubbin, Jr. paid $1.2 million and settled the FTC charges. The decision ends the litigation with defendant Steven L. Kennedy.

The judge’s order bars Kennedy from engaging in the unlawful conduct he participated in to advance the illegal scheme and requires payment of $4.1 million. Specifically, the order bars him from misrepresenting that a free trial will be automatically cancelled if the purchaser does not agree to continue the service; that a verification recording is being made to document the purchaser’s authorization; and that an “authorized purchaser” is obligated to pay any charge, even if the purchaser did not authorize the charges. The order also bars him from billing or receiving money from any authorized purchaser without the “authorized purchaser’s” express, informed consent. Finally, the order prohibits all the defendants from selling, renting, or disclosing in any way the list of their customers.

The Commission vote to file the complaint was 5-0. It was filed in U.S. District Court for the Southern District of Texas, Houston Division.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://www.ftc.gov/bcp/consumer.shtm.

(Civil Action No. H-06-1980)
(websource kennedy)