FTC Breaks Up Phone Charge Scam

By Beth Cox

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The Federal Trade Commission says it has obtained a U.S. District Court settlement in a case involving an elaborate scam that resulted in whopping telephone bills for connections to various Internet porn sites.

The FTC said that thousands of consumers were billed an average of $127 apiece for so-called "videotext" services that they didn't even know had been accessed through their phone lines.

According to the FTC, Integretel Inc. and its subsidiary, eBillit Inc. (the Integretel defendants) allegedly illegally billed thousands of consumers for such "videotext" services. San Jose, Calif.-based eBillit recently changed its name to PaymentOne.

"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," he said. "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."

The complaints began coming in September 2000. The FTC filed charges in early October 2000 against an offshore corporation called Verity International Ltd. (VIL) and its principals, as well as the Integretel defendants for their involvement in an alleged illegal multinational Internet billing scheme.

Automatic "dialer" software was being downloaded from teaser adult Web sites, sometimes by kids, causing the charges to be billed.

Once the dialer software was downloaded, the FTC said, 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 an 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.

However, the calls actually were "short-stopped" in London or some other location.

Integretel's call center was flooded 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.

The FTC's complaint charged the Integretel defendants with: 1) billing line subscribers whose 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; and 3) misrepresenting on billing statements that calls ... terminated in Madagascar, while they actually were short-stopped in London.

In the settlement, Ingretel essentially agreed to cease and desist and also will release all claims to the $1.6 million consumers paid on the VIL bills, with the money transferred to an escrow account account that the FTC will hold until the litigation against the remaining VIL defendants is concluded.