Markets Wired

At the request of the Federal Trade Commission, a federal court has temporarily halted a mobile phone cramming scheme that deceptively piled more than $100 million in charges on consumers’ mobile phone bills without their permission. In its complaint, the FTC seeks permanently to shut down the operation and recover money lost by consumers.

The U.S. District Court for the Central District of California issued a temporary restraining order against six companies and six individual defendants behind the scheme, halting the operations and freezing their assets pending litigation.

“This scheme demonstrates the kind of widespread harm that mobile phone cramming can inflict on American consumers,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “It also shows why we’ve made it a priority to crack down on this problem.”

In its complaint, the FTC charged that the defendants used deceptive practices, including fake websites with bogus offers of “freebies” or gift cards, to trick consumers into providing their mobile phone numbers. The defendants then placed monthly subscription fees for a variety of “services” on consumers’ mobile phone bills without their authorization.

The practice, known as mobile cramming, relies on the fact that many consumers often don’t closely examine their monthly statements, or assume that charges are legitimate.

The “services” described in the complaint consisted of subscriptions for text messages sent to consumers’ mobile phones that contained short celebrity gossip alerts, “fun facts,” horoscopes, and other items.  The subscriptions typically cost consumers $9.99 or $14.99 per month and were set to renew automatically each month.

According to the FTC’s complaint, the process of disputing the charges was frustrating and time-consuming for consumers. Some consumers were crammed for multiple months before noticing the charges and, even after significant effort, were unable to obtain a full refund.

According to documents filed in court by the FTC, the defendants continued cramming charges on to consumers’ mobile phone bills even after wireless carriers terminated their billing privileges. For example, two mobile carriers terminated MDK’s billing privileges because of its high refund rates and its association with deceptive websites. In spite of that, MDK continued cramming through use of a fictitious business name.

The defendants in the case are MDK Media Inc.; Tendenci Media LLC; Mindkontrol Industries LLC; Anacapa Media LLC; Bear Communications LLC; Network One Commerce Inc.; Makonnen Demessow Kebede; Sarah Ann Brekke; Christopher Thomas DeNovellis; Wayne Calvin Byrd II; James Matthew Dawson; and Casey Lee Adkisson.

The FTC’s complaint alleges that the defendants violated the FTC Act, through their deceptive tactics and by unfairly billing consumers for unauthorized services.

In recent months, the FTC has brought a number of law enforcement actions in addition to policy and education activities designed to combat mobile cramming that are part of the Commission’s overall work to protect consumers in the mobile environment. Earlier this week, the Commission released a staff report with best practices for companies in the carrier billing industry to help prevent mobile cramming. The Commission voted 5-0 to authorize the staff to file the complaint.

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 case will be decided by the court.

The Federal Trade Commission works for consumers 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, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.