Markets Wired

Operators who allegedly crammed unauthorized charges for Web site services onto the phone bills of hundreds of thousands of small businesses and non-profits will pay more than $1.2 million to settle Federal Trade Commission charges that their operations violated federal law. The settlements also will bar the unlawful practices the defendants used to bilk the businesses.

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 nonprofits for Web site services that, in many cases, they did not know they had and did not request. 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, often their phone bills were charged. When consumers called to dispute the charges, the operators told them they had “verification recordings” of an employee authorizing the charges.

The FTC 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.

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 named in the FTC complaint include: WebSource Media, L.L.C., BizSitePro, L.L.C., Eversites, L.L.C., Telsource Solutions, Inc., Telsource International, Inc., Marc R. Smith, Kathleen A. Smalley, Keith Hendrick, Steven L Kennedy, John O. Ring, and James E. McCubbin, Jr. An amended complaint was filed later, adding defendant WebSource Media, L.P., a successor to WebSource Media, L.L.C. The stipulated orders announced today settle the charges against all the defendants except Steven L. Kennedy, whose matter is still in litigation.

The orders include suspended judgments of $24.7 million, the full amount of consumer losses, which were reduced based on financial documents produced by the defendants detailing their ability to pay. The settlement orders call for individual and business defendants to give up a total of $1,222,376.58 in ill-gotten gains. Should the court determine that the financial documents were falsified, the entire $24.7 million will be due.

The defendants will be barred from engaging in the unlawful conduct they participated in to advance the illegal scheme. Specifically, the orders bar the defendants 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 settlements also bar the defendants from billing or receiving money from any authorized purchaser without the “authorized purchaser’s” express, informed consent.

The settlements also contain record keeping provisions to allow the agency to monitor compliance.

The Commission vote to approve the stipulated final judgments and orders was 5-0.

NOTE: Stipulated final judgments and orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Consent settlements have the force of law when signed by the judge.

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://ftc.gov/bcp/consumer.shtm.