An Internet adult entertainment operation that billed some consumers by rerouting their connection to the Net through the foreign country of Madagascar, causing the unwitting consumers to incur hundreds of dollars in international long-distance fees, has agreed to settle Federal Trade Commission charges that the billing scheme was unfair and deceptive and violated federal law. The settlement will bar the defendants from billing consumers without express, verifiable authorization in the future, and requires that they pay more than $26,000 in consumer redress.
On October 27, 2000 the FTC filed suit in U. S. District Court naming Charlo Barbosa, B.C. Ltd., and Virtualynx. The FTC charged that the defendants operated adult Web sites which offered memberships for costs ranging from $34.95 to $49.95 and allowed consumers to pay using credit or debit cards, or through 900 number charges that would appear on consumers' phone bills. These costs were clearly disclosed. But the FTC alleged that the defendants offered another payment option involving dialer software. Using banners that said, "No credit card? No check? No problem!" they encouraged computer users to download "Sex Software" for immediate access to the adult material. When users downloaded the software, a lengthy licensing agreement appeared on the screen adjacent to a box that allowed them to click on "I agree." Consumers' modems were then disconnected from their regular Internet Service Provider and reconnected to the defendants' server via an international phone line. The FTC charged that in many cases, the computer user was not the telephone line subscriber and many consumers first learned of the defendants' dialer software when they opened their phone bills and found charges of up to $7.39 a minute for calls supposedly made to Madagascar. The FTC alleged that billing and attempting to collect from line subscribers who may not have accessed or authorized access to the defendants' Web sites and claiming that line subscribers were obligated to pay because their lines may have been used to gain such access was unfair and deceptive and violated the FTC Act.
The Stipulated Final Judgment and Order announced today resolves the court action. The settlement bars the defendants from using any dialer program that does not require the telephone line subscriber's express, verifiable authorization for the product or service purchase. It also requires that the defendants pay $26,686.07 in consumer redress - the full amount they say they realized from the dialer scheme. Finally, the settlements contain certain record keeping provisions to allow the FTC to monitor compliance.
Complaint allegations against another defendant, Ty Anderson, were dismissed earlier.
The Commission vote to file the proposed settlement was 5-0. It was filed in U.S. District Court for the Western District of Washington at Seattle, and entered by the Court August 21, 2001.
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 judgments have the force of law when signed by the judge.
Copies of the Stipulated Final Judgment and Order are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, unfair and anticompetitive business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. X010012)
(Civil Action No. C00-1843P)