A U.S. district court has entered an order barring unlawful activities by an operation that allegedly crammed unauthorized charges on the phone bills of small businesses or nonprofits for Web site services that, in many cases, they didn’t know they had and didn’t request. The court has appointed a receiver to oversee the business operations and frozen defendants’ assets, pending trial. At trial, the Federal Trade Commission will seek a permanent halt to the operation’s activities and ask the court to order consumer redress for thousands of consumers who were illegally billed.
In papers filed with the court, the FTC alleged the operation was a maze of interrelated companies directed by the principals. The outfit 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” which imply that the consumer agreed to be billed for the offer after the free trial, when they did not. Whether they 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 charges that the operation is typical of fraudulent Web cramming operations – using sales pitches to employees who frequently lack authority to make commitments for the small businesses or non-profits that employ them, making false promises about their “free trial” offer, falsifying verification recordings, and failing to effectively notify consumers that a Web site has been set up. The FTC also alleges that the operators repeatedly changed the names of their companies to avoid detection by telephone companies they rely on to bill consumers and to evade scrutiny from law enforcers.
The FTC charged that the operations are unfair and deceptive and violate federal law. U.S. District Court Judge Kenneth M. Hoyt issued a temporary restraining order to halt the illegal practices and freeze the defendants’ assets to preserve them for consumer redress. The defendants have agreed to a preliminary injunction and a trial schedule will be established shortly.
The original complaint names defendants 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 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 Commission votes to authorize staff to file the complaint and amended complaint were 5-0. The complaint was filed in the U.S. District Court for the Southern District of Texas, Houston Division.
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 complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaint and stipulated 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, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), 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 http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad.
FTC Southwest Region
(Civil Action No. 06-1980)