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Cramming unauthorized charges onto phone bills violates the FTC Act, of course.  But depending on the circumstances, cases like that also can result in criminal prosecution.  Two brothers who bilked consumers out of millions as part of a cramming scam are now behind bars – giving a whole new meaning to the term “cell phone.”  And the prosecutors who brought the case, Assistant United States Attorneys Hallie Mitchell Hoffman and Kyle F. Waldinger, were just honored with the FTC Criminal Liaison Unit’s annual award for their work in fighting fraud.

The FTC’s civil case against brothers Roy and John Lin, INC21, and related defendants alleged they had used third-party billing aggregators to illegally place unauthorized charges on consumers’ phone bills.  The trial judge cited an expert survey demonstrating that 97% of defendants’ "customers" hadn't agreed to buy defendants' stuff.  "Even more egregious," the Court held, was that "only five percent of them were even aware that they had been billed.”  The Court also concluded that “the record contains mountains of undisputed evidence showing fraud at every step of defendants’ telemarketing process.”  The FTC action resulted in a permanent injunction, a judgment of close to $38 million, and $5.4 million back to consumers victimized by the scam.

But the story didn’t end there.  In 2012, the Lins were indicted for mail fraud, conspiracy, and money laundering.  Thanks to the efforts of AUSAs Hoffman and Waldinger – in cooperation with the FTC, the United States Postal Inspection Service and the IRS – Roy Lin pleaded guilty and was sentenced to 30 months in prison.  John Lin received 20 months for his role.

What should entrepreneurs take from this cautionary tale?  If eight-figure judgments, lifetime bans, and injunctions aren’t deterrence enough (and by the way, they should be), underhanded conduct toward consumers can easily cross into the criminal.  In the decade since the FTC established its Criminal Liaison Unit, CLU has worked with prosecutors to see that hundreds of bogus telemarketers, mortgage relief scammers, phantom debt collectors, immigration fraudsters and others wind up where they belong:  behind bars.

To put it in more practical terms, at some point in your career, a colleague may float a trial balloon that strikes you as iffy on the legalities.  If you shoot down the suggestion based on finely honed business ethics, good for you.  But if your motivation for saying no stems from a desire to avoid incarceration, we’re OK with that, too.

Watch this video for more about how CLU coordinates with criminal prosecutors.



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