The Federal Trade Commission has charged Verity International, Ltd. (VIL) and its principals with misusing the international telephone billing system to charge consumers for "videotext" services -- Internet-based "adult" entertainment -- that the consumers never purchased or authorized. Through the scheme, thousands of consumers have been billed an average of nearly $250 apiece for videotext services that they did not even know had been accessed through their phone lines. The charges for VIL's videotext services were represented as international telephone calls to Madagascar, an island nation off the east coast of Africa. The U.S. District Court for the Southern District of New York has issued a temporary restraining order halting the alleged law violations and freezing the defendants' assets.
The FTC's lawsuit stems from a dramatic influx of complaints against VIL that were received since September 18, 2000, through its Consumer Response Center (CRC) and logged in Consumer Sentinel, a database used by law enforcers around the world.
"The Commission's toll-free help line really empowers consumers," Bureau of Consumer Protection Director Jodie Bernstein said. "When so many consumers call about one issue in such a short period of time, we not only take notice, we take action." Consumer fraud complaints to the help line, 1-877-FTC-HELP, are entered into Consumer Sentinel.
The FTC's rapid-response investigation revealed that charges on consumers' phone lines were being initiated by "dialer" software downloaded from teaser "adult" web sites. Many line subscribers have no idea why they are receiving bills for these charges. Others have discovered that a minor in their household -- or another person who did not have the line subscriber's authorization -- accessed the Web sites and downloaded the VIL dialer software.
The dialer program allowed users to access the adult content without any means of verifying that the user was the line subscriber, or was authorized by the line subscriber to incur charges on the line for such videotext services. Once the dialer software was downloaded, it disconnected a consumer's computer modem from his usual Internet service provider, dialed an international phone number to Madagascar and reconnected the consumer's modem to the Internet from some overseas location, opening at an adult web site. Line subscribers -- the consumers responsible to pay phone charges on the telephone lines -- then began incurring charges on their phone lines for the remote connection to the Internet at the rate of $3.99 per minute.
In its complaint, the FTC alleges that although VIL's bills deceptively represented that the calls reconnecting consumers modems to the Internet terminated in Madagascar, in fact they were "short-stopped" in London or some other location. Thus, line subscribers were charged the rates to Madagascar at $3.99 per minute, compared to about $.08 per minute to London.
According to the Commission's complaint, VIL, an off-shore corporation; Integretel, Inc. of San Jose, California; eBillit, a subsidiary of Integretel, located in San Jose, California; and Robert Green and Marilyn Shein, both citizens of the United Kingdom, violated the FTC Act by:
- Misrepresenting that because a line subscriber's telephone was used to access videotext services, the line subscriber is legally obligated to pay for those services, whether or not the line subscriber actually accessed such services;
- Billing and attempting to collect from line subscribers whose telephone lines may have been used to access videotext services, but who did not themselves access such services or authorize anyone else to do so; and
- Misrepresenting that line subscribers owed money for a remote connection to the Internet through Madagascar, when in fact the connection was through a location with a much lower per-minute rate.
Integretel, a service bureau and billing aggregator, through its subsidiary eBillit, sent more than 67,000 invoices to consumers during the second week of September 2000. Another 44,000 bills were sent out the following week, the Commission contends.
Line subscribers who tried contacting VIL through its toll-free number found that it was nearly impossible to reach a customer service representative. Those who did reach a representative were not given an opportunity to dispute the charges or explain why they thought the billing was in error. In fact, Integretel representatives falsely insisted that, regardless of the explanation, line subscribers are responsible for the charges for videotext accessed over their telephone lines.
In all, the FTC received nearly 600 consumer complaints about VIL in just a matter of days, beginning September 18, 2000, resulting in the staff's investigation. Through the complaint announced today, the Commission is seeking injunctive and other ancillary relief, including consumer redress, disgorgement and restitution to prevent and remedy the violations alleged. This may include refunding money that consumers paid to the company and its principals and disgorgement of ill-gotten gains, along with any additional relief a court deems proper.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law. The case will be decided by the court in which it was filed.
NOTE: Verity International, Ltd. is in no way affiliated with Verity, Inc., of Sunnyvale, California.
The Commission vote to file the complaint was 5-0. The United Kingdom's Office of Fair Trading, Ireland's Office of the Director of Consumer Affairs, and the Australian Competition and Consumer Commission provided assistance in this matter.
Copies of the complaints 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, 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. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.
Mitchell J. Katz,
Office of Public Affairs
Allen W. Hile,
Bureau of Consumer Protection
(FTC File No. 002-3386)