Misdials help 'crammers' ring up millions in phone bill scam

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By David Cho
Washington Post Staff Writer
Monday, March 1, 2010

Roy and John Lin made a devilish fortune in the details of phone bills, according to a federal investigation.

The San Francisco brothers hired overseas telemarketers to offer directory assistance and other services to small businesses and ordinary Americans, according to a major case to be unveiled this week by the Federal Trade Commission. But their real goal was to sneak small, unauthorized fees onto thousands of monthly bills and hope the charges would go unnoticed, court documents state.

The scheme, known as "cramming," proved to be a boon, the documents show. The Lins' alleged take: $19 million over five years.

The Lins are among a resurgent wave of crammers who may be ensnaring millions of Americans, federal officials and consumer advocates say. A decade ago, the scam was so widespread that it became one of the most profitable business lines of the Gambino crime family.

A wave of federal and state crackdowns pushed the crime into remission. But as phone bills, both conventional and cellular, have become more complex, crammers are making a comeback by using sophisticated marketing techniques and by launching their schemes from overseas to try to escape the purview of U.S. regulators.

Some firms act with such speed that it can be tough for state and federal investigators as well as consumer advocates to keep pace. Earlier this month, Toyota released a toll-free phone number for its massive car recall. The next day, a Detroit-based wire service printed the phone number with an incorrect digit. By then, a crammer had already set up a scam. Consumers who dialed the wrong number were asked by an unidentified voice to hand over their personal information, such as their social security number, and for permission to add a $4.95 charge to their phone bill.

Unless they realized they had misdialed, many of the consumers might have thought they had reached a Toyota official rather than a crammer, said Cindy Dudley, director of business services for the Better Business Bureau in Fresno, Calif., which uncovered the case.

Crammers rely on other firms. Companies called billing aggregators help them get the charges on bills. And the big phone companies look the other way, consumer advocates say. Each of these participants takes a slice of the revenues.

Edmund Mierzwinski, consumer program director for U.S. Public Interest Research Groups, said the phone companies could stop the practice if they wanted to. "These fly-by-night companies are out there and the telephone companies are happy to take their money," he said.

Other consumer advocates noted that while the FTC has aggressively pursued cramming cases, it is barred by law from investigating consumer complaints about the major phone companies. That falls under the purview of the Federal Communications Commission, which has been slow to pressure the phone companies to stop cramming schemes, the advocates said.

Joel Gurin, the chief of the FCC's Consumer and Governmental Affairs Bureau said the agency is studying the matter.

"This is an issue the FCC is looking at closely," he said in a statement. "As part of a broad-based inquiry we launched in August, we asked consumers what kinds of unauthorized charges appear on their telephone bills, how such charges are presented on the bill, and what remedies might resolve the situation. Our goal is to ensure that consumers are protected from unfair practices and armed with the information they need."


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