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

By David Cho
Washington Post Staff Writer
Monday, March 1, 2010; A17

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."

Spokespersons for Verizon and AT&T contended that they are responsive to cramming complaints, but noted that some third-party charges that appear on phone bills are legitimate.

"When we get complaints about particular providers, we've been vigilant," said Susan Cavender Butta, a spokeswoman for Verizon. "And if we've seen an excessive number of complaints, we'll take action to terminate that contract."

Crammers typically reserve toll-free phone numbers that are very similar to frequently used customer-service numbers of agencies such as the Internal Revenue Service or the Social Security Administration. Customers are made to think they had reached the right number and then are tricked into accepting a charge on their phone bill. For example, some crammers will send cellular callers what appears to be an innocent text message and ask them to reply. The crammers then bring that reply text to the phone companies as proof that the customer has agreed to be billed every month.

The Lins often didn't even bother to get the approval of customers, according to FTC documents.

Using a series of company names including Inc21, GlobalYP and Gofaxer.com, the Lins purported to sell Web site hosting, Internet yellow pages listings, search engine advertising and other services to small businesses and consumers. The telemarketers greeted potential customers by stating that they sought to "verify and update business information," without making it clear that they were seeking to add charges to their phone bills, the documents said. In many cases, Inc21 doctored tapes of the calls to make it seem like the customers had agreed to be billed.

The FTC persuaded a U.S. district judge in California to force the Lins as well as Pacific Bell, the telephone company that received proceeds from the scam, to return the money to nearly 11,000 customers. In his opinion supporting the preliminary injunction, the judge noted that the action "highlights the vulnerable underbelly of a widespread and under-regulated practice" of telephone billing.

Added Lois C. Greisman, the FTC's head of the Division of Marketing Practices: Cramming "causes significant economic injury to consumers. People need to read their phone bills, whether conventional or mobile and any bundled bills to look for any unidentified charges."

The Lins did not return messages sent to the e-mail address of their company. The phone number listed on the company's Web site did not appear to be working.

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