The Federal Trade Commission, as part of a new crackdown on Internet business fraud, said yesterday it has sued three World Wide Web site providers for illegally "cramming" charges for their services onto the phone bills of unsuspecting small-business owners.
More than 300,000 small businesses nationwide were targeted by the Internet telemarketing companies, the FTC said, with an unknown number of those firms becoming victims of illegal charges that often went undetected.
The FTC's focus on Internet-based businesses is a broadening of past efforts to stamp out "cramming" of long-distance telephone charges. The agency said Internet fraud usually begins with a phone call to a business offering a "free trial period" or a "no obligation" chance to have a Web site created for the company. But some businesses that declined the offer or tried to cancel the agreement still had charges placed on their phone bills, the agency alleged, sometimes for months in a row.
"These operators often targeted businesses with less than 10 employees," said Jodie Bernstein, director of the FTC's bureau of consumer protection. "There was less likelihood they will have rigorous accounting procedures."
Among the victims of the scam was Curtis Campbell of Campbell Commercial Real Estate in Baltimore, who noticed a mysterious $29 charge for "Web site design" on his company's phone bill last July. After hours on the phone talking to dozens of people, Curtis could not get the charge removed, so he contacted his local public service commission.
As other businesses did the same, the FTC jumped in to investigate and found that the practice was widespread and costing small businesses millions of dollars, Bernstein said.
The FTC has filed suit against Wazzu Corp. of Fountain Valley, Calif; Shared Network Services of Lodi, Calif.; and WebViper of Montgomery, Ala. The agency said it is negotiating settlements with all three and hopes that part of that settlement will be repaying the small businesses that were illegally charged for Web page services.
Executives at two of the three companies denied yesterday that they purposely deceived customers or attempted to hide charges.
Kirk Waldfogel, chief operating officer of Wazzu, said in a statement that the company is "honest" in the way it markets its services and has a system to ferret out inappropriate sales tactics by its marketers.
Likewise, Shared Network President Peter Westbrook said there was a period of time last year when the company was growing fast and wrongly charged some consumers. "There's just absolutely no basis to any cramming charges at all," he said. "We've taken care of our problems."
WebViper executive Patrick Taylor said a telemarketing firm hired by the company made some unauthorized charges to customers. But he said WebViper fired that firm in March and has had no such problems since then.
The FTC stressed yesterday that even though it has taken action against the three companies, it is pursuing leads about other Web service providers that engage in similar cramming practices.
As part of that effort, the FTC said it is working with the Small Business Administration on an education campaign to alert business owners to be wary of hard-sell telemarketing calls.