In June 2006, the FTC charged a group of interrelated businesses and individual defendants with cramming unauthorized charges onto the phone bills of small businesses and nonprofits for Web site services that, in many cases, they did not know they had and did not request. The agency alleged that the operators used telemarketers to make cold calls to small businesses and non-profits, and offered a "free" 15-day trial of a Web site design. The consumers were told there was no charge or obligation, and that the Web site would be cancelled automatically if it was not approved by the consumers. The defendants made "verification recordings" that implied that the consumer agreed to be billed for the offer after the free trial, when they did not. Whether the consumers agreed or not, often their phone bills were charged. When consumers called to dispute the charges, the operators told them they had "verification recordings" of an employee authorizing the charges.
The FTC complaint alleged that the defendants violated federal law by charging consumers' telephone bills without obtaining their authorization or consent. The FTC also alleged that the defendants violated federal law by deceptively claiming that if a consumer agreed to a free trial Web site, the site would be cancelled automatically unless the consumer agreed to continue it.
At the request of the FTC, a U.S. District Court judge in Houston, Texas, ordered a halt to the unlawful operations, appointed a receiver to oversee the business operations, and froze the defendants' assets, pending trial.
The orders include suspended judgments of $24.7 million, the full amount of consumer losses, which were reduced based on financial documents produced by the defendants detailing their ability to pay. The settlement orders call for individual and business defendants to give up a total of $1,222,376.58 in ill-gotten gains. Should the court determine that the financial documents were falsified, the entire $24.7 million will be due.
The defendants will be barred from engaging in the unlawful conduct they participated in to advance the illegal scheme. Specifically, the orders bar the defendants from misrepresenting that a free trial will be automatically cancelled if the purchaser does not agree to continue the service; that a verification recording is being made to document the purchaser's authorization; and that an "authorized purchaser" is obligated to pay any charge, even if the purchaser did not authorize the charges. The settlements also bar the defendants from billing or receiving money from any authorized purchaser without the "authorized purchaser's" express, informed consent.
