FTC Shutters Web Services Company


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At the request of the Federal Trade Commission a U.S. district court has shut down the illegal operations of a company that placed false charges on the telephone bills of thousands of small businesses and people for Internet related services they never agreed to buy.

The court has barred the defendants from charging consumers’ telephone bills and barred them from telemarketing unless they get prior approval from the FTC and the court. It also ordered third parties through which charges were placed, including local exchange telephone companies, or LECs, to return money in escrow to consumers, and ordered the defendants to pay nearly $38 million in restitution for consumers.

Federal-Trade-CommissionFTC sued Inc21, charging that the company hired offshore telemarketers to call prospective clients to sell its Web-based services. The defendants then used LECs to place charges, usually between $12.95 and $39.95 per month, for those services on the phone bills of consumers and businesses that either:

*were told by telemarketers that the call was only to verify business information;
*declined Inc21's offer of Internet services; or
*were told they would receive a free trial offer, but were not informed that they would be charged if they did not cancel.

In his opinion, Judge William Alsup agreed and granted the FTC’s motion for summary judgment. “The FTC has produced overwhelming evidence that defendants’ practice of billing tens of thousands of businesses and consumers via their telephone bills – a fraud-friendly practice called ‘LEC billing’– was both deceptive and unfair,” the judge’s opinion states.

“The most compelling proof of these violations is a comprehensive expert survey of 1,087 of defendants’ so-called ‘customers.’ This survey revealed that nearly 97 percent of defendants’ ‘customers’ had not agreed to purchase defendants’ products. Even more egregious, only five percent of them were even aware that they had been billed.”