FTC says phone-cramming scheme raked in $19 million

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 case unveiled Tuesday 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, according to court documents.

The scheme, known as "cramming," proved to be a boon, the documents show. The FTC said the Lins' take was $19 million over five years. A federal judge issued a preliminary injunction ordering their companies to stop the practice.

The Lins are among a resurgent wave of crammers who may be ensnaring millions of Americans, federal officials and consumer advocates say.

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 of those operators act so quickly that it can be tough for state and federal investigators as well as consumer advocates to keep pace.

Last month, Toyota Motor Corp. released a toll-free phone number for its far-reaching 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 to hand over personal information, such as their Social Security number, and for permission to add a $4.95 charge to their phone bill.

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

Crammers typically reserve toll-free numbers that are similar to frequently used customer-service numbers of agencies such as the IRS or the Social Security Administration. Customers are made to think they have 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.

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, which 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.

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 work.