FTC shuts down alleged Net scam

The Federal Trade Commission wins a court order to shut down "adult entertainment" sites that it alleges illegally billed Net surfers hundreds of thousands of dollars.

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The Federal Trade Commission today won a court order to shut down "free adult entertainment" Internet sites that it alleges illegally billed Net surfers hundreds of thousands of dollars.

A lawyer for the defense disputed many of the charges, adding that the sites were shut down voluntarily before the FTC's action and that proper disclaimers were made. An FTC commissioner also questioned whether the action was the best use of the agency's resources.

As previously reported by CNET, the Royal Canadian Mounted Police was investigating one of the sites, "sexygirls.com," which employed a special program to disconnect unknowing Canadian users from their Internet service providers and reroute their calls through Moldova, a republic in the former Soviet Union.

Earlier this month, a warning was issued by the National Fraud Information Center to American long distance carriers about the alleged scam. Today the FTC is taking action on behalf of thousands of American consumers, who like Canadians, downloaded a program called "david.exe" from the sites. Through a tangled series of international connections, the program quietly boomeranged calls from users to Moldova and then to a Web site in Dallas, Texas. Unaware surfers racked up charges at more than $2 a minute, according to the FTC.

"Even more insidious, this is essentially a 'stealth' scam--consumers are kept in the dark because the software program also turns off their modem speakers so they cannot hear either the disconnect, or the dialing of the international phone number," Jodie Bernstein, director of the FTC Bureau of Consumer Protection, said today.

She added: "The software program used by the defendents risks consumers' sense of security about using the Internet."

Defendants named in the FTC case are Audiotex Connection, Rockville Center, New York; Promo Line of Dix Hills, New York; Anna Grella, president of Audiotex; William Gannon, president of Promo Line; and David Zeng, who was the employee of both firms. They could not immediately be reached for comment.

A federal district court judge has issued a temporary restraining order, freezing the defendants assets and ceasing any further operations of the sites.

AT&T helped the FTC investigate the case.

CNET reported that at least two pornographic Web sites--"sexygirls.com" and "erotic2000.com"--used the program to make international calls. Along with "sexygirls.com," which was inaccessible earlier this month, the FTC is targeting "beavisbutthead.com" and "1adult.com."

In the FTC's complaint, it says the defendants promised the "adult images" could be downloaded for free. On January 23, more than one of the Web sites posted a disclaimer warning about the international rerouting. Even then, the FTC says, the new disclaimer was false, stating calls would go through Canada--not Moldova.

The "erotic2000.com" site, which is not named in the FTC case, did include a link to a disclaimer that warned users of the call to Moldova. "By downloading our image viewer software, your modem will disconnect from your ISP and will be automatically reconnect to a remote site where international long distance charges to Moldova apply," the disclaimer read.

The lawyer for the defendants, Joel Dichter, issued a statement disputing many of the FTC's points. He said the services were "voluntarily" ended several weeks prior to the FTC's action.

Dichter, of the law firm Klein, Zelman, Rothermel & Dichter, also said Grella had no role in the offering of the services and the complaint "improperly focuses on specific individuals as opposed to the Internet industry generally." Another defendant, Gannon, did not provide and received no fees for the services, the statement added.

Dichter also said that during the six-week tenure of the implicated service "clear disclaimers and accurate information were provided" to alert consumers that they would accrue long-distance charges to Moldova.

"There is no established law or regulation in this area of emerging technology," Dichter said. "Common sense and good judgment were used to protect consumers based on disclosure standards applicable in other forms of advertising."

FTC Commissioner Christine Varney weighed in with her own response. She voted against taking the enforcement action arguing that it "is not the best use of the commission's limited resources. Other nonenforcement fixes will more effectively prevent the spread of this technology to additional sites."