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FTC settles audiotext fraud case
Telephony / June 30, 1997

By Larry Luxner

WASHINGTON -- The Federal Trade Commission, in an unprecedented legal action against the audiotext industry, says it has settled with an Iowa firm that bilked its victims into making expensive telephone calls to Guyana and other Caribbean countries.

The FTC won a $111,000 "consumer redress" against Daniel B. Lubell of Bettendorf, Iowa, who was doing business as Mercantile Messaging and DB&L Inc. According to FTC attorney Pat Howard, Lubell's companies used computers to randomly dial thousands of residential numbers in half a dozen states from Mississippi to Oregon. When a person answered, the recorded 15-minute, repetitive telemarketing call would urge the customer to call what turned out to be overseas numbers in order to enter a "free" Hawaiian vacation sweepstakes, and to obtain information about how to get bumped from flights in order to win free airline tickets.

The FTC says Lubell neglected to inform consumers that they would incur a significant charge -- up to $2.33 a minute, or more than $30 for listening to the entire message -- on their telephone bill, that even after calling they could enter the sweepstakes only by mail, or that they first had to buy an airline ticket to benefit from the information he was selling.

As such, says the FTC, Lubell's practices violated the agency's Telemarketing Sales Rule, which requires companies to announce at the beginning of a phone call exactly what the call would cost. The settlement, in addition to requiring the redress payment, prohibits similar violations in the future.

"This scheme lasted from January 1996 until we filed suit in December," Howard told Telephony. "Early in the year, they were using Caribbean codes such as 809 (which used to encompass more than a dozen countries but now only serves the Dominican Republic). About two months into the operation, they switched and began to use 011-592 (the international code for Guyana). Because of the expansion of area codes taking place in the United States, when people saw an area code they didn't recognize, they tended to think it was just another area code and didn't make a difference, but it does."

Howard says approximately 150,000 calls were made to Lubell's telephone numbers in 1996, and that for calls made to Guyana -- a notorious haven for "audiotext" services -- Lubell's cut was roughly 37 cents a minute.

"This is the first case that we've filed where people were selling audiotext services through Caribbean or foreign telephone exchanges," she said. "We view much of the use of international pay-per-call as an attempt to evade the restrictions on the 900 numbers."

Jodie Bernstein, director of the FTC's Bureau of Consumer Protection, says "international audiotext schemes have grown dramatically" as scam artists try to evade the 900 Number Rule's cost-disclosure and free preamble message requirements.

"But the defendants didn't get away with it in this case, which was the first federal action targeting a deceptive international audiotext service," she said. "Whether we will extend the 900 Number Rule to cover international audiotext services is under review, but in the meantime, this case shows that the FTC stands ready to enforce other laws prohibiting deception in the audiotext industry."

Atlantic Tele-Network, the parent company of GT&T -- the phone monopoly in Guyana -- already earns over $100 million a year in audiotext revenues generated by phone-sex and other pre-recorded services. Meanwhile, Caribbean islands which are part of the North American Numbering Plan -- particularly St. Lucia (758) and Montserrat (664) -- are jumping onto the audiotext bandwagon as a way to earn extra income for their national phone companies.

"The longer the call, the greater the fee, and the larger the cut received by the international audiotext seller, so the incentive is to keep consumers on the line as long as possible," said Bernstein. "Our advice to consumers is to be aware that, when they dial a telephone number beginning with 011 or with one of the many new Caribbean area codes, such as 758 or 664, they are placing an international call and will be billed at international rates."

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