FTC Wins $37. 5 Million Judgment from X-Rated Web Site Operators
Bank Sold Defendants Access to Active MasterCard, Visa Card Numbers;
More Than 700,000 Consumers Illegally Billed
The Federal Trade Commission has won a $37.5 million verdict
against a California-based adult Web site operation the FTC charged with
operating an illegal billing scam. The agency alleged the defendants
repeatedly placed charges on consumers' credit and debit cards for X-rated
Internet visits they had not made and services they didn't order. Indeed
thousands of those billed for visiting the Web sites did not own computers.
At trial, the agency told the court that the defendants bought access to
lists from a California bank that provided the account numbers for more than
3 million valid Visa and MasterCard credit cards. Rather than use the lists
to confirm that potential customers had valid cards, the defendants debited
the cards for Web site services the cardholders had never used.
In January 1999, the FTC filed the case against Malibu, California
residents Kenneth and Teresa Taves, and Dennis Rappaport and their
businesses J.K. Publications, Inc., MJD Service Corp., Herbal Care, Inc.,
and Discreet Bill, Inc. The complaint charged that the defendants were
billing consumers without authorization for alleged visits to adult Web
sites. Consumers saw the charges on their bills under the names "Netfill,"
"N-Bill," "MJD Service Corp," and "Webtel." Based on the preliminary
evidence presented by the FTC, a U. S. District Court judge entered an order
on January 6, 1999 that temporarily shut down the defendants' business and
appointed a receiver, pending trial.
According to the FTC, the defendants had purchased access to a
database of credit card numbers provided by Charter Pacific Bank of Agoura
Hills, California. This database contained card numbers, dates and amounts
of sales, for more than 3 million card holders who purchased goods or
services from merchants with accounts at Charter Pacific. The FTC argued
that the defendants illegally used the account numbers to place charges on
the accounts and that over 90 percent of their $49 million a year in
"sales," were actually unauthorized charges. The court agreed, saying, "The
Court finds that the FTC has proven by a preponderance of the evidence that
90.8 % of the total 'sales' amount the defendants caused to be deposited
into their merchant accounts was unauthorized."
The FTC showed that the defendants used at least five different
merchant accounts and four fictitious business names to process over $40
million in credit and debit card transactions. The timing of each new
merchant account application coincided with the impending threat of being
placed on VISA USA's "active monitoring" list for excessive "chargebacks" --
amounts debited to cards but disputed by the consumers who were charged. By
submitting the charges and debits for processing, the defendants represented
to the merchant banks that they had obtained authorization from the
cardholders for the charges and debits. But thousands of consumers who were
charged said they did not incur the charges and, according to U. S. District
Court Judge Audrey B. Collins, "A shocking 40% to 50% of the calls
received by the defendants were from people who said they did not have a
computer and had not given their card numbers to anyone." Judge
Collins concluded "[T]he only reasonable inference the Court can draw from
the corporate defendants' access to the Charter Pacific Positive Database
and the time of the defendants' fraudulent billing practices is that the
defendants stole and processed Visa and MasterCard numbers from the
database."
The court concluded that the defendants had processed bogus
charges totaling more than $43 million. The $37.5 million damages verdict
represents the illegal charges minus the amounts that consumers already
received through chargebacks and credits.
Two other defendants in this case, Gary Mittman and Adult Banc,
Inc., settled FTC charges in June 1999. That settlement bars them from
making false representations that customers have agreed to purchase goods;
bars billing or receiving money or assisting others to do so without
consumer authorization; requires that they obtain express verifiable
authorization from consumers before billing them; requires that they
maintain adequate staff to respond to consumer complaints or inquires; and
requires that they promptly credit the accounts of consumers who request
refunds.
Consumers wishing to make claims can contact the Court-appointed
receiver in the following manner: by email at rea@robbevans.com or by
regular mail at Robb Evans & Associates, Receiver, PO Box 880, Sun Valley,
CA 91353 and submit the following information (1) consumer's name (2) the
credit card number that was wrongfully billed, (3) the amount of the
wrongful bill(s), and (4) a currently-valid credit card number through which
the consumer can receive a refund.
Consumers without computers can contact the receiver by calling
(818) 768-8869. Consumers will hear a recorded message which will instruct
them to contact the receiver at the P.O. Box listed above. The Receiver
expects a great volume of calls in the first weeks after the judgement, and
urges callers who are met with a busy signal to be patient and to try
calling again at a different time.
The FTC has identified in excess of $20 million in defendant's
assets. It is not clear that the total of $37.5 million ordered by the Judge
will be available for consumer redress.
The agency named Kenneth H. Taves, a/k/a Kenneth Till, Teresa Callei
Taves, Gary [Neal] Mittman, all of California, and their companies, J. K.
Publications, Inc., MJD Service Corp., and Net Options, Inc., in its
complaint. The complaint alleges that the defendants also use the business
names Netfill, N–Bill, Webtel, and Online Billing ... Consumers, many of
whom were billed repeatedly over successive months, appealed to credit card
companies for help, but were told by them that they could not block future
charges to the cards. Many consumers canceled their credit card accounts to
avoid the charges, the FTC alleged. The FTC has asked the court to
permanently bar the illegal billing practices and award redress to
consumers.
Consumers who believe they have been deceptively billed by the defendants
can call an FTC Hotline at 202-326-3144 for more information.
