By GLENN R. SIMPSON
Staff Reporter of THE WALL
STREET JOURNAL
WASHINGTON -- Using commercial software, the Federal Trade Commission broke up what it said was a globe-spanning multimillion-dollar Internet fraud that overcharged online pornography consumers.
The agency filed a complaint in federal court in New York City Thursday against Verity International Ltd., which is registered in Dublin, for improperly charging thousands of U.S. Internet users for long-distance phone calls. (Verity isn't related to publicly listed software company Verity Inc. of Sunnyvale, Calif.) The company denied wrongdoing in a statement issued by its lawyer.
The FTC complaint says Verity used porn sites to distribute software that allowed Internet users to avoid paying for adult entertainment with their credit cards by placing charges on a telephone bill. The software appealed to privacy-seekers and youths without credit cards.
The porn viewers were told they were being charged to view sex videos over a phone line to Madagascar at a rate of $3.99 a minute, the complaint says. But the FTC concluded that the phone calls actually terminated in the United Kingdom and should have cost only eight cents a minute. Verity, the agency alleged, intended to pocket the difference.
The operation described by the FTC appears to have been huge. In a single week in September, about 67,000 U.S. households received bills from Verity, according to the FTC. The average overcharge was $222, with some overcharges topping $4,000, the agency said.
The FTC said the complex scheme unraveled when agency investigators used a common program called NeoTrace to locate the alleged perpetrators in the U.K.
According to the Web site of NeoTrace's manufacturer, NetWorx Inc., of Dayton, Ohio, the software is used by the Federal Bureau of Investigation, the U.S. Customs Service, the North Atlantic Treaty Organization, the Royal Canadian Mounted Police and Interpol to trace the geographic origin of Internet traffic.
FTC officials said the action was a demonstration of the agency's commitment to fighting cross-border Internet fraud. In addition to employing tools like NeoTrace, available for download from the company's Web site for $29.95, the agency has assembled a networked complaint database called Consumer Sentinel, which allows investigators to spot trends quickly and act against fast-moving frauds. To capture evidence from a computer screen for introduction in court as a video, they used a "virtual camcorder" program called Camtasia, which retails for $149 from TechSmith of East Lansing, Mich.
FTC officials said Verity, in addition to its Dublin registration, used an address on the island of Sark in the English Channel. The porn site itself was in New York. The only connection to Madagascar was the phone number.
Verity and two of its owners, Marylin Shein and Robert Green, were the subject of news reports in Britain in 1997 for allegedly running a phone-sex operation that billed users for calls to Sierra Leone. In that case, British Telecommunications PLC broke its contract with Verity.
"The telecommunications services offered by Verity International Ltd. comply fully with all FTC and FCC guidelines," said Verity's lawyer, Joel Richter of New York, in a statement. "All charges, including the exact price per minute of the international call, are fully and clearly disclosed to the consumer before the software can be used," Mr. Richter said. "The consumer must acknowledge and accept these charges several times by clicking on the screen," he added.
The FTC also charged California billing firm Integretel Inc. and its subsidiary Ebillit, with making improper charges. Richard Gordin, lawyer for Integretel, said the companies have no connection to Verity and merely forwarded its bills.
Write to Glenn R. Simpson at glenn.simpson@wsj.com1
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