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L.A. Phone Sex Operation Accused of Deceptive Billing

Lawsuit: In first such federal action, FTC says 3 affiliated firms are guilty of 'cramming' and other rip-offs.


In the first federal action against companies that allegedly charge consumers for information services they did not order, the Federal Trade Commission on Wednesday filed suit against three Los Angeles firms that sell adult entertainment services over the phone.

The action is an attempt by the FTC to stem a practice known as "cramming"--so named because charges are buried within consumers' phone bills.

The practice has increased markedly in the last six months. An increase in cramming complaints nationwide has paralleled a jump in information services offered over the telephone, including horoscopes, sports information and adult chat lines.

The lawsuit, filed in federal court in Los Angeles, alleges that Interactive Audiotext Services Inc., American Billing & Collection (doing business as ABC Services), U.S. Interstate Distributing Inc. and four of their officers billed consumers without their consent and failed to disclose service costs, among other things. The three companies are affiliated, share the same address and are controlled by the four executives, the FTC said.

These companies have "sold annually millions and millions of dollars of audiotext services. Whether all of [their] sales are tainted by these practices, we don't know," said Eileen Harrington, the FTC's associate director for marketing practices. "We have not alleged that all of their sales are a result of deceptive practices, but our evidence indicates that some sales were induced by deception and unfair trade practices."

The lawsuit asks the court for a permanent injunction prohibiting the companies from carrying on practices that violate an FTC act prohibiting unfair or deceptive business practices. It also seeks undetermined monetary damages for consumers who were unfairly billed by the companies, Harrington said.

A spokesman for the companies would not comment on the allegations.

Federal officials took action against the three firms, which provide adult entertainment services through 800 and 900 phone numbers, after receiving numerous complaints from consumers.

The FTC suit alleges that the companies solicited business with newspaper ads urging consumers to call a variety of 800, 900 and international numbers. The companies may have also advertised services in other ways, Harrington said, because many consumers did not specify in their complaints how they found out about the services.

In its lawsuit, the FTC alleges that the companies continued to charge consumers for adult entertainment services even after the consumers said they did not use the services.

The suit also alleges that the firms sent invoices to consumers saying they had authorized service charges to their credit cards. It also alleges that the firms failed to disclose the amount a consumer would pay for international calls used to access the services--which in some cases amounted to $4 a minute.

Officials say the companies also violated the FTC's "900 number rule" by failing to disclose the cost of their services in a recording on their 800 and 900 number lines.

Clients who called some 800 numbers were billed at rates similar to those charged for 900 number services, even though 800 number calls are supposed to be toll-free, according to the complaint.

Finally, FTC officials say the companies did not tell callers in prerecorded greetings on the 900 numbers that they could hang up within three seconds to avoid being charged. The company also failed to warn callers that anyone under 18 years of age must have a parent's permission to make the call, the FTC said.

Industry watchers say there have not been enough instances where consumers have sued companies accused in a similar telephone fraud known as "slamming"--switching someone's phone service without their knowledge--to determine if legal action against one company discourages others.

The company officers named as defendants are Frank Montelione, Russel Leventhal, Stuart Leventhal and John O. Cooper.

California Assemblywoman Valerie Brown (D-Kenwood) has drafted a measure that would amend state law by requiring phone companies and other telecommunications firms to obtain customers' consent before adding charges. for Internet access, voicemail, paging or 900 number calls.

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