FTC settles audiotext fraud case

In an unprecedented legal action against the audiotext industry, the Federal Trade Commission 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 Lubell of Bettendorf, Iowa, who was conducting business as Mercantile Messaging and DB&L Inc. Lubell's companies used computers to randomly dial thousands of identical numbers in half a dozen states from Mississippi to Oregon, said FTC attorney Pat Howard.

When a person answered, the 15-minute, repetitive telemarketing recording would urge the customer to call what turned out to be overseas numbers to enter a "free" Hawaiian vacation sweepstakes, and to obtain information about how to get bumped from flights to win free airline tickets.

The FTC says Lubell neglected to tell consumers that they would be charged - up to $2.33 a minute, or more than $30 for listening to the entire message - on their telephone bill, or 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, Lubell's practices violated the FTC's Telemarketing Sales Rule, which requires companies to announce at the beginning of a phone call exactly what the call will 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 said. " 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.

About 150,000 calls were made to Lubell's telephone numbers in 1996, and for calls made to Guyana - a notorious haven for audiotext services - Lubell's cut was roughly 37¢ 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.

International audiotext schemes have grown dramatically as scam artists try to evade the 900 number rule's cost-disclosure and free preamble message requirements, said Jodie Bernstein, director of the FTC's Bureau of Consumer Protection. "This case shows that the FTC stands ready to enforce other laws prohibiting deception in the audiotext industry," she said.

Atlantic Tele-Network, the parent company of GT&T - the phone monopoly in Guyana - already earns more than $100 million a year in audiotext revenues generated by pre-recorded services.

Meanwhile, the Caribbean islands, which are part of the North American Numbering Plan - particularly St. Lucia and Montserrat - are jumping onto the audiotext bandwagon 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.