FTC Lowers Boom on Net Porn Scammers

Continuing its crackdown on porn sites that illegally bill customers, the U.S. Federal Trade Commission (FTC) announced Thursday that it has won a $37.5 million (US$) judgment against an adult Web site operation that was billing customers for X-rated Internet visits they had not made and services they did not order.

A federal judge in California issued the order last month after finding that Malibu, California residents Kenneth Taves, Teresa Callei Taves, Dennis Rappaport and their businesses had illegally billed more than 700,000 customers for over $40 million. The three owned J.K. Publications, Inc.; MJD Service Corp.; Herbal Care, Inc.; and Discreet Bill, Inc.

The defendants operated 14 different adult Web sites from June 1997 through early January 1999, when the FTC initially filed the case and a federal judge ordered the shutdown of the defendants’ businesses pending trial.

Credit Card Numbers Purchased

In November 1997, the three purchased access to a database of credit card information from Charter Pacific Bank of Agoura Hills, California, containing the date of sale, card number, and dollar amount of every Visa and Mastercard transaction processed through any merchant of Charter Pacific during the previous 11 months.

The FTC argued that the defendants illegally used the purchased account numbers to place charges on the accounts. The court agreed, saying, “The Court finds that the FTC has proven by a preponderance of the evidence that 90.8 percent of the total ‘sales’ amount the defendants caused to be deposited into their merchant accounts was unauthorized.”

The defendants had access to the database of over 3.6 million card numbers through December 1998. The total amount of bogus charges was $43 million.

U.S. District Court Judge Audrey B. Collins said, “The 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.”

One Step Ahead of Monitoring

The defendants’ questionable business practices came to the attention of Visa USA in late 1997, when they were placed on Visa USA’s “active monitoring” list for excessive “chargebacks” — amounts debited to cards, but disputed by consumers.

Undeterred, the defendants avoided further monitoring by setting up a new merchant account under a different business name. The FTC showed that the defendants used at least five different merchant accounts and four fictitious business names to process credit and debit card transactions. Company names used by the defendants include “Netfill,” “N-Bill,” “MJD Service Corp” and “Webtel.”

Thousands of Complaints

The defendants’ scam did not go unnoticed by the thousands of consumers they charged. During 1998, according to court documents, “an untold number of cardholders” called the defendants’ to complain about the charges. At one point the defendants received “thousands of calls each day.”

Judge Collins said, “A shocking 40 to 50 percent 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.”

Since January 1999, when a court-appointed receiver took charge of the companies’ finances, 3,000 to 5,000 written complaints have been received and more are expected. The average amount of consumers’ complaints is $19.95, the amount the defendants were charging for one month’s access to their Web sites.

FTC Spokesperson Claudia Bourne Farrell told the E-Commerce Times that the reason the FTC delayed announcing the outcome of the case was to make sure the receiver was set up to handle the expected influx of calls.

Stiff Penalties

Kenneth Taves has been ordered to pay $37.5 million in damages, which represents the illegal charges minus the amount that consumers already received through chargebacks and credits. He is barred for 10 years from owning, controlling, holding a managerial post, consulting for or serving as an officer in any business that handles consumers’ credit or debit card accounts.

Teresa Taves is required to obtain a surety bond in the amount of $500,000 before engaging in future business where consumers’ cards would be billed.

Rappaport, who fled to Jamaica soon after he was served with the complaint, is barred from making false representations that consumers have agreed to purchase goods or services and from unauthorized billing. The court entered a default judgment against Rappaport.

The FTC said it had identified in excess of $20 million in defendants’ assets. It is not clear that the total of $37.5 million ordered by the court will be available for consumer redress.

1 Comment

  • How or who can I complain to about my computer actually being hacked and jammed with porn pop-ups from a site called “lolitaf*cker.com”, I can not open my internet explorer without literally hundreds of pop-up screens appearing for porno sites, my 14 year old son logged on the other day and there was a site with a 2 or 3 year old child engaged in a sexual activity. HELP !!!!!

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

How often do you receive an email that you suspect is fraudulent?
Loading ... Loading ...

Technewsworld Channels