A federal court has permanently shut down the illegal operations of Inc21, a firm that placed bogus charges on the telephone bills of thousands of small businesses and consumers for Internet-related services they never agreed to buy.

The court, at the request of the Federal Trade Commission (FTC) has barred the defendants from charging consumers' telephone bills and prohibits them from telemarketing unless they get prior approval from the FTC and the court.

It also ordered third parties through which charges were placed -- including local exchange telephone companies, or LECs -- to return money in escrow to consumers, and ordered the defendants to pay nearly $38 million in restitution for consumers.

Offshore operators

In January 2010 the FTC sued Inc21, charging that the company hired offshore telemarketers to call prospective clients to sell its Web-based services. The defendants then used LECs to place charges -- usually between $12.95 and $39.95 per month -- for those services on the phone bills of consumers and businesses that either:

• were told by telemarketers that the call was only to verify business information;

• declined Inc21's offer of Internet services; or

• were told they would receive a free trial offer, but were not informed that they would be charged if they did not cancel.

The FTC charged that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR).

'Overwhelming evidence'

In his opinion, Judge William Alsup agreed and granted the FTC's motion for summary judgment.

"The FTC has produced overwhelming evidence that defendants' practice of billing tens of thousands of businesses and consumers via their telephone bills -- a fraud-friendly practice called 'LEC billing' -- was both deceptive and unfair," the judge's opinion states. "The most compelling proof of these violations is a comprehensive expert survey of 1,087 of defendant'' so-called 'customers.' This survey revealed that nearly 97 percent of defendants' 'customers' had not agreed to purchase defendants' products. Even more egregious, only five percent of them were even aware that they had been billed.

"Indeed, over a five-year span from 2004 through 2009, defendants successfully extracted over $37 million in unauthorized payments from the telephone bills of unsuspecting businesses and consumers,' the judge wrote.

"As for defendants' telemarketing activities, the FTC's evidence is equally compelling. Taken together, the FTC has easily met its burden of demonstrating that the TSR has been violated," Judge Alsup's order states.

"In short, the record contains mountains of undisputed evidence showing fraud at every step of defendants' telemarketing process," Judge Alsup wrote.

Inc21.Com Corporation; Jumpage Solutions, Inc.; GST U.S.A., Inc.; Roy Yu Lin and John Yu Lin were the defendants named in this matter. Sheng Lin, who did not participate in the scheme, but who profited from it, was named as a relief defendant and ordered to give up $434,000 in financial benefits he received from the defendants' unlawful practices.