Six Defendants Charged in Manhattan Federal Court in Multi-Million-Dollar Text Messaging Consumer Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, William P. Offord, the Special Agent-in-Charge of the Boston Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal complaint charging LIN MIAO, YONG JASON LEE, a/k/a “Jason Lee,” MICHAEL PEARSE, YONGCHAO LIU, a/k/a “Kevin Liu,” MICHAEL PAJACZKOWSKI, a/k/a “Paj,” and CHRISTOPHER GOFF with participating in a scheme to charge mobile phone customers tens of millions of dollars in monthly fees for unsolicited, recurring text messages about topics such as horoscopes, celebrity gossip, and trivia facts, without the customers’ knowledge or consent—a practice the defendants referred to as “auto-subscribing.”
Manhattan U.S. Attorney Preet Bharara said: “As alleged, by burying relatively small hidden text message service charges in the monthly mobile phone bills of thousands of customers who did not purchase the text message service, these defendants reaped tens of millions of dollars. Stealing incrementally is stealing nonetheless, and if the allegations are proven, the defendants will have to answer for this massive consumer fraud.”
IRS Special Agent-in-Charge William Offord said: “The arrests today highlight the magnitude of this complex e-commerce fraud against unwitting consumers. Crimes like ‘auto-subscribing’ undermine the integrity of our economic system. Working closely with our law enforcement partners, IRS plays an important role in unraveling complex financial transactions where individuals attempt to conceal the true source of their criminal proceeds.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “The six defendants charged today are alleged to have profited from the unlawful billing of consumers for unsolicited services. Hundreds of thousands of customers collectively lost tens of millions of dollars in this far-reaching scheme. Behavior of this nature has a devastating impact on people, companies, and the integrity of mobile phone industry. We are putting those persons who engage in this type of fraud on notice: Your actions can result in serious charges carrying severe penalties and consequences.”
According to the allegations contained in the criminal Complaint unsealed today in Manhattan federal court1:
From 2011 through 2013, MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF engaged in a multimillion-dollar scheme to defraud consumers by placing unauthorized charges for premium text messaging services on consumers’ cellular phone bills, through a practice known as “auto-subscribing.”
During the relevant time period, MIAO and LEE worked for a company that offered premium text messaging services—such as monthly horoscopes, celebrity gossip, and trivia facts—to mobile phone customers (the “Texting Company”). PEARSE and LIU worked for companies that were affiliated with the Texting Company (the “Texting Company Affiliates”). PAJACZKOWSKI and GOFF worked for a mobile aggregator (the “Mobile Aggregator”), which served as a middleman between the Texting Company and mobile phone carriers, and was responsible for assembling monthly charges incurred by a particular mobile phone customer for premium text messaging services and placing those charges on that customer’s cellular phone bill.
To carry out the scheme, MIAO and others at the Texting Company purchased large volumes of mobile phone numbers from PAJACZKOWSKI and GOFF, who had access to those numbers by virtue of their employment at the Mobile Aggregator. MIAO then worked with LEE, PEARSE, and LIU to have unsolicited text messages sent to the mobile phone numbers that had been purchased, and to enroll those customers in premium text messaging services without their knowledge or consent. MIAO, LEE, PEARSE, and LIU also took steps to conceal the fraud scheme by making it appear as if the customers had, in fact, elected to purchase the text messaging services, when in truth they had not.
The consumers who received the unsolicited text messages typically ignored or deleted the messages, often believing them to be spam. Regardless, the consumers were billed for the receipt of the messages, at a rate of $9.99 per month, through charges that typically appeared on the consumers’ cellular telephone bills in an abbreviated and confusing form, e.g., with billing descriptors such as “96633IQ16CALL8668611606” and “25184USBFIQMIG.” The $9.99 charge recurred each month unless and until consumers noticed the charges and took action to unsubscribe. Even then, consumers’ attempts to dispute the charges and obtain refunds from the Texting Company or from the Texting Company Affiliates were often unsuccessful.
MIAO, PAJACZKOWSKI, and GOFF also worked together to launder the proceeds of the fraud scheme. PAJACZKOWSKI and GOFF created shell companies to receive payments from MIAO and the Texting Company for the mobile phone numbers that PAJACZKOWSKI and GOFF collected and sold. PAJACZKOWSKI and GOFF, moreover, communicated with MIAO about the fraud scheme using personal e-mail accounts with e-mail addresses such as “email@example.com” and “firstname.lastname@example.org.” In this way, PAJACZKOWSKI and GOFF attempted to conceal their role in the fraud from their employer, the Mobile Aggregator.
Through their successful orchestration of this fraud scheme, which affected hundreds of thousands of consumers, MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF generated in excess of $50 million in proceeds for themselves, some of which were used to fund a lavish lifestyle of expensive parties, travel, and gambling.
MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF are charged with one count of conspiracy to commit wire fraud and mail fraud, which carries a maximum term of 20 years in prison. MIAO, PAJACZKOWSKI, and GOFF are also charged with one count of conspiracy to commit money laundering, which carries a maximum term of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
MIAO was arrested yesterday afternoon at Los Angeles International Airport. LEE, PAJACZKOWSKI, and GOFF were arrested this morning at their residences in California and Texas. PEARSE and LIU reside in Australia and have not yet been arrested. MIAO, LEE, and GOFF are expected to be presented later this afternoon in federal court in Los Angeles, California, before U.S. Magistrate Judge Carla M. Woehrle. PAJACZKOWSKI was presented this morning in federal court in Plano, Texas, before U.S. Magistrate Judge Don D. Bush.
Mr. Bharara praised the investigative work of the IRS-CI and the FBI, and expressed his sincere gratitude to the Federal Trade Commission for its support and assistance with the investigation. He also thanked the U.S. Attorney’s Office for the Central District of California and the U.S. Attorney’s Office for the Eastern District of Texas for their help in coordinating the arrests of the defendants.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Christian R. Everdell and Sarah E. Paul are in charge of the prosecution. Assistant U.S. Attorney Edward B. Diskant of the Office’s Money Laundering and Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
1As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations, and every fact described should be treated as an allegation.