Two Mobile Phone Industry Executives Arrested in Multi-Million-Dollar 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 arrests of DARCY WEDD and ERDOLO EROMO, the CEO and Senior Vice-President of Business Development, respectively, at a mobile aggregation company based in the United States (the “U.S. Mobile Aggregator”), for their participation in a scheme to charge mobile phone customers millions of dollars in monthly fees for unsolicited, recurring text messages without the customers’ knowledge or consent—a practice known as “auto-subscribing.” EROMO was arrested this morning in California, and is expected to be presented today in federal court in Los Angeles before United States Magistrate Judge John E. McDermott. WEDD was arrested this afternoon in New York, and is expected to be presented today in federal court in New York before United States Magistrate Judge Ronald L. Ellis. Also named in the Indictment were CHRISTOPHER GOFF, MICHAEL PEARSE, YONGCHAO LIU, a/k/a “Kevin Liu,” and YONG JASON LEE, a/k/a “Jason Lee,” all of whom were previously charged in a criminal complaint for their respective roles in the scheme.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Darcy Wedd, Erdolo Eromo and their co-conspirators engaged in a practice known as ‘auto-subscribing,’ forcing mobile phone users to pay charges for unsolicited and unwanted text messaging services, including horoscopes and celebrity gossip. Although the text messages were often trivial, what the defendants allegedly did was far from a joking matter. Their criminal scheme allegedly fleeced hundreds of thousands of everyday customers from around the country out of millions of dollars.”
IRS Special Agent-in-Charge William Offord said: “Criminals rely more and more on technology to facilitate their fraud schemes. Those considering this type of cybercrime should take note: “auto-subscribing” scams could mean “auto-arrest,” conviction and jail time.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, the defendants and their co-conspirators profited in the sum of tens of millions of dollars from the scheme to charge mobile phone customers monthly fees for unsolicited text messages. Consumer fraud like this can have devastating impacts on consumers, businesses and the integrity of the mobile phone industry.”
According to the allegations contained in the Indictment unsealed today in Manhattan federal court:1
The Auto-Subscription Scheme
From in or about 2011, through in or about 2013, WEDD, EROMO, GOFF, PEARSE, LIU, LEE, and other co-conspirators engaged in a multimillion-dollar scheme to defraud consumers by placing unauthorized charges for premium text messaging services on consumers’ cellular phone bills, without the consumers’ knowledge or consent, through a practice known as “auto-subscribing.”
During the relevant time period, LEE and two other co-conspirators (“CC-1” and “CC-2”) worked for a company that offered premium text messaging services to mobile phone customers (the “Content Provider”). WEDD, EROMO, GOFF, and another co-conspirator (“CC-3”) worked for the U.S. Mobile Aggregator. PEARSE and LIU worked for a mobile aggregator based in Australia (the “Australian Mobile Aggregator”). Mobile aggregators compile, or “aggregate,” charges for premium text messaging services—such as monthly horoscopes, celebrity gossip, and trivia facts—on consumers’ mobile phone bills.
In or about 2010, CC-1 decided to begin auto-subscribing mobile phone users to the Content Provider’s premium text messaging services in order to boost the Content Provider’s sagging revenues. CC-1 approached PEARSE and LIU and asked them to build a computer program that could spoof the required consumer authorizations for premium text messaging services—i.e., a program that could generate the text message correspondence that one would ordinarily see if a consumer was genuinely signing up to receive the services. PEARSE and LIU agreed to build the program (the “Auto-Subscription Platform”), which was operational by in or about the middle of 2011. In or about July 2011, CC-1 approached GOFF, who was the account manager for the Content Provider at the U.S. Mobile Aggregator, in order to obtain a large volume of mobile phone numbers to run through the Auto-Subscription Platform. GOFF sent CC-1 hundreds of thousands of phone numbers, in exchange for payment, for the purpose of auto-subscribing consumers.
In or about October 2011, CC-1 met with WEDD and told him, in sum and substance, that CC-1 wanted to auto-subscribe consumers through the U.S. Mobile Aggregator’s billing platform and needed additional phone numbers to do so. WEDD agreed to assist CC-1 in exchange for an up-front payment of approximately $100,000 and a percentage of the auto-subscription proceeds. WEDD further told CC-1, in sum and substance, that CC-3, who was the Vice President of Compliance and Consumer Protection for the U.S. Mobile Aggregator, would provide phone numbers to CC-1 and that all payments needed to go through CC-3. WEDD later received his portion of the payments from CC-1 via CC-3.
After CC-1 received phone numbers from WEDD and CC-3, CC-1 passed them on to LEE, the Chief Technology Officer of the Content Provider, who was responsible for verifying that the numbers were still valid and active, and for sorting and filtering the numbers to make it easier to run them through the Auto-Subscription Platform. After LEE performed these functions, CC-1 sent the numbers to PEARSE and LIU to be run through the Auto-Subscription Platform.
CC-1 also met with EROMO, at the direction of WEDD. EROMO told CC-1, in sum and substance, that EROMO knew about the plan to auto-subscribe consumers and requested $10,000 in cash to migrate each of CC-1’s premium text messaging services to a different billing platform at the U.S. Mobile Aggregator to facilitate the auto-subscriptions. EROMO and CC-3 also sold CC-1 and CC-2 so-called “blacklists” or “ninja lists” for approximately $10,000 each. The blacklists or ninja lists, which were lists of phone numbers that should not be auto-subscribed, included phone numbers belonging to executives at the mobile phone carriers and people at mobile industry compliance groups, who would likely initiate an audit if they noticed that they had been auto-subscribed to a premium text messaging service that they had not authorized. To pay EROMO for his assistance, CC-1 sent, or caused to be sent, several cash payments to EROMO’s residence through the mail.
The auto-subscription scheme affected hundreds of thousands of consumers and generated tens of millions of dollars in proceeds, which the defendants apportioned among themselves and were used to fund a lavish lifestyle of expensive vacations and gambling.
WEDD, EROMO, GOFF, PEARSE, LIU, and LEE are each charged with one count of conspiracy to commit wire fraud and mail fraud, and one count of wire fraud, each of which carries a maximum term of 20 years in prison. WEDD, EROMO, and GOFF are also each 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.
GOFF and LEE were arrested on May 27, 2015. PEARSE and LIU reside in Australia and have not yet been arrested.
Mr. Bharara praised the investigative work of the IRS-CI and the FBI, and expressed his sincere gratitude to the Federal Trade Commission for their support and assistance with the investigation. He also thanked the U.S. Attorney’s Office for the Central District of California 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 Indictment 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 Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.