September 15, 2015

Man Sentenced for Nationwide ‘Cramming’ Scheme

Unauthorized Charges Placed on Victims’ Phone Bills

Phone Bill

It’s a problem that has bedeviled landline telephone users for a while now, but is increasingly causing headaches for mobile phone users as well. It’s called cramming, and it involves a third party placing unauthorized charges on your wired, wireless, or bundled services telephone bill. The Federal Communications Commission (FCC) estimates that cramming has impacted tens of millions of American households.

Cramming practitioners take advantage of what’s known as local exchange carrier (LEC) billing, which allows users of particular electronic products or services—like ringtones, cell phone wallpaper, premium text messages of sports scores or daily horoscopes, etc.—to be billed through their local telephone company accounts rather than directly from the providers of the product or service. LEC billing is lawful, as long as the customer is aware of and has agreed to these charges. But when extra charges are placed on customers’ bills without their knowledge or consent, it’s cramming.

The FCC and the Federal Trade Commission (FTC) routinely undertake civil enforcement actions to punish those responsible for cramming and to provide financial relief for the victims. But occasionally, a cramming scheme is so egregious—in terms number of victims, how much money is lost, and how widespread it is—that the FBI pursues a criminal fraud case against the accused. That’s what happened in the joint FBI/Internal Revenue (IRS) investigation of a Montana man—Steven Vincent Sann—who was recently sentenced to a federal prison term for orchestrating a nationwide scheme involving approximately $70 million in unauthorized fees being charged to phone bills associated with more than one million landline phone numbers.

Sann first came to the attention of the FBI during the course of a drug investigation. An analysis of his bank accounts revealed that he was receiving large amounts of money from billing aggregators known for working with phone companies to facilitate the placing of charges on phone bills by third parties. Investigators, following the money trail, found that Sann was using LEC billing to charge for a standalone voicemail and fax service he was marketing through several companies he managed.

After looking through Sann’s business records, investigators determined that he was actually running a cramming operation. His companies had received numerous cramming complaints, but Sann didn’t report them to the billing aggregators, as he was contractually obligated to do, because that would have jeopardized his scheme. Additional details and evidence of the cramming operation came out in interviews with victims, billing aggregators, phone companies, Sann’s employees, and others.

Citing the size and complexity of the case, the FBI agent who worked the investigation acknowledged the contributions of his counterpart at the IRS. “We worked together every step of the way—formulating strategy, conducting interviews, and analyzing financial records,” he explained.

How did the scheme work? Sann contracted with various billing aggregators and provided them with the consumer telephone numbers to be billed. The aggregators, in turn, provided the information to the phone companies, which placed the charges for Sann’s product on the bills associated with each telephone number. When the customers paid their bills, the phone companies—after taking out their fees—forwarded the remainder of the money to the billing aggregators, who took out their fees. The remaining funds were deposited into Sann’s accounts.

The primary ingredient in any cramming scheme is a working phone number. Investigators believed that Sann could have obtained his numbers from lists he bought from marketers and/or from victims entering their phone numbers on misleading website advertisements.

Crammers like Sann rely on a number of tricks to confuse consumers into paying for services they didn’t authorize or that cost more than they were led to believe. For instance, unauthorized charges are usually given general and innocuous-sounding names, like service fee, service charge, voicemail, mail server, and calling plan. And the charges, usually monthly, are often relatively small, anywhere from $9.95 to $24.95.

Consumer awareness is the key to minimizing the financial damages caused by crammers (see sidebar). And if you think you’ve been the victim of cramming, contact your telephone service provider and file a complaint online with the FCC or the FTC.

Tips to Protect Yourself Against Cramming

  • Carefully review your telephone bill every month for unfamiliar charges (they could be monthly or one-time-only charges). Some telephone companies mail out abbreviated bills with few details, but may offer more detailed bills online or upon request.
  • Keep an eye out for generic-sounding services and fees listed on your phone bill, like Min. Use Fee, Activation, Member Fee, or Subscription.
  • Keep a record of the services you have authorized, even for small charges.
  • Don’t enter your telephone number on unsecured websites.
  • Be on the lookout for unsolicited text messages. A text message from someone you don’t know could be a signal that you might be signed up for a service you didn’t order.
  • Carefully read all forms and promotional materials—including the fine print—before signing up for telephone or other services to be charged on your bill.
  • Ask your telephone carrier about any services it may offer that block third-party charges.
  • When in doubt, ask questions. If you don’t know what a charge listed on your bill is for, ask your telephone company to explain it before you pay it.

More information on cramming can be found on the websites of the Federal Communications Commission and the Federal Trade Commission.