A small Florida company that has repeatedly been accused of cramming extra charges on consumer phone bills around the country was sued by the Federal Trade Commission on Thursday. The firm was the subject of an investigation by MSNBC.com in April, after a former employee detailed the firms alleged aggressive telemarketing tactics. At one point earlier this year, Epixtar was the top performing stock on Wall Street — and shares in the firm soared more than 400 percent in the weeks after the MSNBC.com investigation.
In the wake of the announcement, shares in Epixtar plummeted nearly 40 percent.
Epixtar Corp., also known by its subsidiary names Liberty Online Services and National Online Services, announced Thursday that it had been sued and served with a temporary restraining order by the FTC. The firm’s assets were also frozen, pending a Nov. 13 hearing. Company officer William Rhodes was also sued by the FTC.
Epixtar and its subsidiaries “vigorously deny any wrongdoing and believe that their business practices are in compliance with all applicable laws. They intend to vigorously defend the action,” the firm said in a press release.
Epixtar’s chief executive officer, Martin Miller, confirmed that his firm received the temporary restraining order at its offices Thursday morning, and that the firm had temporarily stopped conducting business.
“We are shocked by this action,” he said. “We consider it a complete violation of anybody’s due-process rights.”
Telephone cramming, along with phone bill slamming, has become an increasing nuisance for consumers. With the Telecommunications Act of 1996, third-party firms earned the right to offer consumers additional telephone services such as voice mail, with charges for those services included on home or business telephone bills. Some unscrupulous operators manage to trick consumers into adding services, or in some cases, simply add the services without permission, and charge monthly fees — a process called cramming. Confused consumers usually complain to their local telephone provider, which did not initiate the charge and often cannot immediately remove it. Phone slamming victims find they have been tricked into switching long-distance providers.
Earlier this year, Epixtar was accused of cramming by Missouri and Iowa state officials.
In January, Missouri Attorney General Jay Nixon won an injunction against the firm after alleging that it tricked consumers into agreeing to pay for unnecessary telephone services such as Internet yellow page listings. Nixon also said that consumers who tried to contact the company for refunds have had “misrepresentiations made to them, including altered recordings of telemarketing calls.” The attorney general’s office said it had received 69 complaints about National Online Services, one of the brand names that Epixtar uses.
The Iowa Office of Consumer Advocate also filed a complaint about Epixtar earlier this year, including claims “that the company’s verification agent spoke far too rapidly to be understood by the consumer.”
Epixtar’s Miller said that seven states in all had opened inquiries into his company’s practices; the firm has settled some of those cases, he said.
Miller said his initial reading of the FTC lawsuit did not indicate that his firm was accused of cramming.
“We sell ISP services to small business, and we do it on free trial basis with ‘convert to pay.’ They are saying we converted them to pay without their knowledge, which we categorically deny.”
According to its Web site, Epixtar provides marketing services, and has operations in Florida, India, the Philippines and the Caribbean. Subsidiaries provide Internet service, long-distance calling cards and other telecommunications services.
The business had been expanding, and earlier this year had filed applications to sell telecommunications services with state regulators in Ohio, California, North Dakota and Mississippi. In a September press release, the firm said it had executed a Memorandum of Agreement with I-Call Global Services Corp. to acquire a Manila, Philippines-based call center, with plans to expand it to 1,000 seats.
Investors had rewarded the company during the span — it rose from a 52-week low of 36 cents to a high of $9.20 in May.
But in April, the former employee, who requested anonymity, alleged that the firm had used fast-talking techniques to grow the business. It signed up 600,000 customers during the past year to monthly services that cost about $30 per month, he said. To bolster his claims of deceptive practices, the employee, who requested anonymity, shared copies of the recorded telephone calls made by company representatives.
On one call, the Epixtar operator says she is verifying the business name and address. Then, after she gets the consumer into the rhythm of giving “yes” answers, she establishes that he has the right to make changes to the phone bill. But that key question, read at lightning-quick speed, is slipped in behind another simple “yes” answer.
“You are authorized to make changes and incur charges on your business phone bill and are over the age of 18. I also have your main telephone number as 202 ... Is that all correct?” the operator is heard asking. The consumer replies “yes.”
“Basically, we get one yes for four questions. Sometimes people don’t notice,” the former employee said.
Such alleged fast-talking has gotten the company into trouble with the Iowa Office of Consumer Advocate, which says in one case “that the company’s verification agent spoke far too rapidly to be understood by the consumer.”
The former Epixtar employee said that the $29.95-a-month service is quickly mentioned at the end of a conversation.
“At this time we will begin your no obligation 30-day free trial. Should you decide to continue after 30 days your company’s Web and Internet service is only $29.95 monthly and will be included in your local phone bill appearing under the heading online services ...,” the operator says.
The flummoxed consumer replies hesitatingly, “Yes ....” The former employee claimed that the tape was neatly cut after the word “yes.”
The Missouri attorney general accused Epixtar of that quick-ending tactic. An affidavit signed by a consumer submitted by the attorney general to the court alleges that when the consumer listened to the recording of his solicitation, “the recording ended prior to me saying that if I had to call to cancel the service, I did not want it.”
Miller denied that his firm uses quick-talking tactics or digitally edits phone calls.
“We record all our telephone calls. ... We have a voice record of the acceptance of our services,” he said. “We bend over backwards to comply with regulations.”