FTC Accuses Wazzu of Tacking Charges onto Phone Bills

A Fountain Valley Internet company that attracted money from a prestigious investor group and recently won an award at a venture-capital conference was charged Thursday by the Federal Trade Commission with sneaking illegitimate charges onto consumers’ phone bills.

The FTC complaint against Wazzu Corp. accuses telemarketers working for the company of telling some consumers that Wazzu would design and maintain a Web site for them for a free 30-day trial period, but instead charged them during that time, a tactic known as “cramming.”

Some consumers who declined the offer found charges on their phone bills, the FTC said.

The agency, which received “several dozen complaints” about the company, raided Wazzu’s offices on June 9. FTC officials spent two days combing through the company’s computers and files looking for evidence of wrongdoing, and seized company records.

The complaint was one of three announced Thursday by the FTC, which said that thousands of small businesses have lost millions of dollars in the past two years because of such scams.

“Internet cramming has focused on small business like a laser beam,” said Jodie Bernstein, director of the FTC Bureau of Consumer Protection, said in a statement. “Thousands of small businesses have been ambushed by Internet crammers.”

The FTC is expected to bring cramming charges against additional companies within the next six weeks, agency officials said. Cramming was the fourth largest source of consumer complaints in the FTC’s annual report on fraud to Congress.

Small businesses are especially vulnerable to cramming, because they often lack the rigorous internal auditing process found at larger firms.

Wazzu, a builder of Web sites and online stores for small companies, denies any wrongdoing. “We are a model for the industry in the way we process new customers and handle orders,” said Kirk Waldfogel, the company’s chief operating officer. “The charges are absolutely baseless. I’m shocked this is happening.

“No customer has ever been charged for something they did not order. Our sales and verification process make that literally impossible,” he added.

Telemarketers explain in great deal to prospective customers the services offered by Wazzu, Waldfogel said. If they are interested, customers respond to a series of questions that are digitally recorded to ensure they understand what they are signing up for, he said.

However, some consumers said the verification recordings had been doctored so as to appear that they had agreed to receive Wazzu’s services, the FTC’s Luehr said.

Others complained of failing to receive a credit after informing Wazzu they were being billed for services they never wanted.

The company outsources the bulk of its telemarketing, Waldfogel said. About 10 companies with a total of 200 employees do telemarketing work for Wazzu. He declined to name then.

Wazzu has had some problems with telemarketers in recent months, Waldfogel said. The company has terminated relationships with four telemarketing firms that attempted to put through “bogus orders,” Waldfogel said.

Wazzu has raised $800,000 of its $1.5 million in funding from the Tech Coast Angels, a group of wealthy Orange County executives and investors who sink money into start-up companies.

Luis Villalobos, Tech Coast Angels founder and a Wazzu board member, said he expects the firm to be exonerated but hopes the allegations don’t “tarnish the company.”

Wazzu had hoped to raise $10 million from the venture community by the end of July but might have to put that off until the brouhaha blows over.

Wazzu won “Best Show” honors at VentureNet 99, the annual software and Internet venture capital conference that matches such investors with fast-growing entrepreneurial firms. Officials from the Software Council of Southern California, VentureNet 99’s sponsor, could not be reached for comment.

Wazzu has been cooperating with the FTC, and the company hopes to reach a quick settlement, Waldfogel said. “I want this thing to be over and done with in a very short amount of time,” he said.

In addition to Waldfogel, Wazzu Chief Executive Jayme Amirie and President Kenneth Gharib have been named as defendants in FTC suit.

Also named in complaints Thursday were Shared Network Services, which does business as 1stPage, of Lodi; and WebViper, which does business as Yellow Web Services, of Montgomery, Ala.