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FTC Shuts Down Pretexting Operation

Company gives up nearly $600,000 for selling callers' personal information to third parties

By Martin H. Bosworth
ConsumerAffairs.Com

May 28, 2008

Calling Records • FTC Shuts Down Pretexting Operation • Phone Pretexters Get Off Cheap • Verizon Wireless Changes Customer Data Policy • FCC Strengthens Rules For Phone Privacy • House Tries Once More to Pass Pretexting Bill • Pretexting Bill: Pretense or Reality? • Hewlett-Packard Pays $14.5 Million to Settle Pretexting Suit • HP Scandal Ignites New Pretexting Battle In Congress • AT&T Sues Calling Record Brokers • Sprint Nextel Settles Case with Florida Data Broker • Feds Sue Calling Record Vendors • Illinois Lawsuit Charges Data Brokerages • Florida Judgment to End Data Broker's Business • Florida Investigates Fake Caller IDs • California Sues Data Trace USA for $10 Million • Missouri Sues Datatraceusa.com • Florida Sues Data Broker Over Sale of Phone Records • Texas Sues Companies Selling Telephone Calling Records • Websites Hawking Phone Records Shut Down • FTC Vows to Stop Illicit Sale of Cell Phone Calling Records • FTC Pledges "Vigorous" Pursuit of Cell Phone Record Sales • AT&T Accused of Eavesdropping, Calling Record Sales • Sprint Sues Cell Phone Record Brokers • Missouri Shuts Down Locatecell.com • Texas Probes Cell Phone Calling Record Sales, Missouri Files Suit • Illinois Sues Company Selling Cell Phone Calling Records • Outcry Over Sale of Cell Phone Calling Records

The Federal Trade Commission has halted an operation designed to gain individuals' personal phone call information under false pretenses -- the practice known as pretexting -- and resell it to third parties.

The defendants, Action Research Group (ARG) and Eye in the Sky Investigations (ESI), were accused of posing as individuals who could lawfully access individual phone records, such as employees of the same company as the target, and reselling the data.

Cassandra Selvage and Bryan Wagner, the heads of ESI, were found to regularly advertise their ability to access confidential phone records on their Web site, according to the FTC complaint.

"[T]o obtain such information, these [defendants] have used false pretenses, fraudulent statements, fraudulent documents, or other misrepresentations...to induce officers, agents, or employees of telecommunications carriers to disclose confidential customer phone records," the agency said.

"Defendants ESI and Selvage have sold the customer phone records they obtained to their clients," the agency said. "Consumers cannot reasonably avoid [injuries] because the practices of Defendants ESI and Selvage are entirely invisible to them."

ARG and its principals, Joseph and Matthew DePante, agreed to settle the FTC charges while ESI received a default judgment against it. The DePantes were fined $67,000, but the judgment was reduced to $3,000 contingent on the defendants' claims that they could not pay the full fine. Wagner was ordered to pay $428,085 in "ill-gotten gains" from the scheme, while Selvage was ordered to pay $110,000.

Gray area

The practice of pretexting was a gray area in telecommunications law for many years, enabling private investigators, law enforcement, and many other individuals to procure cellphone and landline calling records under both legitimate and false pretenses.

The issue received national attention in 2006 when the Chicago Sun-Times investigated the ease with which pretexters could get calling records, and blogger John Aravosis documented his purchase of the cell phone calling records of retired Army general and former presidential candidate Wesley Clark.

The scandal led to the FTC and state law enforcement agencies tracking down and closing numerous pretexting operations around the country. But federal legislation prohibiting pretexting was repeatedly bogged down in political battles between various factions, such as federal law enforcement agencies' usage of pretexting in their own investigations.

It wasn't until the revelation that former Hewlett-Packard chairwoman Patricia Dunn had hired a private investigator to acquire the calling records of other HP executives and a journalist using pretexting that the political winds shifted in favor of criminalizing the practice.

Congress passed legislation outlawing pretexting in January 2007, but the law included a large exemption for allowing law enforcement officials to use the practice in the course of an investigation.

The FCC also passed rules for phone companies to keep customer records private, but gave law enforcement agencies the first right of notification in case of a data breach over customers.

The FTC's settlements with pretexting companies are notoriously minimal, as the defendants often plead poverty, forcing the agency to agree to much smaller payments in exchange for ceasing of criminal activities and oversight to ensure the defendants are not trying to game the system.

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