A Scottsdale-based company faces accusations that it generated millions of dollars in revenue by using a deceptive Internet marketing scheme to get wireless customers to buy premium text-messaging services.
Lawsuits filed by Verizon Wireless and the Texas attorney general allege that cellphone-applications developer Jawa used shell corporations, false business addresses, websites that did not comply with industry standards and diversionary software to deceive customers to buy its services.
A Verizon Wireless spokesman said the company does not know how many of its 95 million customers were charged as much as $9.99 a month for the text messages, but it has set up a system to offer refunds.
Jawa Chief Executive Jason Hope denied the allegations. He said his company is being unfairly targeted by Verizon Wireless. The carrier simply wants the revenue brought in by Jawa and similar companies for itself, he said.
Hope is known not only for the fast-growing company - it has grown to 240 employees since being founded in 2005 - but also for his opulent lifestyle. He hosts lavish parties and celebrity guests at his 100,000-square-foot estate still under construction in north Scottsdale. He also has a philanthropic bent, focusing on education, disease prevention and youth services, according to the company website.
The lawsuits demand that Jawa halt its alleged fraudulent practices. The lawsuits also seek punitive damages and customer restitution.
In a complaint filed March 7 in U.S. District Court in Phoenix, attorneys for Verizon Wireless detailed allegations of how customers doing simple Internet searches could be duped into providing their cellphone numbers, which triggered monthly charges. Verizon Wireless said Jawa used sophisticated techniques so that its auditors couldn't discover the deceptive marketing.
The lawsuit targeted Hope, five others and 20 limited-liability companies Verizon Wireless says are controlled by Jawa.
The case centers on premium text-messaging services, which include ringtones, news alerts, recipes and other content that is delivered for a fee to a customer's wireless phone. Once customers sign up, the costs are added monthly to their bill.
Wireless carriers such as Verizon Wireless offer contracts to software firms to offer these premium services, in return for a portion of the profits. By fraudulently using Verizon Wireless' networks, Jawa is placing unauthorized, misleading and deceptive charges on consumers' cellphone bills, a practice known as "cramming," according to the lawsuits.
"We know how many of our customers downloaded the various content that we've been able to identify that stem from Jawa and affiliated companies and people," said Jeffrey Nelson, Verizon Wireless spokesman. "What we don't know, and won't know for certain, is how many of those people intended to get it, wanted to get it and wanted to keep getting it."
In a counterclaim, Jawa said that its business practices follow industry standards and are not fraudulent and that Verizon is working to ruin its business by cutting off all sources of its funding.
"Verizon has willingly accepted and retained the profits over the last four years from what it now describes as a 'criminal enterprise' even though, during this time, it audited these practices," the claim, filed Monday, stated.
Verizon charges Jawa 30 percent of collected customer fees, resulting in Verizon's receipt of more than $30 million since 2008, according to Jawa's counterclaim. The company said its revenue generated by customers of Verizon was about $75 million during the past 12 months.
Hope said Jawa has similar agreements with all of the large mobile-phone carriers.
A hearing on Verizon Wireless' request for a temporary injunction against Jawa is set for April 13.
Action in Texas
The Texas attorney general filed a similar civil complaint March 10. Texas said its investigators determined Jawa used illicit websites to bait mobile-phone customers into submitting their wireless numbers online. It said the sites unlawfully failed to provide clear disclosures revealing that Jawa charged for the service and that the charges would be billed to a cellphone account.
Jawa operates hundreds of sites through which it advertises paid monthly subscriptions and other items, according to the Texas attorney general's complaint.
When users do Internet searches for common topics, such as song lyrics, maps, recipes and video games, the customer is directed to one of Jawa's sites, the office said.
The sites feature a bold, eye-catching box directing customers to enter their cellphone numbers.
The Jawa sites disclose a price in small, virtually unreadable one-line captions, according to investigators.
Hope accused Verizon in a court filing of falsely manipulating a webpage that had very clear pricing disclosures.
"If you just kind of glance at it, you don't see a price in there . . . ," he said. "You might see it, but it looks nothing like it would on your computer screen where there's clear pricing."
On March 16, a district court judge in Texas granted a temporary restraining order against Jawa, requiring that any documents or content related to the case be preserved.
A hearing to determine whether Jawa can continue operating while the case is heard is scheduled for April 6.
Beyond the lawsuit, Verizon Wireless has taken other business actions. It instructed four companies, known as aggregators, to freeze $19 million in charges for messaging services already provided by Jawa and for which customers already have been billed.
Aggregators, known as mobile-transaction hubs, enable wireless messages to be delivered to a customer and compile and transmit charges to the customer's carrier.
Hope and his attorney are firing back at Verizon.
"They want to target the third-party content industry to take it out so they can basically monopolize that industry for themselves," Hope said.
"That will add several hundred million dollars a year to their bottom line. We're the largest in the industry, so it's a very obvious target to start with."
Hope's attorney, Curt Langley, said the goal is to make an example of Jawa.
"They want to squish them and put them out of business and . . . intimidate their competitors," he said.
MORE ON THIS TOPIC
According to state investigators in Texas:
- Jawa operates hundreds of topic websites through which it advertises paid monthly subscription services and other items. When the consumer does an Internet search for topics such as song lyrics, maps, recipes and video games, they can be directed to one of Jawa's websites. The websites feature an eye-catching text box directing customers to enter their cellphone numbers, but unlawfully fail to provide clear disclosures that customers will be charged for the subscription service and billed through their mobile-phone accounts. The websites disclose a price only in a very small, virtually unreadable one-line caption in a dark gray font on a black background.
- Jawa also sends customers text messages containing a password to enter on its website. The company references a cost at the end of the message where customers are unlikely to see it. In some instances, the cost is not displayed in the first text message, only in a second text message.
- The company further deceives customers by ensuring their inquiries about unwanted charges were directed to a "dummy" website.
Source: Texas Attorney General.
Verizon Wireless has set up a website for customers who may have signed up and been charged for third-party, premium text-messaging services based on advertising that does not meet Verizon Wireless' standards for price disclosure.
The charges could stem from content associated with a company known either as Jawa, Cylon and/or Eye Level Holdings. The company name may not have appeared on the Verizon-issued bill.
Claim information can be found at www.premiumsmsrefunds.com. Questions can be directed to 877-866-0631.
by John Yantis The Arizona Republic Mar. 24, 2011 12:00 AM
Scottsdale firm accused of texting scam
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