The Department of Justice recently announced that the U.S. District Court for the Eastern District of New York has entered orders in two separate civil actions, barring eight individuals and entities from allegedly continuing to facilitate the transmission of large volumes of fraudulent robocalls to consumers in the United States.

In one of the matters, United States v. Nicholas Palumbo, et al., the District Court entered a preliminary injunction that bars two individuals and two entities from operating as intermediate voice-over-internet-protocol (VoIP) carriers during the pendency of the civil action.  In the other matter, United States v. John Kahen, et al., the District Court entered consent decrees that permanently bar an individual and three entities from operating as intermediate VoIP carriers conveying any telephone calls into the U.S. telephone system.

“These massive robocall fraud schemes target telephones of residents across our country, many of whom are elderly or are otherwise potentially vulnerable to such schemes,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division.  “The department is committed to stopping this unlawful conduct and pursuing those who knowingly facilitate these schemes for their own financial gain.”

“This office will take all appropriate measures to stop fraudulent robocalling schemes responsible for causing catastrophic losses to victims, including seeking to permanently shut down the U.S.-based enablers of such schemes,” said United States Attorney Richard P. Donoghue for the Eastern District of New York.  “Protecting elderly and vulnerable individuals from being conned by foreign call center scammers remains a priority of this office and the Department of Justice.”

The complaints alleged that the defendants in both cases operated as VoIP carriers, receiving internet-based calls from other entities, often located abroad, and transmitting those calls first to other carriers within the United States and, ultimately, to the phones of individuals. 

Numerous foreign-based call centers are alleged to have used the defendants’ VoIP carrier services to pass fraudulent government- and business-imposter robocalls to victims in the United States. 

The defendants also allegedly sold U.S. phone numbers to foreign entities, which were used as victim call-back numbers as part of massive robocalling fraud schemes.

As also alleged in the complaints, the defendants were warned numerous times that they were carrying fraudulent robocalls, including calls impersonating government agencies, such as the Social Security Administration, the IRS, and legitimate businesses, such as Microsoft.  The complaints allege that the defendants continued to carry those calls and facilitate fraud schemes targeting individuals in the United States. 

Many of the robocalls were allegedly made by foreign fraudsters impersonating government investigators and conveying alarming messages, such as: the recipient’s social security number or other personal information has been compromised or otherwise connected to criminal activity; the recipient faces imminent arrest; the recipient’s assets are being frozen; the recipient’s bank and credit accounts have suspect activity; the recipient’s benefits are being stopped; the recipient faces imminent deportation; or combinations of these threats.  Each of these claims was purportedly false and designed to frighten the call recipient into paying large sums of money.  These calls allegedly led to massive financial losses to elderly and other vulnerable victims throughout the United States.

“The court’s decision sends a clear message to gateway carriers who knowingly do business with scammers targeting Americans from overseas,” said Gail S. Ennis, Inspector General for the Social Security Administration.  “We will continue to pursue those who facilitate these scam calls by allowing them into the U.S. telephone network.  I want to thank the Department of Justice for its support throughout this investigation and its commitment to protecting Americans from this insidious form of fraud and theft.”

United States v. Nicholas Palumbo, et al.

In the first case, the District Court issued a preliminary injunction against spouses Nicholas and Natasha Palumbo of Scottsdale, Arizona, and the Arizona companies they own and operate, Ecommerce National LLC d/b/a TollFreeDeals.com and SIP Retail d/b/a sipretail.com.  In a written opinion, the District Court held that the evidence presented by the United States demonstrated probable cause to conclude that the defendants were engaged in “widespread patterns of telecommunications fraud, intended to deprive call recipients in the Eastern District of New York and elsewhere of money and property.”

The preliminary injunction issued by the court bars those defendants from carrying any VoIP calls destined for phones in the United States and providing any U.S. telephone numbers (often used as call-back numbers in the fraudulent robocalling schemes) to any individuals or entities during the pendency of this litigation. 

The court noted that though defendants had been warned more than 100 times of specific instances of fraudulent calls being transmitted through their network, they never severed their business relationship with any entity they learned was associated with fraudulent call traffic, prior to the United States’ filing of its lawsuit. 

The court further noted that “the telecommunications ‘intermediary’ industry is set up perfectly to allow fraudulent operators to rotate telephone numbers endlessly and blame other parties for the fraudulent call traffic they carry,” that the United States “demonstrat[ed] probable cause to conclude that defendants’ business is permeated with fraud,” that “multiple individual victims in the United States suffered significant fraud losses,” and that “[e]very day that the defendants’ actions in this vein continue, the public is at risk of harm in the form of additional high-dollar fraud losses.”

The claims in the United States v. Nicholas Palumbo, et al. matter are allegations only, and there has not been any final determination of liability or wrongdoing.

United States v. John Kahen, et al.

In the second case, the District Court entered consent decrees permanently resolving the matter against five individuals and entities who were also operating intermediary VoIP carriers. 

The court entered a consent decree on March 2, 2020 against Jon Kahen, a/k/a Jon Kaen of New York, and New York corporations Global Voicecom Inc. and Global Telecommunication Services Inc., permanently barring those defendants from, among other things, using the U.S. telephone system to: deliver prerecorded messages through automatic means, carry calls to the United States from foreign locations, and provide calling and toll-free services for calls originating in the United States. 

In addition, the defendants are permanently barred from serving as employees, agents, or consultants to any person or entity engaged in these activities. 

In a second consent decree, entered on March 24, 2020, the District Court barred KAT Telecom Inc., a New York corporation, from conveying or causing any other person or entity from conveying fraudulent telephone calls, fraudulent recordings, and unauthorized “spoofed” telephone calls. 

In the event that KAT Telecom, Inc. resumes operations, it must also implement strong anti-fraud measures, including anti-fraud monitoring, mitigation, and know-your-customer measures.

The claims resolved by the settlement in the United States v. Jon Kahen, et al. matter are allegations only, and there has not been any final determination of liability or wrongdoing. 

FTC Warns VoIP Service Providers About “Assisting and Facilitating” Illegal Calls

On March 27, 2020, the Federal Trade Commission warned nine VoIP service providers and other companies against “assisting and facilitating” illegal Coronavirus-related telemarketing calls. 

“It’s never good business for VoIP providers and others to help telemarketers make illegal robocalls that scam people,” said FTC lawyer and Bureau of Consumer Protection Director Andrew Smith. “But it’s especially bad when your company is helping telemarketers exploiting fears about the coronavirus to spread disinformation and perpetrate scams.”

Combatting illegal telemarketing is a top priority of the FTC, with a special emphasis on stopping illegal robocalls.  FTC lawyer staff letters cite two cases the FTC has brought in this area.  The letters also cite two civil enforcement actions the Department of Justice has taken against VoIP companies and their owners for “committing and conspiring to commit wire fraud by knowingly transmitting robocalls that impersonated federal government agencies.”

The letters warn the recipients that the FTC may take legal action against them if they assist a seller or telemarketer who they know, or consciously avoid knowing, is violating the agency’s Telemarketing Sales Rule.

The letters note several types of conduct that may violate the TSR, including:

• making a false or misleading statement to induce a consumer to buy something or contribute to a charity;
• misrepresenting a seller or telemarketer’s affiliation with any government agency;
• transmitting false or deceptive caller ID numbers;
• initiating pre-recorded telemarketing robocalls, unless the seller has express written permission to call; and
• initiating telemarketing calls to consumers whose phone numbers are on the National Do Not Call Registry, with certain exceptions.

The FTC can seek civil penalties and court injunctions to stop TSR violations.  It also can seek money to refund to consumers who were defrauded via illegal telemarketing calls.

In January 2020, the FTC warned nineteen VoIP service providers that “assisting and facilitating” illegal telemarketing or robocalling is against the law.

“VoIP service providers play a unique role in the robocall ecosystem, allowing fraudsters and abusive telemarketers to call consumers at a fraction of a penny per minute,” said FTC attorney Smith.  “These warning letters put VoIP providers on notice that we will take action when they knowingly facilitate illegal robocalls.”