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FTC Tighten Screws on Online Fraud Perps

The Federal Trade Commission continued to put the clamps on online fraud perpetrators Friday when it settled with three firms which it said were illegally using consumers' personal financial data, such as bank balances.

Under the terms of the settlement, Information Search Inc., and David Kacala of Baltimore, Victor L. Guzzetta, doing business as Smart Data Systems of Staten Island, N.Y. and Paula Garrett, doing business as Discreet Data Systems of Humble, Texas, are barred from obtaining consumers' financial information through illegal means, or having others do it for them. The government agency has also inserted a provision to monitor compliance with its ruling.

The defendants must fork over money they made in the illegal scheme. Specifically, Garrett and Guzzetta will pay $2,000 each, while a $15,000 payment will be suspended for Kacala based on financial statements he provided.

According to court documents, the FTC claimed the defendants maintained Web sites advertising that they could obtain non-public, confidential, financial information -- "including such things as checking and savings account numbers and balances, stock, bond and mutual fund accounts and safe deposit box locations -- for fees ranging from $100 to $600, depending on the information sought."

Cooperating with local banks, the FTC set up covert sting operations to snare the accused. The agency established dummy bank accounts in the names of cooperating witnesses and then called defendants posing as purchasers of the defendants' services. An FTC investigator posed as a consumer seeking account balance information on her fianci's checking account. The defendants or persons they hired called the bank, identified themselves by the name of the "fianci," and asked to check his balance. The defendants eventually coughed up the account balance information to the investigator. Using false pretenses to obtain consumers' data and sell it is known in legal lexicon as "pretexting." This is forbidden by the Gramm-Leach-Bliley Act.

"Pretexting, like that alleged in these cases, undermines consumers' basic expectation of confidentiality in their financial information," said J. Howard Beales, III, Director of the FTC's Bureau of Consumer Protection. "The clients of pretexters are often law firms and other businesses. These buyers should beware because knowingly obtaining pretexted information is illegal as well."

The settlement comes after the FTC filed suit with the District of Maryland, the Eastern District of New York, and the Southern District of Texas in April 2001.