Don’t Fall for Business Directory Scams

One of the most common scams aimed at businesses, the business directory scam, is on the rise yet again. Our crime and security expert has info on how to spot this scam, how to avoid it, and what to do if you’re among the thousands of businesses that have fallen for it.

The Federal Trade Commission (FTC) is warning businesses that they are seeing an increase in the business directory scam.

The FTC filed suit to halt the operations of three telemarketing “boiler rooms” in Montreal, Canada. The FTC alleged that the telemarketers bilked thousands of small- and medium-sized U.S. businesses and non-profits organization, such as churches, schools, and charities, out of millions of dollars by deceiving them into paying for listings they never ordered in worthless business directories.

According to the FTC, the filed lawsuits are part of a joint initiative with Canadian law enforcement agencies called “Operation Mirage.”

The operation is aimed at cracking down on the growing business directory scams. The FTC charged that the three telemarketing operations targeted businesses and other organizations with schemes to mislead them into paying hundreds of dollars each for unwanted business directory listings. The court has issued temporary restraining orders in the three cases.

The FTC states that the alleged crooks pose as well-known local “yellow pages” directories, and they tell the people who answer the business’ phone that they are calling to verify addresses and telephone numbers. The telemarketers then use the “verifications” as the basis to claim that these organizations agreed to listings that often cost $400 or more.

The FTC also alleges that the telemarketers sent their victims invoices that again often imply that they are well-known yellow-pages companies. Many businesses and organizations paid the invoices. Those who didn’t were threatened via phone calls and letters. To hide their true location, the telemarketers used mailing addresses across the United States.

The FTC’s complaints allege that the telemarketers made three misrepresentations that violated the FTC Act. First, they led the targeted businesses and non-profits to believe that there was a pre-existing relationship between them. Second, they falsely claimed that those organizations had agreed to purchase directory listing services. Third, they falsely claimed that the organizations owed money for these supposed services.

This is not a new scam. In November of 2006, Terrence Croteau was sentenced to prison for 151 months for committing this crime. The year before a federal grand jury in the Southern District of Illinois returned a 29-count indictment against Croteau, then 30.

Croteau, who lived in Ontario, was investigated by the U.S. Postal Inspection Service with assistance from the FTC in Chicago. The Niagara Regional Police Service in Ontario and the Ontario Provincial Police, assisted by the Toronto Police Service, conducted a concurrent investigation. According to the U.S. Justice Department, the investigation resulted from the efforts of the Toronto Strategic Partnership, a partnership consisting of regulatory and law enforcement agencies in the United States and Canada formed to address cross-border mass marketing fraud.

Croteau was charged with operating a business directory scam out of Montreal, Quebec, and Welland, Ontario, between 2000 and the late spring of 2004. According to the Indictment, Croteau employed telemarketers who telephoned U.S. businesses under the false pretenses that they were from a legitimate business that published business directories, including an online business directory on the Internet. The Indictment stated that Croteau’s telemarketers used a variety of deceptive tactics to close sales, including duping businesses into thinking that they were renewing or continuing supposedly pre-existing listings, or simply confirming a shipping address.

Croteau entered a guilty plea to 25 counts of the 29-count indictment, and he agreed to cooperate with the U. S. government in connection with ongoing investigations.

I’d like to pass on the FTC’s information on business directory scams and their tips on how to avoid being scammed:

How the Scam Works

The Call. First, con artists make cold calls to offices. They ask the person answering the phone to “confirm” the address, telephone number, and other information, claiming it’s for a listing the company has in the yellow pages or a similar business directory. The scammers then fire off a rapid series of questions they may tape-record, sometimes sliding in a confusing reference to the cost. The scam works because fraudsters convince the person who picks up the phone that they’re just “verifying” an arrangement the company already has with the directory.

The Bill. The con artist then sends urgent “invoices” for $500 or more — sometimes including a copy of the “directory.” They’re usually worthless and are never distributed or promoted as promised. Often, they’re just websites with listings of various businesses. In many cases, the person paying the bills will simply cut a check, not realizing that the company never agreed to pay the hefty fee for the directory. But if businesses resist, the scammers turn up the heat, threatening collection or legal action to get payment. They may use the name of the person who answered the phone or play a “verification tape” as “proof” that the company owes them money. Often these tapes have been doctored or the nature of the transaction was rattled off in a way no one could have understood. If companies stand firm in their refusal to pay for services they didn’t authorize, the scammer may try to smooth things over by offering a phony discount. Or they may let the company return the directory — at the company’s own cost, of course — but insist on payment for the so-called listing. At this stage, many companies pay up just to stop the hounding. What they don’t know is that they’ll likely get more bogus invoices — either from the same scam artist or from others who have bought their contact information for a new scheme.

How can I protect my business?

Take the following four steps to protect your company from business directory fraud.

1. Train your staff to spot this scam. Educate your employees about how this scam works. In addition to your regular receptionist, talk to everyone who may pick up the phone. Put a copy of this alert in employee mailboxes. Mention it in a staff meeting. Post it on the break room bulletin board or where employees clock in and out.

2. Inspect your invoices. Depending on the size and nature of your business, consider implementing a purchase order system to make sure you’re paying only legitimate expenses. At a minimum, designate a small group of employees with authority to approve purchases and pay the bills. Train your team to send all inquiries to them. Compile a list of the companies you typically use for directory services, office supplies, and other recurring expenses. Encourage the people who pay the bills to develop a “show me” attitude when it comes to unexpected invoices from companies they’re not familiar with. Don’t pay for products or services you’re not sure you ordered.

3. Verify to clarify. Many business directory scam artists are headquartered in Canada, but use post office boxes or mail drops to make it look like they are in the United States. Before paying, check them out for free at bbb.org, and read the BBB’s report on them.

4. File a complaint. If a scammer is sending you bogus bills, speak up. Visit bbb.org to complain to the BBB. And let the FTC know by filing a complaint at ftc.gov/complaint or calling 877-FTC-HELP (1-877-382-4357). Your complaints help shape the FTC’s law enforcement agenda, so it’s important to sound off when you spot a scam. Concerned about business directory fraudsters’ threats to tarnish your credit if you don’t pay? Many will simply drop the matter — and may even provide a refund — if they know you’ve complained to the BBB and law enforcement.

Don’t fall for the business directory scam. As noted above, if you believe you are being scammed, contact the FTC.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.