Lin Miao burst onto the L.A. technology scene early this year when he announced that he was opening an incubator named Be Great Partners in a high-rise on the Miracle Mile and seeding it with $6 million to invest in 500 startups.
That budding tech investment effort is suddenly in jeopardy, however, as Miao and a former partner face allegations by the Federal Trade Commission that their fortunes came at the expense of unwitting consumers who fell victim to mobile phone scams run by their former business. A judge last week froze some of Miao’s assets, at least temporarily.
The FTC sued Tatto Inc., a mobile marketing firm Miao co-founded, and seven related businesses, accusing them of conducting scams to place charges on people’s cell phone bills without their permission. Miao and Tatto co-founder Andrew Bachman were also named in the lawsuit.
The FTC claims that Miao made at least $29 million from a practice called “cramming” in which his businesses would bill customers monthly for text message-based subscription services – such as celebrity news alerts or horoscopes – that those customers did not authorize.
Many of those people were unaware of the additional charges on their monthly phone bills, according to the FTC. When they did notice the charges, they had a difficult time canceling them and receiving refunds.
The lawsuit is part of a widespread FTC crackdown on cramming, which has become increasingly prevalent with the rise of mobile phone use, said Sandhya Brown, acting assistant director for the FTC’s division of financial practices in Washington.
“Because we recognize that it’s a serious risk, we are doing our best to effectively monitor and pursue crammers and anyone else that participates in the act of placing unauthorized charges on consumers’ phone bills,” she said.
In a filing, the FTC claims consumers have lost at least $100 million to scams conducted by Tatto and its related businesses. The commission is requesting that Tatto and its related businesses stop charging people unless they opt-in for the service. It is also seeking disgorgement of profits they made from the alleged scams.
Miao and his attorney at Mitchell Silberberg & Knupp did not respond to a request for comment.
But in a Dec. 12 response to the FTC allegations, filed in the U.S. District Court in Los Angeles, Miao’s attorneys argued the suit had no merit because Tatto and its related operations are no longer in business. They also denied that Tatto engaged in deceptive or unfair practices.