, Salem, MA

Local News

July 9, 2012

A million-dollar bill

Victim of phone hacking now facing lawsuit over charges

IPSWICH — Most months, the phone bill for Michael Smith’s small Ipswich manufacturing firm runs about $700.

But one weekend in 2009, phone hackers somehow managed to use his phone system to make hundreds of calls to the African nation   of Somalia.

Since then, Smith, the owner of Todd Tool and Abrasive Systems on Route 1, has been fighting a David vs. Goliath battle against   AT&T.

They’re suing him for more than $1.15 million — you read that right — in charges and interest for a four-day period in September   2009 when someone managed to rack up $891,470 in phone calls.

“Nothing about this makes sense,” Smith said.

The size of the bill would force him into bankruptcy, he said, his voice breaking slightly.

Smith’s company, which makes equipment and supplies for machine shops, has 14 employees and, like many businesses, a PBX system   (a private telephone network used within a company) with eight lines. Employees have individual access codes to do things   like retrieve voice mail.

Phone hackers typically gain access to a company’s system by dialing a company’s number and then randomly entering access   codes until they get in. Then they can often make calls to anywhere.

Businesses all over the country have reported becoming victims of similar fraud, though rarely on such a scale.

Smith’s phone service is provided by Verizon. Someone at Verizon noticed the unusual number of international calls being made   one weekend — $260,000 worth, it turns out — and immediately shut down the company’s ability to make international calls.   (A few months later, Verizon wrote off that $260,000 bill, Smith said).

But somehow, someone was able to continue making calls to Somalia for another four days, calls that AT&T says cost $22 a minute.

Smith never had a contract for phone service from AT&T, which was apparently used by the hackers as a “dial around” long-distance   service, like the ones consumers can use with a prepaid phone card if they enter “10-10” and an access code.

So why won’t AT&T take the same position and write off the calls as a result of fraud?

“This is the crazy part,” Smith said. “AT&T is not arguing over whether these calls were fraudulent. There’s no dispute there.”

Instead, the telecom giant is hinging its case, filed last year in U.S. District Court, on two legal theories: that Smith’s   firm should have taken more precautions to prevent unauthorized access to its phone system, and that under Federal Communications   Commission regulations, it’s entitled to collect from the owner of the phone line that was used to make the call, regardless   of who actually made the call.

Smith said he’s tried to resolve the matter, even trying to contact the CEO of AT&T.

But two weeks later, he was told by a secretary that because the matter was being handled by “outside counsel,” there was   nothing the company could do for him.

When contacted by The Salem News for comment, an AT&T spokeswoman would not discuss the case.

“We have no comment on pending litigation,” Kate MacKinnon said.

Smith said the company’s lawyers have offered to settle the case by waiving the interest fees, about $197,000 and growing,   if he pays the $891,470 bill for the calls.

Smith has filed a countersuit accusing AT&T of abuse of the legal process and violation of state consumer protection laws.

A federal magistrate has referred the case to a mediator, and a session is scheduled for next month. But Smith, who has already   spent at least $30,000 on legal bills, doesn’t feel optimistic.

“They’re taking a hard line,” said Smith, who said he was also warned by lawyers for AT&T that they would take action if he   “disparaged” the company’s name in the media.

At this point, however, he’s just fighting for the survival of his company and the 14 families who depend on jobs at Todd   Tool.

“It could all be over if there’s a judgment against us,” Smith said. “It’s my life. It’s 14 families that I love dearly. We’re   all vulnerable.”

Courts reporter Julie Manganis can be reached at 978-338-2521, via email at or on Twitter @SNJulieManganis.


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