Summary of Enforcement Action Announcements for October 2003 - January 2004
Between October 2003 and January 2004, the Federal Trade Commission continued to aggressively combat telemarketing fraud and abuse. The scope of the Commission’s enforcement efforts over this three-month period is reflected in the following summaries of announcements regarding significant developments in 18 federal district court cases. The significant developments may include: new actions filed by the Commission; amendments to prior complaints; and final resolutions of enforcement actions such as settlements, default and summary judgments, and redress distribution orders. Several of the complaints filed in these cases allege violations of the Telemarketing Sales Rule. All of the cases involve the use of the telephone to market goods or services. This includes cold-call outbound telemarketing as well as inbound calls generated from advertisements or other solicitations to purchase products or services.
Federal Trade Commission v. AmeriDebt, Inc., et al.
The Federal Trade Commission filed a complaint in federal district court charging that the defendants are engaged in deceptive practices. According to the complaint, the defendants have misrepresented that they charge no up-front fee for their services, that they operate as a non-profit, and that they teach consumers how to handle their finances. Additionally, the FTC charges that the organization failed to provide privacy notices to consumers as required by the Gramm-Leach-Bliley Act. Separately, a service provider for the defendants has agreed to settle FTC charges regarding its role in the operation.
Federal Trade Commission v. 627867 B.C. LTD., D.B.A. Newport Group, et al.
The Federal Trade Commission announced the filing of a complaint against these telemarketing operators based in British Columbia. According to the FTC, the defendants used deceptive telemarketing to defraud many older Americans out of millions of dollars by fraudulently claiming that the consumers had won a foreign lottery and requiring them to pay a variety of up-front fees to collect their winnings. The complaint charged violations of the FTC Act and the Telemarketing Sales Rule. The FTC alleges that few consumers ever received any money at all. Following an investigation coordinated with Canadian authorities, the FTC has obtained a temporary restraining order against the defendants, halting their alleged illegal activities.
Federal Trade Commission v. DPS Activity Publishing, Ltd., et al.
The Federal Trade Commission announced entry of a default judgment against the defendants in this matter. The FTC alleged that the defendants telemarketed to businesses in small communities, falsely representing that they are affiliated with or authorized by local hospitals in those communities to solicit sales of the books on their behalf. The complaint also stated that the defendants falsely represented that children in those hospitals actually would receive the books purchased. The default judgment entered against the defendants permanently bars them from making false claims regarding the marketing of any products or services for donation. The FTC will disburse approximately $80,000 in consumer redress from returned donation checks. This case was filed as part of “Operation Phoney Philanthropy.”
Federal Trade Commission v. END70 Corporation, et al.
The Federal Trade Commission announced the settlement of this case. The FTC’s complaint alleged that the defendants used a Web site and infomercials to make deceptive claims regarding their Internet Treasure Chest business opportunity. The complaint alleged violations of the FTC Act and the Telemarketing Sales Rule. The settlement bars any misrepresentations in the advertising, promotion, or sale of any business opportunity. Specifically, it bars misrepresentations about the cost of purchasing the business opportunity and likely earnings. Based on financial statements provided by the defendants, they will pay $500,000 in consumer redress as part of this settlement.
Federal Trade Commission v. Epixtar Corporation, et al.
The Federal Trade Commission charged a purported Web cramming operation with billing small business consumers for “free” Internet services, without full disclosure of the negative option features and without consumers’ authorization, and even when some consumers said that they were not interested in the offer. The FTC’s complaint alleges that the defendants violated the FTC Act by deceptively marketing a free trial of Internet services and then, unbeknownst to consumers, unfairly billing consumers’ telephone accounts without their express informed consent. A federal district court entered a temporary restraining order, which prohibits the defendants from making further misrepresentations and freezes their assets. In addition, the defendants have stipulated to a preliminary injunction, which was entered by a federal district court on November 21, 2003. The FTC also announced the creation of a consumer hotline for information on this case. [TXT][TXT#2]
Federal Trade Commission v. Hanson Publications, Inc., et al.
The Federal Trade Commission announced a settlement with three Canadian telemarketing companies and two of their principals that operated boiler rooms in Quebec and Ontario. According to the FTC’s complaint, the defendants engaged in fraudulent business practices in the sale of business directories and non-durable office supplies, and targeted businesses primarily in the United States. The complaint included alleged violations of the FTC Act and the Telemarketing Sales Rule. The settlement bans the defendants from selling directories or non-durable office supplies. The settlement also requires the defendants to pay $839,000 for consumer redress, and contains an avalanche clause which requires them to pay $70 million if it is found that the defendants misrepresented their financial condition. The FTC coordinated this action with Canada’s Competition Bureau, which also brought a criminal action against the defendants. The settlement announcement includes all but one of the defendants in the action.
United States of America (for the Federal Trade Commission) v. Mantra Films, Inc. et al.
The United States Department of Justice filed a complaint on behalf of the Federal Trade Commission against the defendants who are marketers and sellers of “Girls Gone Wild” videos and DVDs. The complaint seeks civil penalties for violations of previous Commission determinations concerning unfair and deceptive acts or practices and consumer redress for unauthorized billing. The complaint alleges that the defendants deceptively marketed Girls Gone Wild videos and DVDs to consumers, automatically enrolling consumers who called a toll-free telephone number and purchased a video or DVD into a negative option continuity plan without the consumers’ express informed consent. The defendants then shipped unordered videos and DVDs to consumers, and charged consumers for them without consumers’ consent. The complaint alleges violations of the FTC Act, the Electronic Fund Transfer Act, and the Unordered Merchandise Statute.
Federal Trade Commission v. Medical-Billing.com, Inc., et al.
The Federal Trade Commission announced the settlement of this action. According to the FTC’s complaint, the defendant solicited consumers offering them the opportunity to start or expand an existing work-at-home medical billing business. The complaint alleged the defendant violated the FTC Act by making numerous misrepresentations to consumers, including that she had doctors who were ready to out-source their medical billing claims work, that consumers who used her services would earn substantial income, and that there was a 100 percent satisfaction guarantee. Under the stipulated final order, the defendant is barred from promoting or selling work-at-home business opportunities, including medical billing opportunities. The order also bars the defendant from violating the FTC’s Franchise Rule and contains a judgment of $3.26 million, which has been suspended due to her inability to pay. The FTC dismissed its action against the corporate defendant, which is now in Chapter 7 bankruptcy, has no assets and has ceased all operations. This case was filed as part of the 2002 “Operation Dialing for Deception” law enforcement sweep.
Federal Trade Commission and State of Illinois v. Membership Services, Inc., et al.
The Federal Trade Commission announced the settlement of a complaint, filed jointly with the State of Illinois, that charged the defendants with making numerous misrepresentations related to the marketing and sale of credit card loss protection and advance-fee credit cards in violation of the FTC Act and the Telemarketing Sales Rule. The terms of the two orders settling the charges stipulate that the defendants are barred from engaging or participating in the sale of credit card loss protection or any other credit-related goods or services, from making misrepresentations in connection with charges to consumers’ credit card accounts, and from violating the FTC Act or the Telemarketing Sales Rule. The individual defendant will pay restitution in the amount of $30,000, and the corporate defendant will pay approximately $50,000. The original complaint was filed as part of the FTC’s “Operation Ditch the Pitch,” an interagency law enforcement sweep that targeted “cold-call” telemarketers.
Federal Trade Commission v. Mountain View Systems, Ltd., et al.
The Federal Trade Commission announced the settlement of this action against three companies and three individuals. The FTC’s complaint alleged that the defendants deceptively marketed fake international drivers’ permits (IDPs), college and university diplomas, academic transcripts, and related materials. The proposed settlement prohibits the defendants from selling IDPs, diplomas, and transcripts, and requires them to pay $57,000 in disgorgement. The FTC’s complaint was brought as part of “Operation License for Trouble,” a nationwide law enforcement sweep charging marketers of IDPs with scamming consumers out of hundreds of dollars each.
United States of America (for the Federal Trade Commission) v. North American Vending, Inc., et al.
The Federal Trade Commission announced the settlement of this matter. The complaint, filed by the Department of Justice on behalf of the Federal Trade Commission, charged the defendants with making unsubstantiated income claims in ads in business opportunity magazines. The complaint alleged that: (1) the ads did not disclose the number and percentage of prior purchasers who had done as well or better than the claims, as required by the Franchise Rule; and (2) the defendants failed to provide the complete basic disclosure documents required by the Rule. The settlement permanently bars the defendants from violating the FTC Act and the Franchise Rule and requires payment of $22,000 for consumer redress. The lawsuit was filed as part of "Project Busted Opportunity," a nationwide crackdown on fraudulent work-at-home and business opportunities.
Federal Trade Commission v. Platinum Universal, LLC, et al.
The Federal Trade Commission has charged the defendants with violating the FTC Act and the Telemarketing Sales Rule in connection with the offer of credit cards to consumers for an advance fee. The FTC’s complaint alleges that the defendants falsely represented to English- and Spanish-speaking consumers that they would obtain credit cards after paying the defendants’
fees, when, in fact, consumers did not receive such credit cards. The defendants have stipulated to a preliminary injunction, which was entered by a federal district court on November 18, 2003.
Federal Trade Commission v. Preferred Alliance, Inc., et al.
The Federal Trade Commission announced the settlement of charges in this action with the corporate defendant. Under the terms of the settlement, the corporate defendant, through its Chapter 7 trustee, is permanently barred from engaging in any business and from seeking the authority to operate the corporation’s business. Additionally, the trustee is barred from selling the corporation’s customer list, and is required to transfer all of the corporate books and records to the FTC if he seeks to abandon them. The complaint in this matter alleged that the defendants violated the FTC Act, the Telemarketing Sales Rule, the Truth in Lending Act, and Regulation Z for a range of activities related to the company’s negative-option sales of buying club memberships through third-party telemarketers.
Federal Trade Commission v. 9094-5114 Quebec, Inc., d/b/a Kinito, Inc., et al.
The Federal Trade Commission filed a complaint charging that a Montreal-based enterprise calls United States consumers promising major credit cards and charges as much as $299 without ever delivering the credit cards. The FTC’s complaint alleges that the defendants typically target American consumers with offers of a MasterCard credit card with a $5,000 credit limit in exchange for a one-time advance fee, which the defendants automatically debit from the consumers’ bank accounts. During the sales pitch, the FTC alleges, the defendants’ telemarketers tell consumers that the credit card offers are directed toward consumers with poor credit histories. After their bank accounts are debited, the FTC alleges, most consumers receive nothing. The complaint charges that the defendants violated the FTC Act and the Telemarketing Sales Rule. A federal district court ordered the defendants to temporarily halt making these deceptive claims and has frozen the defendants’ assets.
Federal Trade Commission v. Sun Spectrum Communications Organization, Inc., et al.
The Federal Trade Commission announced the filing of a complaint against the owners of this nationwide telemarketing operation. The FTC’s complaint alleges that the defendants violated the FTC Act and the Telemarketing Sales Rule by misrepresenting, expressly or by implication, that consumers were likely to receive an unsecured major credit card, like a Visa or MasterCard, in exchange for an advance-fee payment. The FTC also alleges that the defendants violated the Gramm-Leach-Bliley Act by using false or fictitious statements to obtain consumers’ bank account information. A federal district court has entered a temporary restraining order enjoining the defendants from making misrepresentations to consumers when marketing credit-related products or services. The court’s order also freezes the defendants’ assets.
Federal Trade Commission v. Tecnozone International, LLC, et al.
The Federal Trade Commission announced the filing of a complaint and settlement of charges against these defendants. The FTC’s complaint alleged that the defendants advertised that their “Tecno AO protectors” provide substantial protection to consumers from electromagnetic energy emitted from cell phones and video display units. The defendants also claimed that the effectiveness of their devices has been validated by studies at major European universities. The FTC alleged that the defendants’ claims were false and unsubstantiated. The defendants agreed to pay $85,000 for consumer redress to settle the charges. In addition, the final order prohibits the defendants from making any claims about a product’s ability to reduce exposure to, or prevent penetration of, electromagnetic energy unless the claims are true and they have competent and reliable scientific evidence to substantiate such claims.
Federal Trade Commission v. Vendco, LLC, et al.
The Federal Trade Commission announced settlements with these defendants whom the FTC alleged operated a vending machine business scam. The complaint alleged that the defendants placed classified ads in newspapers and on the Internet soliciting consumers to make calls to the company to purchase their business opportunity. The complaint alleged the defendants made deceptive claims in violation of the FTC Act and the Franchise Rule. The settlements prohibit the defendants from making certain representations and require payment of $10,000 in consumer redress. This case was initially filed as part of "Project Busted Opportunity," a nationwide crackdown on fraudulent work-at-home and business opportunities.
Federal Trade Commission v. World Media Brokers Inc., et al.
The Commission has authorized the staff to request the dismissal of two defendants in this pending action. The FTC’s original complaint in this case alleged violations of the FTC Act and the Telemarketing Sales Rule related to alleged cross-border lottery fraud. Through this action, the staff has withdrawn its complaint against two of the individual defendants as they did not play a substantial role in the defendants’ operations.