The Federal Trade Commission has reached settlement agreements that will recover almost $900,000 and which could ultimately make available a total of $1.8 million for redress to small businesses allegedly defrauded by North American Supply, Inc. or its predecessor, American Computer Industries, Inc. The FTC had charged the defendant corporations and three individuals with running deceptive "toner-phoner" schemes to sell small companies overpriced photocopier toner and other office supplies by telephone. The FTC said it believes a substantial proportion of the judgment amounts contained in the settlements will be collected for distribution to companies victimized by the scheme.
North American Supply and American Computer Industries were based in North Hills, California. The FTC complaint detailing the charges in the case, filed in federal district court in June, also named as defendants Harold Moskowitz, Ron Moskowitz and Larry Ellis. The settlements announced today, if approved by the court, would end the litigation against these defendants.
According to the FTC's complaint, one of the schemes involved telemarketing sales calls to companies wherein the telemarketer claimed to be the company's regular supplier or the original equipment manufacturer. The telemarketer said there had been a price increase and urged the company to place an order at the "old" price. In fact, the FTC charged, the defendants had no affiliation with the customer's regular supplier or equipment manufacturer and they typically charged prices several times higher than the prices charged for comparable products.
The other scheme entailed representations regarding free trials and promises that companies could return products at no charge if they were not satisfied. The defendants allegedly refused to accept returns, however. In both schemes, the defendants also failed to disclose substantial charges for freight and handling, billed customers for unordered merchandise, and falsely threatened to institute lawsuits against companies that refused to pay their invoices, the FTC charged.
Under three separate proposed consent judgments to settle these charges, each defendant would be prohibited from engaging in deceptive acts and practices similar to those alleged in the FTC complaint. Specifically, the settlements would prohibit some or all of the defendants, in connection with selling office supplies over the phone, from:
shipping any unordered office product to any customer, charging or billing any customer for unordered office products, including those shipped (or purportedly shipped) before the settlements were entered by the court, or asking that products shipped before the settlement was entered be returned;
- shipping any unordered office product to any customer, charging or billing any customer for unordered office products, including those shipped (or purportedly shipped) before the settlements were entered by the court, or asking that products shipped before the settlement was entered be returned;
- falsely threatening lawsuits for nonpayment of invoices;
- failing to disclose all charges added to consumers' invoices;
- falsely representing that they are, or are affiliated with, the customer's regular supplier or original office equipment manufacturer;
- falsely representing that customers can easily return products at no charge and with no obligation; and
- falsely representing or failing to disclose any fact material to a customer's decision to order office supplies.
In addition, the settlements would prohibit the defendants from transferring their customer lists, and require them to return any checks, money orders or other payments on orders shipped, or purportedly shipped, before the settlements were entered. They also contain various reporting requirements designed to assist the FTC in monitoring the defendants' compliance.
As to redress, the consent judgments would make the defendants liable for redress in the following amounts:
- North American Supply and American Computer Industries would be liable for a total of $1.3 million, with approximately $345,000 expected to be recovered immediately (additional recovery in the future is possible, though not highly likely);
- Harold Moskowitz and Ron Moskowitz would be required to pay $325,000 ($225,000 within five days and the rest in two $50,000 payments secured by a residence in Woodland Hills, California); and
- Larry Ellis would be required to pay $202,316 within five days.
The Commission vote to accept these settlements for filing in court was 5-0. They were filed on Nov. 14, in U.S. District Court for the Central District of California, in Los Angeles.
NOTE: These consent judgments are for settlement purposes only and do not constitute admissions by the defendants of law violations. Consent judgments have the force of law when signed by the judge.
An FTC brochure for businesses titled "Buying by Phone" offers tips on avoiding "toner-phoner" scams. Free copies of the brochure, as well as the consent judgments and the complaint are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov
(FTC File No. X950055)
(Civil Action No. 95-4264 LGB (AJWx))