Defendants to Post Bonds, Pay Consumer Redress for Alleged Violations of FTC Act and TSR
The Federal Trade Commission today announced the latest in a series of successful actions taken against defendants who allegedly misled and defrauded consumers through the telemarketing of "free" or "reduced fare" travel packages. Today's stipulated final orders resolve the Commission's August 2000 complaint against defendants Discovery Rental, Inc., Leisure Time Marketing, Inc. and their principals Marlin Swanson, Britt Shenkman, Edward Sebastian ("DRI defendants") and Fereidoun Khalilian ("Khalilian") for violations of the FTC Act and the Telemarketing Sales Rule ("TSR"). Under the terms of the order, the DRI defendants will be required to post a bond in order to engage in telemarketing of vacation travel packages and will pay $125,000 in consumer redress. As an individual defendant, Khalilian will be barred from all travel-related telemarketing, will have to post a $500,000 bond before engaging in any other types of telemarketing and will pay $185,000 in consumer redress.
The complaint against the DRI defendants and Khalilian was filed as part of last year's "Operation Travel Unravel," a joint federal/state law enforcement sweep. According to the Commission, the defendants violated the FTC Act and TSR by using telemarketing to misrepresent that they would provide free round-trip airfare to Hawaii to consumers who purchased vacation travel packages through their company or its representatives. They also allegedly failed to disclose material restrictions on the use of the packages, such as required attendance at a timeshare sales presentation during the trip. Finally, the complaint states that the defendants specifically violated the TSR by misrepresenting and failing to disclose material costs and restrictions concerning the packages and the promised free tickets to Hawaii, as well as their refund policy.
The Commission alleged that the defendants sent unsolicited faxes to potential customers at their jobs. The faxes typically described discounted vacation packages to Florida or the Bahamas, together with "free" round-trip airfare to either Hawaii or Cancun, Mexico. While the fax stated that the package was $299 per person, after contacting the defendants' telemarketing sales force, consumers usually wound up paying a front-end fee of $598 for two people, a back-end "port and services charge" of $398, and $78 for undisclosed "processing fees." Consumers who inquired about the "free" airline tickets were told there were no restrictions or terms for their use -- a statement they later found to be untrue.
Only after the consumers finalized their purchase and received their written materials or took their trip did they find out how non-inclusive their "all-inclusive" vacation actually was. First, to receive their "free" airline ticket they had to pre-pay for a specified number of nights - up to 11 - at a specified hotel at a cost of between $150 and $300 per night. Next, only after arriving at their Orlando or Cocoa Beach, Florida destination did they learn they would be required to participate in one or more timeshare sales tours. Finally, consumers often were not told of the defendants' no-refund policy until after receiving their booking verification documents. Then, if they did ask for a refund, the defendants would not provide one, based on this previously undisclosed policy.
Through the final order, the DRI defendants will be prohibited from engaging in similar deceptive acts or practices in the future. Specifically, they will be barred from misrepresenting that consumers will receive "free" round-trip airline tickets and that the price quoted is the total cost to purchase, receive or use their vacation packages. Further, they will be required to disclose all material conditions and restrictions of such packages clearly and conspicuously, such as the fact that consumers may be expected or required to attend timeshare sales presentations and that to receive airline tickets they may have to stay at specified hotels for a set time. The DRI defendants also must inform customers who previously purchased travel packages from them that their attendance at any timeshare presentation is strictly voluntary and will not affect their right to use the vacation package.
Next, the DRI defendants will be enjoined from violating the Commission's TSR through the misrepresentation that there are no restrictions, limitations or conditions to use the "free" round-trip airline tickets. The defendants must also fully disclose, before the travel package is booked and paid for, that consumers may be expected or required to attend a timeshare sales presentation, and any restrictions or limitations on their refund policy, if applicable.
Finally, the DRI defendants will be prohibited from providing substantial assistance or support to any seller or telemarketer when they know (or consciously avoid knowing) that the seller or telemarketer is engaged in any act or practice that violates the FTC Act or the TSR. They also will be required to pay $125,000 in consumer redress to the Commission, which will administer its disbursement. The DRI defendants must obtain a performance bond of $50,000 within 90 days of the final order's entry by the court to engage in the telemarketing of vacation travel packages. This bond must be increased to $100,000 within 180 days of the order's final entry and must remain in force for at least three years after the defendants cease such activity. The order also contains standard monitoring and compliance provisions.
Defendant Khalilian, who is subject to a separate order, will be barred permanently from using telemarketing to sell vacation travel packages and from providing substantial assistance or support to others engaged in such activities. He also must post a $500,000 bond before engaging in the telemarketing of goods or services other than vacation travel packages. Khalilian will be prohibited from engaging in any activities that violate the FTC Act or the TSR and from misrepresenting, in connection with the sale of any goods or services, that consumers will receive "free" goods or services and that the price quoted is the total cost to purchase such goods or services. Finally, he will pay $185,000 in consumer redress. Reporting and compliance provisions similar to those required of the DRI defendants apply as well.
The Commission vote to authorize staff to file the stipulated final judgments was 5-0. The stipulated final judgments were filed in the U.S. District Court for the Middle District of Florida on June 4, 2001. The judgments require the court's final approval and are not binding until signed by the judge.
NOTE: These stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Stipulated judgments have the force of law when signed by the judge.
Copies of the documents mentioned in this release are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. X00012; Civ. Action No. 6:00-CV-1057-ORL019B)
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