$36.7 Million in Consumer Redress, $10 Million Performance Bond Ordered Against Defendants for Their Participation in Major Advance-Fee Credit Card Scam
The Federal Trade Commission today announced a final court judgment entered against the remaining seven of 10 defendants charged in FTC v. Capital Choice Consumer Credit, Inc., et al. The defendants were charged with operating a large-scale advance-fee credit card scam in this “Operation Dialing for Deception” law enforcement sweep case. The judgement requires the defendants to pay $36.7 million in consumer redress for their participation in the scam, requires them to post a $10 million performance bond before engaging in, or assisting others in engaging in, telemarketing in the future, bans them from selling credit cards in the future, and prohibits them from the illegal conduct alleged in the Commission’s complaint.
“This is a terrific victory for consumers,” said Howard Beales, Director of the FTC’s Bureau of Consumer Protection. “The court order not only shuts the door on a scam that duped hundreds of thousands of people, it also requires the defendants to pay millions of dollars in restitution.”
The Commission’s Complaint
The Commission’s complaint charged the following defendants with operating a large-scale advance-fee credit card scam based in Miami, Florida: 1) Capital Choice Consumer Credit, Inc., Millennium Communications and Fulfillment, Inc. (Millennium), Ecommex Corporation, Hartford Auto Club, Inc., and their owner, Ricardo E. Martinez; 2) Johnnie Smith, chief executive officer of Millennium; 3) Wilfredo Lugo, general manager of Millennium; and 4) E-Credit Solutions, Inc., Scott A. Burley, and Zentel Enterprises, Inc.
The defendants marketed a credit card with a $4,000 credit limit. Consumers were required to pay $199.95 to receive the card. The FTC charged that the defendants led consumers to believe that the credit card they were offering was an unsecured, major credit card, such as a MasterCard or Visa. In fact, consumers received a line of credit that could be used only to purchase items from the defendants’ catalogs with a substantial downpayment. In addition, according to the FTC, the defendants debited consumers’ bank accounts for “up-sale” products such as auto club memberships and long-distance telephone cards without first obtaining their authorization, and failed to provide certain disclosures during the sales pitch, as required by the Telemarketing Sales Rule (TSR). Based on these alleged business practices, the Commission charged the defendants with engaging in unfair or deceptive practices in connection with the sale of advance-fee credit cards and with violating the FTC Act and the TSR by causing consumers’ bank accounts to be debited without their authorization.
A stipulated final order, announced by the FTC on July 18, 2003, and subsequently signed by the court, banned defendants E-Credit Solutions, Scott A. Burley, and Zentel Enterprises, Inc. from the sale of advance-fee credit cards and from violating, or assisting others in violating, the TSR in the future. The order also prohibited the defendants from selling their customer lists or transferring any business information to other parties. Finally, it required the defendants to pay $601,031.58 to be used for consumer redress. A trial against the remaining defendants began on June 30, 2003, culminating in the final judgment entered by the court on February 19, 2004, and announced today. The defendants have filed for a rehearing, and that decision is pending with the court.
Terms of the Final Judgment
The final judgment announced today resolves the Commission’s charges against corporate defendants Capital Choice, Millennium, Ecommex, and Hartford Auto Club; and individual defendants Ricardo E. Martinez, Johnnie Smith, and Wilfredo Lugo. It contains both injunctive and monetary provisions, as follows. The judgment first prohibits the defendants, and any entities under their control, from offering for sale or selling any credit card. It also prohibits them from offering for sale or selling any debit card without clearly and conspicuously disclosing the monetary limit of the card. Next, it permanently bars the defendants, and any entities under their control, from debiting or otherwise obtaining funds from a consumer’s bank account or any other type of monetary account, unless they first receive written authorization to do so from the consumer, including the amount of the debit, the date of the debit, the goods or services in question, and the name of the entity that is authorized to make the debit or obtain the funds.
In addition, the judgment permanently bars the defendants from engaging – or helping anyone else in engaging in – telemarketing, unless they first obtain a performance bond of $10 million, conditioned on their future compliance with the FTC Act. The judgment also prohibits the defendants from violating the FTC’s TSR in the future, from distributing their customer lists, and from transferring specific business information.
The judgment also requires the defendants to pay a total $36.7 million in consumer redress, broken down as follows: 1) defendant Ricardo E. Martinez and his companies are liable for the full $36.7 million; 2) defendant Johnnie Smith is jointly liable with Martinez and his companies for $17.6 million of the redress amount; and 3) defendant Wilfredo Lugo is also jointly liable for $16.7 million of the redress amount. Finally, the judgment contains reporting and monitoring provisions to ensure the defendants’ compliance with its terms.
Copies of the final judgment, findings of fact, and conclusions of law 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, DC 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 http://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. X020038, Civ. No. 02-21050-CIV)
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