FTC Halts Bogus Prepaid Phone Card Claims, Cards Failed to Deliver the Number of Minutes Promised in Ads

For Release

At the request of the Federal Trade Commission, a U. S. District Court has ordered a temporary halt to the deceptive advertising claims used to promote prepaid phone cards marketed by Alternatel, Inc.; G.F.G. Enterprises, LLC, also d/b/a Mystic Prepaid; Voice Prepaid, Inc.; Voice Distributors, Inc.; Telecom Express, Inc.; and their principals, pending trial. The agency alleges the marketers misrepresent the number of calling minutes consumers will get on their cards and fail to adequately disclose fees that will reduce the value of the cards.

The defendants are part of an industry that sells approximately $4 billion worth of prepaid calling cards a year, many of which are sold to immigrants who depend on the cards to call friends and family in other countries.

According to the FTC, the defendants market their prepaid calling cards through small retailers such as newsstands, kiosks, grocery and convenience stores, and over the Internet. The defendants’ cards, which sell for between $2 and $10, are marketed under a wide variety of names, including “Aló Mamá,” “Coffee Time,” “Rey de Florida,” “Tree Monkey,” and “Voz do Brasil.” The defendants advertise their cards through posters displayed in the stores where they are sold as well as in foreign language ads on the radio, television and in newspapers. The ads make bold claims about the number of minutes the cards will provide for calls to a wide range of international locations, including Argentina, Brazil, Colombia, Cuba, El Salvador, Guatemala, Haiti, Mexico, and Nigeria. But the FTC alleges that consumers don’t receive the number of minutes advertised. For example, while a poster advertised that a calling card would deliver 360 minutes to Panama, the card delivered only 23 minutes of calling time. In fact, in 87 tests of the defendants’ cards, the cards delivered an average of only 50 percent of the advertised minutes.

In addition, the FTC alleges the cards carry hidden fees. The defendants’ ads for their cards often boast that there are “no connection fees,” but fail to clearly disclose there are other random fees, such as “hang-up” and “maintenance” fees and “destination surcharges” that can wipe out the value of the card after even one short call. Such fees are disclosed in tiny font and in vague terms that are mostly incomprehensible in any language.

The Agency charged that the deceptive practices violate federal law. At the request of the FTC, the court has issued a temporary restraining order halting the deceptive practices and has appointed a monitor to ensure the defendants’ compliance with the order. The agency is also seeking a court order to require the defendants provide consumer redress or to give up their ill-gotten gains.

Defendants named in the complaint are Alternatel, Inc., G.F.G. Enterprises, LLC, also d/b/a Mystic Prepaid, Voice Prepaid, Inc., Voice Distributors, Inc., Telecom Express, Inc., and their principals, Nickolas Gulakos, Moses Greenfield, Lucas Friedlander, and Frank Wendorff.

The Commission vote to file the complaint was 4-0. It was filed in the U.S. District Court for the Southern District of Florida in Miami.

This case was brought with the invaluable assistance of El Salvador’s Defensoría del Consumidor, Colombia’s Superintendencia de Industria y Comercio, the Egypt Consumer Protection Authority, Mexico’s Procuraduría Federal del Consumidor (PROFECO), Panama’s Autoridad de Protección al Consumidor y Defensa de la Competencia (ACODECO), and Peru’s Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (INDECOPI).

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the complaint are available at http://www.ftc.gov. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://www.ftc.gov/bcp/consumer.shtm.

(alternatel1)
(Civ. No. 08-CV-21433-AJ)

Contact Information

MEDIA CONTACT:
Claudia Bourne Farrell,
Office of Public Affairs
202-326-2181
STAFF CONTACT:
Janis Claire Kestenbaum,
Bureau of Consumer Protection
202-326-2798