The Federal Trade Commission has negotiated two settlements that could result in as much as $11.3 million for the victims of a nationwide prize-promotion telemarketing scheme run out of Henderson, Nevada. The defendants in the case -- Nishika, Ltd., five other companies and two individuals -- allegedly induced consumers nationwide to pay up to $700 each for a “3-D” camera and other items by engaging telemarketers to tell the consumers that they had won a valuable award. In fact, the FTC charged in federal district court, most consumers received only travel certificates of little value.
The defendants have signed settlement agreements with the FTC to end the litigation. The first settlement includes the FTC’s monetary claim and has been approved by two federal bankruptcy courts; the second would bar the defendants from engaging in similar deceptive schemes in the future and requires federal district court approval to become binding.
The FTC filed its charges in the case in November 1994 against Nishika, American 3-D, Ltd., Nishika Corporation, American 3-D Corporation, Nishika 3-D Camera Sales, Inc. and James D. Bainbridge, who is president, owner or has a controlling interest in these companies; as well as Bentley Industries, Inc., of Los Angeles, and company owner and president, Daniel A. Fingarette, also known as William A. “Bill” Burke.
The defendants allegedly solicited hundreds of thousands of consumers through certificates and other notifications. When consumers called in response, they were led to believe they had been specially selected to receive one of several awards, ranging from a cash award (typically, $1,250) to a new car, the FTC alleged. In order to receive their prizes, consumers were persuaded to authorize a “one-time” charge of up to $700 -- often referred to as a shipping and handling fee -- on their credit cards. The “award” consumers almost always received was a travel voucher that contained a number of additional costs and restrictions, making it nearly impossible to use, the FTC charged.
The defendants have each filed voluntary bankruptcy petitions, and the FTC filed a claim in each of the proceedings in the amount of $80 million. The bankruptcy courts now control all of the defendants’ assets. The bankruptcy settlement negotiated by the FTC allows for the competing claims of other creditors against the defendants and sets forth the FTC’s priority claim. Based on the formula in the settlement, the FTC could receive as much as $9.6 million for a consumer redress fund, with another $1.7 million going to consumers who already are listed as creditors in the bankruptcy proceedings.
The district court settlement would prohibit the defendants, in connection with any marketing program involving a premium incentive item, from misrepresenting:
In addition, the settlement would require the defendants, when engaging in telemarketing, to disclose at the beginning of the initial contact with consumers the fact that they are selling goods or services. Moreover, before the consumer pays, the defendants must clearly and conspicuously disclose all material terms and conditions of the offer, including any necessary payments the consumer must make, procedures they must follow to obtain the premium item, the defendants’ refund policy or the fact that they have no such policy and, when a consumer asks, the reasonable retail value of the premium item.
The settlement also would require the defendants to take reasonable steps to monitor any entities engaged in a telemarketing sales program to which they are providing assistance, in order to ensure that the entities are complying with the above provisions, and to terminate their relationship with anyone who repeatedly violates these provisions. Further, the defendants would be prohibited from providing assistance -- including supplying goods, services or premium incentive items; providing customer lists; and processing consumer credit card charges -- to entities that the defendants know or should know are making the false or misleading representations prohibited by the settlement.
The settlement also prohibits the defendants from transferring their customer lists to third parties.
Finally, there are various reporting and other requirements in the district court settlement that would assist the FTC in monitoring the defendants’ compliance.
The Commission vote to approve the settlements for filing in the respective courts
was 5-0. The bankruptcy settlement was approved by the U.S. Bankruptcy Courts for the Central District of California and the District of Nevada on Feb. 14 and 15, respectively. The settlement with the injunctive provisions was filed in the U.S. District Court for the District of Nevada, in Las Vegas, on March 15, and is subject to that court’s approval. This case was handled by the FTC’s Seattle Regional Office with assistance from the Nevada Attorney General’s office, and the Houston, Texas, Better Business Bureau, among other entities.
NOTE: These settlements are for settlement purposes only and do not constitute an admission by the defendants of law violations. They have the force of law when approved by the courts.
Copies of the settlements, as well as the November 1994 complaint detailing the FTC charges, 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 202-326-2502. 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. X950016)
(Civil Action No. U.S. District Court: CV-S-94-00967-HDM (RJJ))
Bankruptcy Court in the District of Nevada:
LA 94-49865 VZ
LA 94-49863 VZ