F. Jerald Hildreth, owner of two Newport Beach, California-based telemarketing companies, has agreed to post a $300,000 bond for the protection of future investors before he engages in the sale of stamps or any other investment opportunities. The agreement is part of a settlement with the Federal Trade Commission over his allegedly deceptive scheme to sell purportedly valuable stamps and related philatelic items as safe and easily liquidated investments. The settlement also requires Hildreth to pay $50,000 in satisfaction of a monetary judgment of $3,761,872 and contains provisions halting the challeged conduct.
The FTC had charged that Hildreth and his companies, Equifin International, Inc. and Financial Frontiers, Inc., misrepresented that the United States "error" postage stamps they sold were safe, easily liquidated investments likely to provide consumers with substantial rates of return. In truth, the FTC alleged, the defendants sold stamps at up to 10,000 percent of legitimate market price, making it virtually impossible for consumers ever to recoup their investments or to liquidate their holdings at anywhere near the prices they paid.
On June 20, 1997, the FTC filed charges against Hildreth, Equifin and Financial Frontiers, as part of "Project Field of Schemes" -- a sweep targeted at investment-related fraud. Project Field of Schemes comprised approximately 61 law-enforcement actions with a major consumer education component. In its complaint, the FTC alleged that the defendants telemarketed purportedly rare "error" stamps to consumers across the country, cold calling potential consumers -- many of them elderly -- taken from "sucker lists." In their sales pitches, the defendants' telemarketers misrepresented that the stamps they sold were rare, valuable and safe investments, certain to appreciate at up to 100 percent per month. Consumers were assured that they could liquidate the stamps at any time, but were usually told to hold their stamps for three years for the maximum appreciation. The defendants regularly promised customers a no-questions asked, 30-day money back guarantee if they were displeased with their purchase. According to the FTC, however, all of the representations to consumers were false. The majority of stamps sold by the defendants were not rare error stamps but relatively common, inexpensive "freak" stamps that have lesser, partial production problems, including color misregistrations, misperforations and over- or underinking. Freak stamps typically sell on the legitimate market for under $50 and commonly for $5 to $10. Moreover, the FTC alleged, the defendants charged enormous markups, sometimes selling a stamp for $500 that could be purchase elsewhere for $5. Such enormous markups virtually guarantee that consumers would never recoup their original investment and would be unable to liquidate their stamps at anywhere near the amount of money they paid, the FTC alleged.
A judge immediately issued a temporary restraining order on June 20, 1997, freezing the defendants' assets and placing the companies into temporary receivership. On July 3, the court issued a preliminary injunction continuing the asset freeze and appointing a permanent receiver.
The FTC's settlement has been submitted to the court and requires the court's approval to become binding. The proposed consent judgement requires Hildreth to pay a monetary judgment of $3,761,872; however, based on defendant Hildreth's financial statement submitted to the FTC, the Commission would file a satisfaction of judgment if Hildreth pays $50,000 within five days after the order is entered by the court. The settlement would also require Hildreth to post a $300,000 bond before engaging or participating in the sale of stamps or any other investment opportunity, through telemarketing or any other means, whether as owner, manager or employee.
In addition, the settlement would prohibit Hildreth from, among other things:
Finally, the settlement contains various reporting provisions that would assist the FTC in monitoring the defendant's compliance.
The Commission vote authorizing staff to file the proposed settlement was 4-0. The Consent Judgment and Order for permanent injunction and monetary relief was filed in the U.S. District Court for the Central District of California, Western Division, in Los Angeles, on December 9, 1997.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the proposed settlement, as well as other documents associated with "Project Field of Schemes" are available from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC's 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 Matter No. X970062)
(Civil Action No. CV-97-4526-DT(CWx))