Jeffrey Rayden and Larry Wayne, two of the defendants charged by the Federal Trade Commission with operating a computer repair services contract scam, have agreed to separate settlements that would prohibit them from making any false or misleading representations when selling goods and services to consumers over the phone or by mail. As part of his settlement, defendant Rayden would be required to pay $40,000. Rayden also is banned from participating in the sale of service contracts where such sales account for more than 10 percent of the revenues generated. The settlement with defendant Wayne would require him to obtain a $100,000 performance bond before participating in the service contract business in the future. Rayden and Wayne operated National PC Systems, Inc., an Encino, California, company named as a defendant in the FTC's "Project Mailbox," a law enforcement effort targeting fraudulent direct mail schemes.
On October 1, 1997, as part of "Project Mailbox," the FTC, Postal Inspection Service, National Association of Attorneys General, state Attorneys General, local law enforcement officials and American Association of Retired Persons announced 190 law enforcement actions against fraudulent direct mail schemes. The scams targeted in the sweep involved a range of deceptive claims, including misrepresentations that a mailing was from the government; deceptive claims that consumers have won something; and false prize promotion claims.
In the National PC Systems case, the FTC charged AKOA, Inc., Jeffrey Rayden, Larry Wayne and Edward Rayden, all doing business as National PC Systems, Inc., with sending invoices to organizations, including churches and non-profit organizations, for unordered computer repair service contracts. Their mailings indicated that they were "renewals" or "upgrades of service" to previous contracts, or warned that an account was "past due." Their solicitations also provided an 800 number for consumers to call for "unlimited maintenance and repair services" including assistance by telephone. The FTC alleged that the defendants rarely, if ever, provided the promised services to consumers. In October, the Commission amended its complaint to add Rayco, Inc., and Easyway International, Inc., as corporate defendants. (The FTC litigation against Edward E. Rayden was settled in Nov. 1997.)
The FTC's settlement with Jeffrey Rayden, which was entered by the court on March 17, 1998 permanently bans him from participating in the sale of any service contract by mail or the telephone for any business in which service contracts constitute more than 10 percent of the revenues of the business, and contains specific prohibitions against the types of false claims allegedly made by Rayden and the other defendants in the case. The settlement requires Rayden, in connection with any business that he owns or controls, when sending mail that looks like a bill, to include the following statement in 30-point type on the envelope: "THIS IS NOT A BILL." In addition, Rayden is requireded to make certain disclosures required by the FTC's Telemarketing Sales Rule if he calls consumers without their prior consent for the purpose of soliciting the purchase of goods or services.
The settlement also requires that, in the future, Rayden make full refunds to consumers who paid for goods or services and have not received them within the time represented or, if no specific time was represented, within two weeks of making the request.
Based on the financial disclosure documents Rayden filed with the FTC, the settlement requires him to pay $40,000 in redress or disgorgement. Finally, the order contains various recordkeeping and reporting provisions that would assist the FTC in monitoring Rayden's compliance.
The settlement with Larry Wayne, which was entered by the court on March 13, 1998, requires that he obtain a $100,000 performance bond before participating in a service contract business. The settlement bars him from accepting payment for goods or services not ordered; bars misrepresentations about prior business relationships; requires that he honor refund requests; and contains the disclosure requirement contained in the Jeffrey Rayden settlement. In addition, Wayne is required to pay $10,000 in redress or disgorgement.
The Commission vote to approve the settlement for filing in court was 4-0, with Commissioner Mary L. Azcuenaga not participating. The stipulations for final judgment were filed in the U.S. District Court for the Central District of California, in Los Angeles, on March 10, 1998.
NOTE: These stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation.
Copies of the stipulated final judgments, as well as other documents associated with this case and "Project Mailbox," and an FTC Tip Sheet, "Is There A Bandit In Your Mailbox?" are available from the FTC's web site at: http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD 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 File No. X97 0081)
(Civil Action No. 97-7084