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Animation fans remember the ballet-dancing pink hippos in Fantasia. In Egyptian mythology, the god of disorder was depicted as a red hippo. And many consumers – especially those already in financial distress – were drawn in by national TV and radio ads for BlueHippo, a company that claimed to finance the purchase of computers and other electronics for people with “less than perfect credit, bad credit, no credit.” A $13.4 million ruling by a United States District Judge in an FTC contempt action sends a message to hippos of all hues (and businesses) about the FTC’s commitment to effective order enforcement.

In 2008, the FTC sued BlueHippo Funding and BlueHippo Capital for, among other things, not delivering ordered merchandise, failing to make disclosures required by the Truth in Lending Act and Regulation Z, and illegally conditioning the extension of credit on consumers’ “agreement” to repay by preauthorized electronic debit. One common tactic was that BlueHippo said it would deliver the product once the consumer made 13 weekly payments, but then didn’t make good on that promise. The FTC also alleged that in many instances, BlueHippo debited consumers’ accounts without first disclosing that consumers couldn’t get a refund even if they cancelled before delivery. The defendants settled that case, agreeing to pay up to $5 million in redress and to change how they did business in the future.

The FTC went back to court in 2009, alleging that BlueHippo was flouting the terms of the settlement and continuing to engage in illegal practices. The Court granted the FTC’s contempt motion against the corporate defendants and CEO Joseph Rensin, but entered a remedy of only $609,000. The FTC appealed the financial ruling.

Arguing that there should be a presumption that consumers relied on the defendants’ misrepresentations and omissions, the FTC sought a contempt order of $14 million – the gross sales the defendants generated through their illegal conduct. The United States Court of Appeals for the Second Circuit ruled, “We agree with the FTC and join our sister circuits in adopting a presumption of consumer reliance in FTC civil contempt actions.” The appellate court remanded the matter to the trial court to determine “whether the FTC has demonstrated that it is entitled to a presumption of consumer reliance. If so, the court should use defendants’ gross receipts as a baseline for calculating the consumers’ actual loss, and defendants should then be afforded an opportunity to proffer evidence showing that an offset of the baseline is warranted.”

What’s the latest development? On remand, the trial court entered a judgment against CEO Rensin for $13.4 million, the financial harm the court determined that consumers suffered as a result of the scheme.

The case is another illustration of the FTC’s interest in effective order enforcement. To settle cases and then not follow through to see that defendants live up to their promises would be, well, hippo-critical.


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