A Friendly Reminder

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Paying millions in refunds.
Doing business under stringent injunctive provisions.
Posting hefty bonds before selling certain products.

For most people, the potential consequences of an FTC enforcement action are enough deterrent to stay within the bounds of the law.  But some marketers just don’t seem to get the message, as two recent cases demonstrate.

A federal judge in California sentenced one former FTC defendant to nine years in prison for a fraudulent telemarketing operation involving bogus investments and prizes that never materialized.  Characterizing the scheme as “cold, calculating [and] callous,” the judge also ordered the defendant to pay $4.6 million in restitution for the people he defrauded.

The criminal case followed a 2007 court order won by the FTC, requiring the defendant to pay $4.76 million in refunds to people who bought his bogus foreign bonds.  But that didn’t end interest in the matter.  Although the FTC’s jurisdiction is civil, some scammers forget about the agency's Criminal Liaison Unit, a special office set up to ensure that appropriate cases are referred for criminal prosecution.  The Criminal Liaison Unit sent the case to the U.S. Attorney for the Central District of California.  The work of the federal prosecutors in that office ultimately led to the defendant’s guilty plea and lengthy sentence for mail fraud.

In an unrelated action filed in federal court in Missouri, a seller of bogus business opportunities will be turning over the keys to his million-dollar Las Vegas home as part of an FTC settlement.  Back in 1997, the defendant was part of a massive crackdown on business opportunity fraud.  In 2007, the court found him in civil contempt for violating the original order.  The court banned him from selling biz opps and engaging in telemarketing, entered a $3.2 million judgment against him, and ordered him to transfer the Vegas home to a court-appointed receiver if he failed to pay the judgment in full.

The defendant failed to come forward with the cash and the court held him in contempt again.  But this time the court presented him with two options:  Pay up or face jail time.  Under the final order, the defendant will surrender the house and the receiver will sell it to help pay the judgment.  That sum will be added to the defendant’s $379,000 retirement account, which the FTC had already obtained.

What messages should marketers take from these cases?  First, there may not actually be a “bat phone” that connects the FTC and criminal prosecutors, but the lines of communication are open and active.  Second, the FTC is dogged in pursuit of recidivists.

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