It typically started with a schmoozy call to an unsuspecting small business or nonprofit. Sometimes the caller claimed to be “confirming” an existing order, “verifying” an address, or offering a “free” catalog or sample. Then came the supplies surprise – unordered merchandise arriving at the company’s doorstep followed by high-pressure demands to pay up. In two separate actions, the FTC announced settlements with Maryland-based companies charged with sending small businesses unordered office supplies and then following up with invoices the businesses didn’t owe.
The FTC says that one outfit, which used names like Lighting X-Change and American Industrial Enterprises, falsely claimed to have done business with the office before and offered to send a “free” supply of light bulbs or cleaning products. The merchandise arrived, but so did invoices charging the business way over retail for the “free” stuff. If businesses cried uncle and paid up, they found themselves in a lather-rinse-repeat cycle of more unordered merchandise followed by more invoices.
The FTC alleges that another outfit, which operated as Midway Industries, Standard Industries, and other names, engaged in similar misconduct. Telemarketers called small businesses supposedly to “verify” a previous order, offer a “free” sample or gift, or check contact information. The only thing “verifiable” was the defendants’ modus operandi of sending the business merchandise it never ordered, followed by an invoice. When some business owners refused to pay, the defendants claimed to have audio recordings that proved the order was placed, but didn’t come forward with the purported “proof.” In other instances, the defendants insisted on payment, but offered a “discount” of less than the invoice amount.
The stipulated orders prohibit a host of misrepresentations – including violations of the Telemarketing Sales Rule and the Unordered Merchandise Statute – and ban the defendants from telemarketing office or cleaning supplies.
The Lighting X-Change orders impose a judgment of more than $6.2 million against defendants Vincent Stapleton, John Tharrington, and David Benjamin Cox, but will be suspended based on their inability to pay. In addition, Cox and TBC Companies, an entity he used to take money from the enterprise, will turn over $720,000.
The Standard Industries orders impose suspended judgments of more than $58 million against defendants Eric A. Epstein, Brandon Riggs, and Andrew J. Stafford. A separate order imposes a suspended judgment of $44 million against defendant Alan Landsman, while the Court entered a full unsuspended $58 million judgment against all of the companies. A court-appointed receiver has taken over assets valued at more than $5 million.
In both cases, full judgments will become due if the defendants misrepresented their financial conditions.
What can your company or nonprofit group do to protect yourself from a supply scam?
- Unordered merchandise is yours. If your business receives merchandise no one on your staff ordered, the law says you don’t have to return it and the vendor can’t legally collect on it. You don’t have to pay for it, even if you used the item before you realized it was unordered.
- Your best defense is a trained staff. Spend five minutes at a staff meeting educating your team about the signs of a supply scam. Caution them about fake-friendly callers who worm their way in by claiming to have done business with you before or who say they have an “urgent” need to speak to someone in your maintenance department. If more than one person answers the main phone at your business, post a warning nearby about supply scams. For nonprofits, let volunteers know that fraudsters target charities, churches, and community groups, too.
- Consolidate contacts. Supply scammers try to exploit the fact that small businesses aren’t likely to have purchasing departments. But you can still designate one person to respond to all inquiries about office supplies, “free” offers, or “existing” orders. Putting one person in charge – especially a staffer with a well-calibrated baloney detector – can help protect your company from con artists.
- Investigate every invoice. Don’t pay a penny unless you know the bill is for items you or your staff actually authorized. If someone tries to pressure you into paying for unordered merchandise, complain to the FTC or your state Attorney General and let the pushy caller know you’re on to them.
- Bookmark www.ftc.gov/SmallBusiness. The FTC’s new site features resources to help protect your company. For example, Small Business Scams clues you into typical tactics of B2B cons.