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A federal district court judge has upheld Federal Trade Commission charges against two individuals and their company for their roles in a fraudulent telefunding scheme. The FTC had alleged in federal court that the defendants deceptively offered highly valuable prizes to consumers in return for tax-deductible donations to a designated charity. The judge granted the FTC's request for summary judgment, ordered the corporate and one individual defendant to pay more than $360,000 in redress to consumers, and permanently banned the individual defendants from engaging in any prize-promotion telemarketing ventures in the future.

The FTC's July 1994 complaint detailing the particulars of this case named as defendants M.A.A., Inc.; Daniel Gray, president and an owner of M.A.A., Inc.; Publishing Clearing House, Inc. (PCH), doing business as Publishing Clearing House and The Clearing House; Lorin Martin, also known as Lori Martin, president of PCH; and three PCH salesmen, Raymond L. Reed; Roy L. Shifrin, also known as Ray Stevens or Mike Morris; and Ron Pepka, also known as Travis Marshall. Defendants Roy L. Shifrin, Ron Pepka, Daniel Gray, and M.A.A., Inc., have previously settled with the FTC.

PCH, Martin and Reed solicited donations for a charity named "For the Children," according to the complaint. PCH also had solicited for a charity named Helping Other People Exist or "HOPE" (not affiliated with the well-known charity Project HOPE). Consumers were told, among other things, that the organizations provide social services to needy children, the FTC alleged.

Consumers did not receive any of the valuable prizes or awards as promised by the defendants, or if consumers did receive any prize at all, it was of nominal value, the FTC charged. In addition, consumers' donations were not tax-deductible, the FTC alleged.

U.S. District Court Judge Philip M. Pro has upheld the FTC allegations that these representations made to consumers were unfair or deceptive, has found defendants PCH, Martin and Reed "jointly liable for restitution to each consumer who made a donation to For the Children and HOPE in response to a solici- tation from Defendant PCH," and has ordered PCH and Martin to pay redress in the amount of $361,310. Reed has been ordered to pay $9,054 in redress. Further, Judge Pro has permanently banned Martin and Reed from engaging in prize-promotion telemarketing activities in the future. The court has directed the receiver in this case to maintain the consumer redress fund. If the receiver determines that redress is impracticable, the funds will be deposited into the U.S. Treasury as a disgorgement remedy.

The judge granted the FTC's motion for summary judgment (without a trial) and entered the order on May 12. This case was handled by the FTC's San Francisco Regional Office.

A free FTC brochure for consumers titled "Charitable Giving" suggests questions for consumers to ask before donating to a charity and lists organizations consumers can contact for additional information. Copies of the brochure, the complaint in this case, the judgment and the earlier consent decrees are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(Civil Action No. CV-S-94-623-PMP (LRL))

(FTC File No. 942 3208)