Arizona Defendant Who Assisted Fraudulent Canadian Telemarketers Agrees to Settle FTC Fraud Charges

Gary Walton, doing business as Pinnacle Financial Services, has agreed to settle federal charges that he allegedly assisted Canadian telemarketers in their fraudulent advance fee loan scheme directed at U.S. citizens. In addition, the Federal Trade Commission alleged that Walton also advertised that he could obtain loans for consumers regardless of their past credit histories for an up-front fee. The proposed settlement of these charges would require Walton to post a $75,000 performance bond for the protection of future consumers before he markets any credit-related goods or services, and would prohibit him from making false representations regarding such goods or services in the future.

The proposed settlement would resolve charges the FTC filed against the defendant in January 1998 as part of Project Loan Shark II -- a joint crackdown by the FTC, several state officials, and Canadian law enforcement authorities on 37 telemarketing firms and individuals allegedly engaged in advance fee loan scams. An FTC brochure for consumers titled "Advance-Fee Loan Scams" states that legitimate lenders never "guarantee" that consumers will qualify for a loan or credit card before they even apply, especially if they have bad credit, no credit, or have filed for bankruptcy in recent years. It also cautions consumers not to give their credit card, checking account or Social Security numbers over the phone unless they are familiar with the company on the other end of the line.

In the Pinnacle case, the FTC alleged that Walton, operating out of Prescott, Arizona, served as a "turndown room" for at least 7 fraudulent Canadian advance fee loan telemarketers who targeted U.S. citizens. These Canadian telemarketers, advertising extensively in the U.S. through local newspapers and cable TV, represented that consumers were guaranteed or highly likely to get a loan and charged consumers an advance fee averaging several hundred collars. The telemarketers then referred the consumer's application to Walton, who was paid a fee for every referral. Walton then notified the consumer that an unidentified private lender had turned down the consumer's loan application. Walton also operated his own advance fee loan scheme, and advertised in tabloid newspapers and on the Internet. The FTC alleged that Walton falsely represented that he had a high success rate in obtaining loans for consumers, regardless of their credit histories. Walton charged an $89 fee in advance and ultimately sent consumers denial letters.

The proposed consent judgment to settle the FTC charges, if approved by the court, would bar Walton, in connection with the offering of loans or other extensions of credit, from falsely representing that:

• consumers have a high likelihood of obtaining loans or other extensions of credit regardless of their credit histories;
  
• he has a high rate of success in obtaining or arranging loans or other extensions of credit for consumers; or
  
• falsely representing or failing to disclose any fact material to a consumer's decision to pay a fee for any loan or other extension of credit.
  

In addition, the proposed settlement would prohibit Walton from violating the FTC's Telemarketing Sales rule by:

• requesting or receiving payment in advance of obtaining a loan or other extension of credit when he had guaranteed or represented a high likelihood of success in obtaining or arranging a loan;
  
• providing substantial assistance to any telemarketer or seller when defendant knows or consciously avoids knowing that the telemarketer or seller is engaged in deceptive practices; and
  
• misrepresenting any material restriction, limitation or condition to purchase, or any material aspect of the performance, efficacy, nature, or central characteristics of goods and services.
  

Walton would be required to post the $75,000 performance bond prior to entering into services related to the marketing of any credit-related good or service.

The settlement would also bar Walton from using or providing to any person identifying information about consumers obtained prior to entry of the consent unless such disclosure is required by law or court order. Finally, the settlement contains other recordkeeping provisions to assist the FTC in monitoring Walton's compliance.

The Commission vote to file the proposed settlement was

5-0. The FTC filed the stipulated final judgment in the U.S. District Court for the District of Arizona in Phoenix, on June 2, 1998.

NOTE: The stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. The settlement has the force of law when signed by the judge.

Copies of the proposed settlement in this case will be available shortly. Copies of the news releases associated with Project Loan Shark cases 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-FTC-HELP (202-382-4357); TDD for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC Matter No. X980016)
(Civil Action No. CIV98-0018 PCT SMM)