The defendants in a Federal Trade Commission action that halted an allegedly fraudulent scheme to sell overpriced business supplies by telephone have agreed to transfer their frozen assets totalling approximately $1.3 million to the Commission as part of the proposed settlement of the charges. The FTC alleged that the defendants used a variety of deceptive and illegal tactics in a massive telemarketing scam which preyed on businesses and health care facilities across the country. In addition to the transfer of assets, the proposed settlement requires the defendants to pay an additional $202,000 to the Commission, and the individual defendants are required, for the next five years, to post a $500,000 performance bond before participating in telemarketing activities.
The FTC filed its complaint in November, 1994 and the federal district court in Miami immediately froze the defendants' assets and ordered a temporary halt to the alleged fraudulent scheme. The FTC's complaint named as defendants four Florida corporations: United Wholesalers, Long Life Industries, International Research Corporation and Innovators of Success; and four individuals who allegedly played central roles in the fraudulent scheme: James and Margaret MacDonald and Philip Lynch of Boca Raton, Florida and Steven Green of Austin, Texas. The defendants ran the alleged scam from telephone "boilerroom" facilities in Boca Raton and Delray Beach, Florida and Gibbsboro, New Jersey.
The complaint alleged that the defendants deceived their victims by misrepresenting that they were the victims' current suppliers and that the products offered were for the same price at which the victims had regularly purchased the items; shipping ordered products to businesses and invoicing them as though the businesses had ordered the products; using the name of a fictitious law firm when attempting to collect money from customers who refused to pay; and intimidating customers into paying their invoices by falsely representing that they had audio tapes verifying customers' orders and that state or federal laws prohibited customers from returning defendants' products.
The FTC said that many consumers paid the defendants' invoices without realizing they had not ordered the products, and businesses as well as hospitals and nursing homes throughout the United States lost millions of dollars as a result of the alleged deceptive scheme.
The proposed settlement to these charges, announced today, would prohibit the defendants, in connection with any tele- maketing activity, from falsely representing that:
- defendants are a customer's regular supplier;
- defendants' products are being sent as samples with no obligation to purchase;
- laws prohibit the return shipment of defendants' products;
- defendants' telephone calls are being tape- recorded; and
- defendants will file criminal charges or liens against customers' property or take actions to impair customers' credit ratings.
The settlement would further prohibit the defendants from using aliases or assumed personal identities in connection with their telemarketing activities and from shipping or demanding payment for products that customers never ordered. Under federal law, it is illegal to send and bill for unordered merchandise, or to attempt to collect payment for such merchandise.
To protect victims of the scam from being targeted again, the settlement agreement would also ban the defendants from transferring their customer lists.
The settlement, for a period of five years, would require defendants James W. MacDonald, Margaret A. MacDonald, Philip G. Lynch and Steven Green to post a $500,000 performance bond to protect future customers before re-entering the telemarketing business. The bond would remain in effect as long as the defendants continue to engage in telemarketing and for three years after the defendants have stopped the telemarketing activities.
In addition, as part of the settlement, the defendants have agreed to turn over to the FTC various assets totalling approxi- mately $1.3 million, including real estate in Boca Raton, Florida and accounts held in the defendants' names at numerous financial institutions. If practical, the FTC will use the funds to establish a redress fund for consumers victimized by the scam. Otherwise, the money will be sent to the U.S. Treasury.
Finally, the settlement contains standard reporting provisions necessary to assist the FTC in monitoring the defendants' compliance.
The FTC is grateful for the cooperation and assistance provided by the U.S. Postal Inspection Service in Bellmawr, New Jersey and the Better Business Bureau in West Palm Beach, Florida.
The Commission vote to accept the settlement for filing in court was 5-0. It was filed on January 8, 1996 in U.S. District Court for the Southern District of Florida in Miami, and requires the court's approval to become binding.
This case is another in a series of FTC cases challenging fraudulent telemarketing scams. FTC staff said that an epidemic of telemarketing fraud is costing American consumers as much as $40 billion annually. The FTC also announced that its new rule to combat abusive and deceptive telemarketing practices went into effect on December 31. The Telemarketing Sales Rule requires callers to make up-front disclosures, prohibits misrepresenta- tions, and authorizes each of the state Attorneys General to sue scam operators in federal district court to obtain injunctions that will apply nationwide.
The FTC said consumers who believe they may have been victimized by a fraudulent telemarketer should report the company to the National Fraud Information Center's Telemarketing Fraud Hotline at 1-800-876-7060.
NOTE: Consent judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of documents associated with this case, as well as copies of the Telemarketing Sales Rule, a "Tips Sheet" and a "Bookmark" with key information for consumers about their rights under the rule, and FTC brochures on related issues -- "Swindlers are Calling" and "Telemarketing: Reloading and Double-Scamming Frauds" -- are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 202-326- 2502. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov
(FTC Matter No. X950004)
(Civil Action No. 94-8620-CIV-Moore)