Defendants in FTC Cases Targeting High-Tech Telescams To Pay Redress, Post Bonds

Consumers who invested in paging system licenses or 900-number partnerships with defendants in two schemes may see at least a small portion of their investment returned to them, the Federal Trade Commission announced today. These schemes were among 85 caught up in “Project Roadblock,” a January 1996 crackdown by the FTC and state regulators against high-tech telemarketing fraud. The agency said it had reached a settlement with one defendant and obtained a default judgment against the others in its case against On Line Communications, Inc., a Las Vegas-based company that allegedly ran a fraudulent application mill for paging system licenses. The settlement requires payment of close to $40,000 for consumer redress.

In a second case, this one against American Fortune 900, Inc. in connection with the investments it offered in 900-number partnerships, the FTC will obtain at least $10,000 from a company principal, Rory Cypers, and has worked to protect future customers by requiring that Cypers post a $300,000 bond before engaging in any type of telemarketing in the future.

On Line Communications:

In this case, the FTC charged the firm and its president, Richard Basile, and Robert Corey (also known as Michael Allen), a hidden principal, with law violations related to their application preparation and filing services for Federal Communications Commission paging licenses. The defendants charged investors from $5,990 to $12,900 for these services, based on claims that the licenses are valuable, that investors will receive multiple offers by paging companies to purchase or lease the licenses, and that investors won’t have to put up additional money to construct the systems. Licenses granted by the FCC give either shared or exclusive use of a paging frequency for a specific service area, but the defendants obtained only shared licenses, which means that a virtually unlimited number of persons or entities could acquire the right to use the same portion of the spectrum within the service area. As a result, the FTC alleged, consumers are unlikely to derive any income or profit from such licenses unless they build a paging system themselves.

The FTC reached a settlement with defendant Basile to end the litigation against him. Under that stipulated order, Basile will turn over $39,150 in cash that currently is frozen in bank accounts. In addition, the order prohibits him from making a variety of false representations about any investment he offers in the future, including false claims about the riskiness, liquidity, market or resale value, expected profit or any other material aspect regarding the offer. The order contains specific prohibitions on false claims about FCC licenses, requires him to disclose that the FCC prohibits obtaining paging licenses for the purpose of speculating for profit, and includes a general ban on false claims regarding material aspects of any telemarketing offer. Basile also has agreed that he will not allow his name to be used as the president or sole director of any telemarketing business unless he takes specific steps to review and monitor its advertising materials and scripts, and promptly investigates and responds to all consumer complaints. The settlement also contains various reporting and recordkeeping requirements designed to assist the FTC in monitoring his compliance.

The court in this case entered a default judgment of $817,130 against On Line Communications and Corey, after they failed to answer the FTC’s charges. Any funds collected on that judgment also will be put into the redress fund, the FTC said. The judgment also contains prohibitions on false claims similar to those in the Basile settlement, and requires Corey to post a $300,000 performance bond before engaging in any telemarketing or assisting other telemarketers, and to disclose the existence of the bond to future telemarketing customers.

The default judgment entered against Corey also requires him to transfer all funds that he controls in foreign banks to a U.S. bank account that the Commission has established for consumer redress purposes. On Feb. 8, 1996, the Department of Justice, acting at the Commission's request, instituted a proceeding in the Bahamas to recover nearly $500,000 that Corey allegedly controlled in a Bahamian bank account. Also on that date, the court in the Bahamian proceeding entered an injunction temporarily freezing the funds in question.

American Fortune 900:

The FTC charged this Westlake Village, California-based company with using deceptive means to get consumers to invest in a general partnership that purportedly would earn income from 900 number telephone lines. The defendants claimed to be raising $4 million, and emphasized the low risk and high short-term and long-term profits from the investment. In fact, the FTC alleged, the defendants depleted a substantial portion of investors’ capital contributions in paying sales commissions and other telemarketing expenses, so the investment was not low risk. Moreover, the FTC charged, the defendants misrepresented the number of 900 number telephone lines in which they had a financial interest.

The settlement in this case includes a $100,000 judgment against Rory Cypers, and requires him to pay $10,000 immediately. In addition, Cypers must post a $300,000 performance bond before engaging in any type of telemarketing or assisting other telemarketers in the future, and he must disclose the existence of the bond to telemarketing customers. The order also includes bans on a variety of false claims regarding investment offerings, including false claims about their risk, profit potential or past performance, and when investors are likely to begin receiving returns. The order further bars Cypers from falsely representing any fact material to a consumer’s decision to make a charitable donation, enter a contest for a prize or award, or purchase any product or service. There also are recordingkeeping and reporting requirements in the settlement for compliance purposes. The settlement with Cypers leaves American Fortune 900, Inc. as the only remaining defendant in the litigation. That company has been placed in receivership, at the Commission's request, and is currently subject to a preliminary injunction with an asset freeze.

The Commission votes in these matters were 5-0. They were filed in federal district courts as noted below.

NOTE: Consent judgments are for settlement purposes only and do not constitute admissions by defendants of law violations. Consent judgments have the force of law when signed by the judge.

Copies of the default judgment and settlements, as well as materials released with the announcement of Project Roadblock, 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 1-866-653-4261. To find out the latest news as it is announced, call the FTC 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

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