American Readers Service, Inc., one of the defendants named as part of "Project Jackpot" -- a nationwide crackdown by federal and state regulators on phony prize promotions and recovery room fraud -- has negotiated a settlement with the Federal Trade Commission to pay as much as $127,000 for consumer redress. The FTC had charged that American Readers Service assisted and facilitated an allegedly deceptive prize promotion scheme to defraud consumers of over one million dollars by billing consumers' credit cards and sending them many of the misrepresented prizes and bonus items. Under the terms of the settlement, in addition to paying redress, American Readers Service also agreed, among other things, to an injunction against future unlawful assistance to deceptive telemarketers, and against other future violations of the FTC's Telemarketing Sales Rule.
The Telemarketing Sales Rule, effective Dec. 31, 1995, requires telemarketers offering a prize promotion to provide clearly and conspicuously to consumers, before payment, several items of information, including the fact that no purchase is necessary to enter, how consumers who do not wish to make a purchase may enter the prize promotion, and the odds of receiving the prize where there are several prizes. The rule also specifically prohibits others from providing substantial assistance to telemarketers whom they know or consciously avoid knowing are violating key provisions of the rule.
"Project Jackpot," a joint effort between the FTC, the state Attorneys General and the U.S. Postal Service, targeted firms that fraudulently offered purportedly valuable prizes to consumers to induce them to purchase products. Project Jackpot resulted in 56 enforcement actions against 79 defendants in 17 states.
In July 1996, as part of Project Jackpot, the FTC, joined by the states of Texas, Vermont and Wisconsin, filed a complaint in federal district court against Multinet Marketing, LLC; American Family Sweepstakes, LLC; World Class Vacations, Inc.; Clarence J. Servaes and Jack M. Servaes ("Multinet defendants"), as well as American Readers Service.
The complaint alleged that the Texas-based telemarketers promised consumers valuable prizes or awards that allegedly were never delivered or, if delivered, were worth a fraction of their claimed value. According to the complaint, the Multinet defendants violated the FTC's Telemarketing Sales Rule by: failing to clearly and conspicuously disclose that no purchase was necessary to win a prize; misrepresenting the value of the prizes; and failing to disclose material limitations and conditions of the prizes. The complaint also alleged that defendant American Readers Service assisted and facilitated the Multinet defendants in violating the rule by sponsoring the promotion; sending confirmation letters, prizes and bonus items to consumers; taking customer service calls from consumers; and billing consumers' credit cards. The charges remain pending against the Multinet defendants.
The proposed consent order to settle these charges, which requires the court's approval to become binding, would prohibit American Readers Service, in connection with telemarketing, from making any of the misrepresentations alleged in the FTC's complaint. Further, the defendant would be prohibited from providing assistance to entities that it knows or consciously avoids knowing is making the false or misleading representations prohibited by the settlement. The settlement also prohibits the defendant from violating any other part of the Telemarketing Sales Rule, and from violating relevant Wisconsin and Vermont state laws.
Further, the order would prohibit American Readers Service from transferring their customers' lists, including customer bank account numbers, to anyone other than representatives of the FTC or other law enforcement authorities. The settlement also contains a right to reopen the matter in the event that American Readers or Richard A. Raskin, its president, have filed a false financial statement.
Finally, there are various reporting and other requirements in the district court settlement designed to assist the FTC in monitoring American Readers Service's compliance.
The FTC vote to authorize filing of the stipulated final judgment and order was 5-0. It was filed in the U.S. District Court for the Northern District of Texas, Dallas Division, on October 30, 1996.
NOTE: This consent order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent orders have the force of law when signed by the judge.
Copies of the proposed stipulated final judgment and order for American Readers Service, as well as other documents associated with Project Jackpot 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 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
(Civil Action No. 3-96CV1998-H)
(FTC Matter No. X960081)
Brenda A. Mack
Office of Public Affairs
Bureau of Consumer Protection