Thadow, Inc., and its president, defendants named in a 1995 Federal Trade Commission lawsuit, have agreed to pay $130,000 to be used for consumer redress, as part of a settlement resolving charges arising from their role in an allegedly fraudulent "telefunding scheme." The FTC alleged that the scheme participants induced elderly consumers, who had previously lost money to fraudulent telemarketers, to make purportedly tax-deductible donations of $1,000 or more in order to receive valuable prizes. Under the terms of the settlement, in addition to the monetary judgment, the defendants would be prohibited from engaging in future misrepresentations in connection with soliciting charitable donations or payments in return for prizes or awards, and any other misrepresentations regarding any material aspect of any future telemarketing or telefunding activity.
The FTC filed its complaint against Thadow, Inc., a Las Vegas telemarketer, and its president, Alex Norman, in January 1995. Shortly after filing the complaint, the Commission obtained a temporary restraining order with asset freeze against the defendants. At the same time that the Commission served the temporary restraining order on the defendants, federal criminal authorities executed a search warrant at Thadow's premises. According to an Assistant U.S. Attorney for the District of Nevada, 11 individuals affiliated with Thadow, including Norman, have pled guilty on federal felony counts. Five of these individuals have been sentenced to prison terms of up to 50 months.
The FTC's complaint against Thadow and Norman alleged that, through their sales personnel, the defendants made unsolicited calls to consumers to whom previous prize-telemarketers had promised substantial valuable prizes -- such as $50,000 or more in cash -- that were never delivered. The defendants allegedly told the consumers that they were holding the very prizes that had been promised, and that they would deliver those prizes to the consumers in return for a tax-deductible donation to the New Faith Foundation charity. The defendants also falsely claimed that the value of the prize to be awarded greatly exceeded the amount of the donation to be given by the consumer, the FTC alleged.
Under the settlement order, which requires the court's approval to become binding, Thadow and Norman would be permanently prohibited from making, in telemarketing or telefunding calls to consumers, the types of misrepresentations alleged in the FTC's complaint. Specifically, the defendants would be prohibited from falsely representing to consumers that:
- they are in the business of holding and distributing prizes or awards that other companies had promised consumers but did not deliver;
- they will deliver prizes worth at least as much as the payment consumers must make to claim the prizes; and
- payments made by consumers in response to their solicitations are tax-deductible.
In addition, the defendants would be prohibited from misrepresenting, when soliciting charitable donations or payments for prizes or when telemarketing any good or service, any fact material to a consumer's decision to make a charitable donation or payment, to enter a contest for a prize or award, or to purchase any product or service. The settlement order would also prohibit Thadow and Norman from selling their client lists.
Further, the order would require the defendants to pay the $130,000 judgment within seven days after they receive notice when the Final Judgment becomes final. If the FTC determines that redress is impracticable, the money will be deposited into the U.S. Treasury.
Finally, the settlement contains various reporting requirements that would assist the FTC in monitoring Thadow and Norman's compliance with the settlement agreement.
The Commission vote to file the proposed stipulated final order was 4-1, with Commissioner Mary L. Azcuenaga dissenting. The proposed settlement was filed in the U.S. District Court for the District of Nevada, in Las Vegas, on December 5, 1996. The Las Vegas office of the Federal Bureau of Investigation, and the Nevada Attorney General's Telemarketing Unit provided substantial assistance to the FTC in this matter. The matter is being handled by the FTC's Division of Service Industry Practices and its San Francisco Regional Office.
NOTE: The stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. The order has the force of law when signed by the judge.
The FTC has developed a free fact sheet that offers tips for consumers on protecting themselves from recovery room scams. Copies of the "Telemarketing Recovery Room Scams" brochure, the stipulated final order, as well as other documents associated with this case, 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
Jerome M. Steiner, Jr.
San Francisco Regional Office
901 Market Street, Room 570
San Francisco, CA 94131
(Civil Action No. CV-S-95-75-HDM (LRL))
(FTC Matter No. X950018)
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