The defendants in a massive scheme to sell Federal Communications Commission's (FCC) Specialized Mobile Radio (SMR) licenses as "low risk, high return" investments have agreed to settle Federal Trade Commission charges that the scam was fraudulent. One settlement requires Sheldon Jackler to pay $1.6 million to victims of the scams, permanently bars him from selling application preparation services for licenses or permits issued by any agency of the U.S. Government or any investment which involves such licenses, prohibits misrepresentations about FCC licenses and investments generally and requires a bond for any future telemarketing. Another defendant, Joan Orth, will be permanently barred from telemarketing investments, prohibited from misrepresenting FCC licenses and other investments generally and will pay $20,000 for consumer redress. The final judgments were entered by District Judge Jed Rakoff of the Southern District of New York on Sept. 8.
In January 1994, the FTC brought charges against Metropolitan Communications Corp., Columbia Communications Services Corp., Nationwide Digital Data Corp., Stephens Sinclair, Ltd., and Meehan Marketing Group, Inc., as well as a number of individuals, including those whose settlements are announced today. The FTC alleged that the defendants charged consumers $7,000 each for license application preparation services based on promises about high earnings and low risk of the initial investment, among other false claims. Investors could have applied directly to the government without the "application preparation services" for about $200. The defendants marketed their services for the licensing program through telemarketing, program-length infomercials, and written promotional materials. In the second phase of the scheme, consumers paid about $8,000 per unit to purchase partnership interests in an entity promising to build systems to offer mobile telephone service to the public in competition with cellular systems, again based on false and misleading claims, the FTC alleged. When this case was initially filed, a receiver was appointed for the corporate defendants. The judgments continue the receivership.
Meehan Marketing Group, Inc., its principals and its top producing salesman settled the FTC charges in 1994, paying $205,000 for consumer redress.
The FTC complaint alleged that the first phase of the scheme involved selling consumers application-preparation services for the licensing program. The pitch was that investors could obtain a license, and then lease it to another party called a systems operator. The systems operator would provide all the equipment and funds necessary to make the system operational at no cost to the licenseholder, and use the license to offer mobile telephone service to the public as part of a block of 10 or 20 licensees linked together. Included among the allegedly false claims made by the defendants selling application-preparation services were representations that:
- purchasers could earn $4,000 per year within 18 months of when the systems began operations (in fact, purchasers were not likely to earn such money, the FTC alleged);
- a person could own only one SMR channel per geographical area (in fact, the FTC alleged, some companies own 100 or more SMR licenses in a single area);
- the only way current SMR license holders or SMR services providers could acquire additional SMR frequencies was to lease them from other licenseholders (in fact, current licensees or providers could have applied for and obtained FCC permission to use additional frequencies themselves, the FTC alleged);
- the SMR licenses for which customers were applying were highly valuable and likely to be worth many thousands of dollars, and that purchasing the defendants' services was an excellent, low-risk investment (not true, the FTC charged).
In the second phase of the scheme, some of the defendants began offering license holders and other investors units of general partnerships. According to the complaint, these defendants represented that the partnerships were engaged in joint ventures to operate SMR telephone systems in various cities. False claims allegedly made in this part of the scheme included representations that:
- the SMR telephone system would be a successful, economically viable competitor to the existing cellular phone systems in each targeted city (in fact, the FTC charged, the defendants' proposed SMR systems were technologically inferior to current cellular systems in several respects); and
- each partnership unit was likely to yield $2,500 a year in income (in fact, partners were not likely to earn that amount, the FTC alleged).
Moreover, the FTC alleged, the SMR license management agreements on which the proposed systems were based could have resulted in a revocation of the licenses due to violations of FCC regulations. In light of the investment representations, this should have been disclosed, the FTC charged.
The settlement of the FTC charges will permanently bar Jackler and his businesses from promoting or providing any application preparation services for any licenses or permits issued by the U.S. government or any investment or investment offering which involves government licenses or permits as a component of the offering. He also will be required to obtain a $100,000 performance bond before engaging in telemarketing in the future. In addition, Jackler will pay $1.6 million in consumer redress. Finally, the settlement includes certain record-keeping provisions to allow the Commission to monitor compliance with the order.
The settlement with Orth will bar her for life from the telemarketing of any investments. In addition, she will be required to provide $20,000 for consumer redress and abide by record-keeping provisions to allow compliance-monitoring. In July, Orth pled guilty to violating a court ordered asset freeze, and was sentenced to 6 months house arrest and 1 year's probation.
The Commission votes to accept the proposed consent judgments was 4-0.
Copies of the complaint and consent judgments will be available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov and also 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 File No. X94 0024)
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