The Kohl Group, LLC., doing business as Federal Information Services, and its principals, Gregory Stewart Hall, Benjamin H. Kim, Douglas Lee and Mark Aaron Osborne, have agreed to post a $100,000 performance bond before engaging in any business that sells foreclosed home or auction lists as part of a settlement with the Federal Trade Commission. In the event that additional companies were to join the defendants in this type of business, additional $100,000 performance bonds would be required to be posted. In addition to posting bonds, the defendants have agreed to pay $1,138,428 for consumer redress.
The defendants, collectively doing business as Federal Information Services, were sued by the FTC as part of its "Operation Auction Guides II" sweep, which targeted telemarketers that sold lists of foreclosed homes and car auction locations. In its June 2000 complaint, the FTC alleged that the defendants falsely represented that consumers could purchase foreclosed and repossessed homes at prices substantially below the fair market values, and obtain refunds upon request. The FTC also charged that the defendants debited or charged consumers' accounts without authorization. [The court immediately issued a temporary restraining order, freezing the defendants' assets and appointing a receiver. A stipulated preliminary injunction was filed on July 19, 2000.]
The settlement announced today prohibits the defendants from making the types of misrepresentations charged in the complaint. The settlement also prohibits the defendants from making misrepresentations about the availability of foreclosed homes in consumers' local areas and about making misrepresentations about auctioned vehicles and other items. In addition, the settlement requires the defendants to affirmatively disclose that foreclosed and repossessed homes typically sell slightly below or at their fair market values. The order also prohibits the defendants from violating the Telemarketing Sales Rule (TSR) and misrepresenting any material fact during the sale of any good or service. Under the order, the defendants will be required to make refunds.
In addition to posting a $100,000 bond before they engage in a business which sells foreclosed home or auction lists, the defendants are required to pay approximately $1,138,428 for consumer redress. Defendant Benjamin Kim is required to pay $900,000 from his personal assets and approximately $238,428 will be added to the redress fund by The Kohl Group, LLC. The settlement contains an avalanche clause which triggers a $15 million judgment if it is found that they made any material misrepresentations or omissions on their financial disclosures to the FTC. Finally, the settlement contains various reporting requirements to assist the FTC in monitoring the defendants' compliance.
The Commission vote authorizing staff to file the proposed settlement was 5-0, with Commissioner Orson Swindle issuing a separate statement concurring in part and dissenting
in part. In his statement, Commissioner Swindle said that the refund provisions in the order appear to be a well-intentioned effort to increase monetary relief for consumers. However, he did not support the provisions (Sections I.G. and I.H.) which require that the defendants pay refunds to consumers who choose to return auction guide booklets for any reason and pay refunds to consumers if the defendants violate other portions of Sections I and II of the order. Commissioner Swindle concluded that these two provisions are unnecessary, ineffective, and unduly burdensome, and that "the public interest would have been better served if the defendants had simply been required to clearly and conspicuously disclose their refund policy, if any, and abide by that policy."
The consent judgment was filed on November 29, 2000, and entered by the U.S. District Court, Central District of California, Western Division, on November 30, 2000.
NOTE: This consent judgment is for settlement purposes only and does 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 the court's order, previous documents related to this case and Operation Auction Guides II, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for consumers to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.
Office of Public Affairs
Raymond McKown or Kenneth Abbe
Western Region - Los Angeles
(FTC File No. X000092)
(Civil Action No. 00-06507 RSWL (Manx)