FTC unfurls largest-ever telemarketing fraud sweep

The Federal Trade Commission announced massive telemarketing fraud sweep, filing over 180 actions that represent 500,000 victims and  $100 million in damages. 

The vast project, dubbed Operation Tele-PHONEY, includes 13 new FTC cases announced today, developments in several other FTC telemarketing cases, more than 80 state law enforcement actions, criminal actions against more than 90 defendants, and eight cross-border telemarketing fraud actions brought by Canada’s Competition Bureau and the British Columbia Business Practices and Consumer Protection Authority. The Commission estimates that as a result of the law enforcement actions consumers will save approximately $30 million over the next year.  

The 13 new FTC cases include actions against a variety of telemarketers, ranging from companies that allegedly sent unordered household goods to consumers, to those that offered phony tax rebates or prescription drug plans. In other cases, the callers allegedly deceived consumers through the use of fraudulent sweepstakes pitches or offers of free gifts or promised that for an advance fee, consumers would be “guaranteed” to receive loans or credit cards that never materialized or were useless. Other defendants allegedly used consumers’ bank account information to bill them without their authorization, harassed them to pay for unordered goods, and violated the rules of the Do Not Call Registry.  

The new cases include:  

Med Provisions – Based in Montreal, the defendants allegedly call consumers in the United States claiming they can save consumers 30 to 50% on their prescription drug costs. The defendants claim to operate an online pharmacy and offer a 30-day money-back “guarantee” on their “membership package,” which costs $389. Some consumers also are told they will lose their Medicare benefits if they do not sign up for the package. Many consumers who do order the package receive nothing from the defendants, and those who receive something get a worthless card from an organization that supposedly can provide Canadian drugs to U.S. consumers. According to the FTC, all of the claims are false, and many consumers could not get a refund.  

Union Consumer Benefits – Also based in Montreal, the defendants allegedly telemarket worthless medical discount packages to elderly consumers throughout the United States. The FTC charges that the defendants use deceptive means to persuade consumers to reveal their bank account information, often pretending they are calling from the Social Security Administration, Medicare or the consumers’ bank. In some cases, they offer “free” benefits or claim to offer a medical discount plan that will save the consumer money on medical care and prescriptions, for a one-time fee. The company then debits $399 from the consumers’ bank accounts and sends them a package containing a prescription discount card that does not work. The FTC alleges that the defendants have violated the law by calling many consumers whose telephone numbers are listed on the DNC Registry.

Steven Breitling/ICS Financial Firm – In this alleged financial fraud, consumers first receive a direct mailing from ICS Financial “guaranteeing” them a loan of between $2,000 and $5,000. According to the FTC, the company’s telemarketers then contact consumers who have returned the application form, telling them that to get their loan they must first pay a $75 “consulting/collective” fee and sign a contract. After paying the fee, many consumers never hear from the company again. Those who do hear from the company are referred to another lender, whose application states that they are not guaranteed for approval and requires them to pay an additional fee. Many consumers who complete the loan application and pay the fee simply receive a notice that their loan application has been denied. 

American Financial Card  – Running an advance-fee telemarketing scheme, the defendants allegedly defrauded thousands of consumers in the United States by falsely promising to deliver a credit card for an up-front payment of $200. The defendants claimed that the cards carried a $2,000 credit limit, cash advances up to $1,000, and a fixed interest rate. After paying the advance fee, consumers did not receive the promised card. Instead, most of them received a card that could be used only to buy items from the defendants’ catalog. 

Integrity Financial Enterprises – In another alleged advance-fee scam, the defendants allegedly offer to provide consumers a general-purpose credit card with a credit limit of between $2,500 and $7,500 for an up-front fee ranging from $200 to $300. The defendants tell consumers that they will get vouchers equal to the amount of the advance fee, which they can apply to future card balances. Some consumers receive nothing at all, while others get a catalog card that they can use only to purchase merchandise from the defendants’ catalog or online store. Those who complain are told they cannot get a refund of the advance fee they paid. 

Financial Advisors & Associates – Doing business as Freedom Financial and MyUnsecuredCreditCard.com, the FTC alleges the company and its principals allegedly deceptively tell consumers that they will provide them with a major credit card such as a Visa or MasterCard, but instead have provided only limited-use, advance-fee catalog cards. After paying 10 percent of the promised “credit line” up-front, consumers find the card they receive can only be used to buy goods from the defendants’ catalog or Web site. Those who try to get a refund of the money they paid up-front were routinely turned down. 

Handicapped & Disabled Workshops – The FTC alleges that the defendants target elderly consumers in telemarketing various household products at exorbitant prices. The defendants aggressively solicit these consumers, often calling several times a day, in an attempt to convince consumers to make a purchase. The defendants call seeking “support” or “donations,” prompting many consumers to believe their purchases will help handicapped or disabled workers employed by the defendants. The FTC also alleges that the defendants mail consumers products they did not order, and debit consumers’ credit and debit card accounts for these unordered products without the consumers’ consent. The defendants also violate the DNC Registry rules by calling consumers after they have asked not to be called. 

Helping Hands of Hope – In a similar scam targeting elderly consumers, the FTC alleges that the defendants telemarket various household products, promising that the proceeds of the sale will either help employ the disabled or will go to a charitable cause. The complaint charges that the defendants’ telemarketers harass consumers who say they don't want to buy these products until they agree to make a purchase. In some instances, the defendants send consumers products the consumers never ordered and then claim the orders were placed. The defendants also ignore the DNC Registry and consumers’ request to not be called again. 

US Magazine Services – In telemarketing calls to sell magazine subscriptions, the defendants allegedly misled consumers about the monthly charges for the subscriptions. While the actual price is sometimes disclosed in a later call after billing information is provided, some consumers only learned what they were charged (or that they were charged at all) after checking their credit card bill or debit account balance. Consumers who tried to cancel the subscriptions after providing billing information and then learning about the monthly charges were told that no cancellations were allowed. 

Publishers Business Services – Telemarketing magazine subscriptions, these defendants allegedly disguise their sales pitch as a survey, at the end of which they offer “free” or low-cost magazine subscriptions. They send a bill weeks later, stating that consumers agreed to pay several hundred dollars for the subscriptions. When consumers complain or attempt to cancel, the defendants tell them that they are obligated to pay the bill and may not cancel because they entered into a “verbal contract” during the survey call and the defendants have already paid the magazine publishers for the subscriptions. The defendants then attempt to extort payment by harassing the consumers at work, threatening to initiate collection actions, or threatening to submit derogatory information about them to the major credit bureaus. 

NHS Systems – The FTC alleges that the defendants call consumers and make a number of misrepresentations, often saying that they are affiliated with U.S. government agencies such as the Social Security Administration, IRS, or Medicare. To deceive consumers into providing bank account information, they often promise grants, tax refunds, tax rebates, or health benefits. Consumers are charged $29.95, $299.95, or both, and find themselves enrolled in a "discount health care program" to which they never agreed.  

City West Advantage (Unified Services) – The defendants call consumers and tell them that they have won a $1,000 shopping spree or other free gift. According to the FTC, however, the defendants’ real objective is to persuade consumers to provide their bank account information. The defendants’ telemarketers state that the consumer will be charged $1.95 for shipping and handling. If the consumer is reluctant to provide this information, the telemarketers allegedly call back repeatedly and harass the consumer, even after the consumer asked them to stop calling. Consumers who provide their banking information find that they have been charged approximately $149. In most instances, the “gift” that consumers receive is worthless – typically an “Internet shopping spree” certificate that can be used only at one Web site.  

In addition to the 13 complaints announced today, the FTC recently announced new developments in six other telemarketing cases. They include:  

Pacific Liberty – At the FTC’s request, this month, the US District Court for the Northern District of Illinois entered a final order and default judgment against a group of individual and corporate defendants based in Ontario, Canada, for their role in a cross-border telemarketing scheme that cost US consumers millions of dollars. Under the terms of the final order, the defendants – collectively known as Pacific Liberty – are barred from violating the FTC Act and the Telemarketing Sales Rule. They also are liable for $5 million dollars, the total net sales made through the cross-border scheme. 

Express Consolidation – The FTC announced this month that Florida attorney Randall L. Leshin, his debt management services company, Express Consolidation and telemarketer Consumer Credit Consolidation have agreed to settle charges that they used abusive and deceptive telemarketing practices to sell debt management services to consumers nationwide. Two court orders entered in the FTC’s lawsuit bar, among other things, false representations to sell debt management services and future violations of the DNC Registry. The defendants also must collectively pay more than $2 million.

Universal Premium Services – In April 2008, the FTC announced several court orders obtained against a nationwide telemarketing scheme that the media has dubbed the “Wal-Mart Shopping Spree” scam. Consumers were falsely promised free gifts and wrongfully paid monthly fees for “program memberships” such as discount buyers’ and travel clubs. The court banned Brian MacGregor, the architect of the scheme, from engaging in any aspect of telemarketing or the selling of program memberships. He and Membership Services Direct, Inc., also known as Continuity Partners, Inc. and Universal Premium Services, were ordered to pay $28.2 million.  

Datacom Marketing – The FTC charged Datacom Marketing, Inc., Datacom Direct, Bernard Fromstein, Judy Provencher, Paul Barnard, Judy Neinstein, Stanley Fromstein, and Charles Farrugia with running a cross-border fraud operation. In April 2008 Farrugia settled charges for his role in scamming American businesses into paying for business directories and listings they didn’t order. The settlement included a $7,603,094 judgment. This month a federal judge ordered Fromstein and Provenchar to pay $49 million for their part in the scheme.  

Ira Rubin – In January 2008, at the FTC’s request, the U.S. District Court for the Middle District of Florida issued an order finding defendant Ira Rubin in contempt for multiple violations of a previously issued temporary restraining order and preliminary injunction order against his payment-processing scheme.  

YMA – In December 2007, the FTC and seven state attorneys general charged this payment processor with debiting, or attempting to debit, consumers’ bank accounts on behalf of numerous fraudulent telemarketers and Internet-based merchants. The defendants were charged with offering payment-processing services to a variety of merchants, many of which were engaged in deceptive telemarketing or Internet-based schemes designed to extract money from consumer bank accounts by inducing consumers to provide them with their personal bank account information. The merchants then transmitted the bank account information to the defendants, who processed debits to the consumers’ bank accounts.

The FTC’s Operation Tele-PHONEY involved all manner of law enforcement including the US Department of Justice, specifically the Fraud Section and the Office of Consumer Litigation, and the US Attorney’s offices for the Central District of California, District of Nevada; Eastern District of North Carolina, Southern District of Florida, Southern District of Illinois, District of Arizona, Eastern District of Pennsylvania, and Southern District of Ohio. In addition, the Social Security Administration’s Office of Investigations in the Office of the Inspector General and the U.S. Treasury Department’s Office of the Inspector General for Tax Administration also participated.

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