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• Relief defendant Pamela Pukke, the estranged wife of AmeriDebt, Inc. founder Andris Pukke, agreed to forfeit all rights to assets currently held in receivership and will cooperate with the Federal Trade Commission ("FTC") in its continuing case against her husband and his company, DebtWorks, Inc., under the terms of a court settlement filed and announced on December 30. In addition, she will give up her ownership interest in two homes the Pukkes own in Maryland and Florida and will be subject to a $4 million judgment if she is found to have misrepresented her financial condition. The FTC alleged that she received significant assets - as much as $4 million - from AmeriDebt's deceptive operations, but did not actively participate in or control the defendants' deceptive debt-management scheme. The money collected from Mrs. Pukke will be used to provide consumer redress. In a complaint filed in 2003, the FTC charged that AmeriDebt, Inc., DebtWorks, Inc., and Andris Pukke deceived consumers with claims that AmeriDebt was a nonprofit organization that could help consumers get out of debt without an up-front fee. The FTC charged that, rather than operating for charitable purposes as advertised, AmeriDebt funneled profits to affiliated for-profit entities and individuals, including DebtWorks and Andris Pukke. According to the FTC, AmeriDebt deceived new clients when it required an up-front payment to enroll in the program. AmeriDebt then kept these initial payments as fees without consumers' knowledge, rather than disbursing the money to consumers' creditors as promised. The complaint also charged that, contrary to their claims that they provided counseling, the defendants simply enrolled customers in debt-management plans.

• On December 27, the FTC approved the publication of a Federal Register notice announcing that in 2006 it would conduct a regulatory review of the Guides for the Nursery Industry, 16 CFR part 18, the Recycled Oil Rule, 16 CFR part 311, and the Used Car Rule, 16 CFR part 455. The notice, which can be found on the FTC's website also contains a revised regulatory review calendar for the next 10 years. The FTC vote approving publication of the Federal Register notice was 4-0.

• The Commission authorized the staff to file an amended complaint in the matter currently pending against Del Sol LLC, et al on December 23. In April 2005, staff of the FTC's Division of Enforcement and the Western Region charged Del Sol, LLC, also d/b/a as Del Sol Educational, and its principal, Fernando Lopez Gonzalez, with violating Section 5 of the FTC Act and the Telemarketing Sales Rule ("TSR"). At the request of the FTC, the court entered an ex-parte temporary restraining order on the day the complaint was filed and, after a hearing, entered a preliminary injunction on May 24, 2005. The defendants allegedly engaged in a Spanish-language telemarketing operation scamming consumers out of hundreds of dollars with false promises of free laptop computers and digital video cameras and discounts on brand name perfumes and music CDs. The amended complaint alleges that in conducting this telemarketing scam, the defendants violated the National Do Not Call ("DNC") Registry by calling consumers who had registered their telephone numbers on the Registry and by calling numbers within a given area code without first paying the annual fee for access to the DNC Registry. The amended complaint corrects the name of the principal from "Fernando Lopez Gonzalez" to "Fernando Gonzalez Lopez". It was filed in federal district court on December 8, 2005 and entered by the court on December 13, 2005. The Commission vote authorizing the staff to file the amended complaint was 4-0.

• The FTC, U.S. Attorneys, the FBI, the U.S. Postal Inspection Service, Canadian consumer protection officials, and three state Attorneys General announced a law enforcement initiative on December 20 targeting spammers who are cluttering consumers' mail boxes with millions of illegal and unwanted e-mail messages. The FTC targeted three operations, the Canadian Competition Bureau settled two cases, and the Attorneys General of Florida, North Carolina, and Texas filed complaints seeking to block the illegal spamming of three more operations. U.S. federal criminal authorities also executed search warrants as part of this initiative. The FTC targeted operators who allegedly violated federal law by sending spam with false "from" information and misleading subject lines, and by failing to provide an "opt-out" option or a physical address. Documents filed with the court detailed how the spammers hijacked innocent consumers' computers and turned them into spamming machines that relayed the illegal spam while concealing the real sender. This practice obscures the original source of the message so spammers can avoid detection by law enforcers and others, and allows them to elude filters used by Internet service providers. Two "victims" that appeared to be computers with open proxies actually were "honey pots" or "proxy pots" that did not relay the spam, but captured it, with its original routing information, to pass along to law enforcers. The FTC also issued a report assessing the effectiveness of the CAN-SPAM Act, which concludes that technological anti-spam advances have reduced the amount of spam reaching consumers' in-boxes. Moreover, rigorous law enforcement has had a deterrent effect on spammers. As a result, consumers are receiving less spam now than they were receiving in 2003.

• The FTC settled charges on December 15 against three corporations and their owners and officers that the defendants used deceptive practices to promote their multilevel-marketing program and operate an illegal pyramid scheme. The Commission will receive about $1.5 million in consumer redress as part of the settlement. Three of the defendants, who had been top distributors for Equinox International, a multilevel-marketing firm sued by the FTC in 1999, are permanently banned from the multilevel-marketing industry. The defendants sold products such as water filters, cleaning supplies, nutritional supplements, and beauty aids through a nationwide network of distributors. In its complaint filed in December 2002, the FTC alleged that while distributors were told they could make money by selling the products, the defendants emphasized that they could make more money by focusing on recruiting new distributors. According to the complaint, distributors used deceptive claims to lure prospective participants, including claims that salaried jobs were being offered. The complaint further alleged that the defendants misrepresented distributors were likely to earn substantial incomes, and that the defendants operated an illegal pyramid scheme. The defendants - Trek Alliance, Inc.; J. Kale Flagg; Richard and Tiffani Von Alvensleben; Harry Flagg; Trek Education Corporation; and, VonFlagg Corporation - are a multi-level marketing company, its owners and officers, its training arm, and its parent corporation. The orders against Kale Flagg, the Von Alvenslebens and the corporations permanently ban them from multilevel-marketing. In addition, Kale Flagg is ordered to pay $360,000 and the Von Alvenslebens to pay $515,000. Harry Flagg - who, unlike the other individual defendants, had not previously been involved in multilevel-marketing - is not subject to a ban, but is prohibited from participating in illegal pyramid schemes and is required to pay $20,000. The orders for all of the defendants also prohibit the violations alleged in the Commission's complaint. Additionally, as part of the settlement, the defendants authorized their insurance company to pay $600,000 to the FTC, which will be used as consumer redress.

• The FTC announced on December 13 that satellite television provider DIRECTV will pay $5,335,000 to settle FTC charges that since October 2003, DIRECTV and companies it hired to promote DIRECTV programming have been violating the DNC provisions of the FTC's TSR. This is the largest civil penalty ever announced by the FTC in a case enforcing any consumer protection law. At the FTC's request, the U.S. Department of Justice filed the complaint and stipulated settlements in Federal District Court in Los Angeles. The complaint names as defendants DIRECTV, five firms that telemarketed on its behalf, and six principals of those telemarketing firms. Settlements with DIRECTV and two of the telemarketing firms and their principals were filed along with the complaint. The complaint alleged that telemarketers calling on behalf of DIRECTV contacted consumers on the National DNC Registry. In addition, the complaint alleged that one of the telemarketers - Global Satellite, directly or through another entity - abandoned calls to consumers by failing to put a live sales representative on the line within two seconds after the called consumer completes his or her greeting, as required under the law. Finally, the complaint alleged that DIRECTV provided substantial assistance and support to Global Satellite, even though it knew or consciously avoided knowing, that Global Satellite was violating the TSR.

Authored by:
Camelia Mazard
202-218-0028
cmazard@sheppardmullin.com