• On October 19, a District Court judge halted the deceptive ads of a Web operation that claimed membership in MP3DownloadCity.com would allow users of peer-to-peer (“P2P”) file-sharing programs to transfer copyrighted materials without violating the law. The FTC will seek a permanent bar on the deceptive claims, redress for consumers, and a requirement that the defendant notify consumers who signed up for membership that the programs he promotes to share copyrighted files may subject them to civil or criminal liability. According to the FTC, the defendant markets and sells a tutorial and referral service that promotes the use of P2P file-sharing software programs to download digital music, movies and computer games. Unlike a licensed subscription service, the defendant’s service does not provide its paying customers with a license to download and share copyrighted music, movies, or games. Instead, for $24.95, the defendant instructs consumers on the use of free P2P file-sharing software provided by others, such as Kazaa. According to the FTC’s complaint, consumers are lured to become members by deceptive claims that subscribing to the defendant’s service makes P2P file sharing legal. But, according to the FTC complaint, the defendant’s customers who use P2P file-sharing programs to download copyrighted material, or who make it available to others, without the copyright owner’s permission, are engaged in copyright infringement and could face civil and criminal liability. The FTC charged that the defendant violated the FTC Act by falsely claiming that membership in its service made P2P file sharing legal.
  • A top distributor in a multilevel-marketing program, who deceptively led prospective recruits to believe they would be applying for marketing jobs and that they would make a substantial income, was banned from the multilevel marketing industry and paid $5,000 to settle FTC charges on October 20. In addition, the defendant is further prohibited from making any material misrepresentations about other business opportunities she may promote in the future. The defendant, Sandra Lee Jacobson, was a high-level distributor for Trek Alliance (Trek), a multilevel-marketing company that sold water filters, cleaning supplies, nutritional supplements, and beauty aids. Jacobson had previously been a distributor for Equinox International, a company operating an alleged pyramid scheme that the FTC sued in 1999. The FTC sued Trek and its principals in December 2002. That case is still in litigation. Jacobson helped start and manage numerous Trek training centers, which functioned primarily as recruitment centers. Distributors who worked in these training centers often used classified ads, in the Help Wanted section, to solicit new recruits. The FTC’s complaint alleged that, in numerous instances, prospective recruits were deceptively told that they could expect to receive substantial income, and that salaried employment positions were being offered. The complaint further alleged that Jacobson participated in making these misrepresentations and provided the means and instrumentalities for other distributors to make these misrepresentations. It also alleged that Jacobson participated in Trek’s marketing of an illegal pyramid scheme. In addition to the ban on multilevel marketing and the prohibition against making future material misrepresentations, the order also prohibits Jacobson from helping others make misrepresentations when selling business opportunities. As part of the stipulated final order, a judgment was entered against Jacobson in the amount of $804,813 – the amount Trek paid her in commissions. The amount was reduced to $5,000 based on financial documentation provided by the defendant. If it is found those documents were falsified, she will be responsible for the full amount. Finally, the order contains standard monitoring and record-keeping provisions.
  • A group of U.S. and Canadian telemarketers will pay $415,000 to settle FTC charges they were selling nonexistent credit cards to U.S. consumers, the agency announced on October 24. The defendants are banned from selling credit-related products through telemarketing and must stop their attempts to deceive consumers into giving out their personal financial information. According to the Commission, the defendants targeted consumers with poor credit, offering major credit cards with a $2,500 limit for an advance fee of $197 to $300. The telemarketers claimed to have information showing that the consumers recently had been denied credit, and pitched the credit card offer as a means of improving their credit rating. Implying that they were merely verifying data, the defendants requested information about the consumer’s bank accounts, such as account numbers, routing numbers, and the account holder’s name, as well as personal identifying information, such as date of birth, mother’s maiden name, and Social Security number. They also allegedly misrepresented that they had the ability and authority to issue major credit cards. Consumers who paid the fees never received credit cards. At best, some got a package containing a credit repair book with coupons, a list of banks that issue credit cards, and other materials with little or no value. The defendants, who ran their operation from Palm Beach, Florida, and Montreal, Canada, are three Florida corporations (Sun Spectrum Communications Organization, Inc.; North American Communications Organization, Inc.; and WWCI2002, Inc.) and their principals, William H. Martell and Tracey A. Bascove, and one Canadian corporation (9106-7843 Quebec, Inc.) and its principals, Mitchel Kastner, Ronald Corber, and Jason Kastner. As part of the settlement, the defendants are banned from telemarketing credit-related products and from assisting others involved in the industry. They also are prohibited from using false or misleading statements when marketing any product and from violating any provision of the FTC’s TSR. The court’s order also prohibits the defendants from violating the Gramm-Leach-Bliley Act by using false representations to get consumers to divulge personal financial information. They also are subject to a suspended judgment of just over $9 million.
  • As law enforcement officials, consumer groups, and Hispanic leaders met in Los Angeles on October 25 to discuss new ways to fight fraud in the community, the FTC announced five law enforcement actions against scammers targeting Hispanic consumers. The actions announced at the Hispanic Law Enforcement and Outreach Forum involved a range of products and services, including advance-fee credit cards, at-home English-language and auto-mechanic training programs, a medical-discount plan, weight-loss products, music CDs, and credit-repair services. The FTC also released new consumer information about medical discount plans. The workshop was sponsored by the FTC, the U.S. Postal Inspection Service (“USPIS”), the U.S. Attorney’s Office in Los Angeles, and the Department of Consumer Affairs for the County of Los Angeles. It is the latest in a series of workshops by the FTC and the USPIS that aim to identify local problems and discuss ways to address them; facilitate open dialogue with local government, consumer groups, and members of the Hispanic community on issues affecting Hispanic consumers; and share consumer education resources to help local communities conduct outreach about fraud, how to prevent it, and where to report it. Workshops already have been held in Chicago, Dallas, Miami, and Phoenix. Events in Cleveland, Las Vegas, and San Diego, among other cities, are planned for next year.
  • The Federal Trade Commission issued its tenth quarterly summary on October 27 of the agency’s enforcement actions against telemarketing fraud and abuse, listing significant developments in 19 federal district court cases between August and October 2005. These cases include new actions filed by the Commission; amendments to complaints; final resolutions of enforcement actions such as settlements, default and summary judgments; contempt proceedings; and redress distribution information. Some of the complaints filed in these cases allege violations of the Telemarketing Sales Rule (“TSR”). All of the cases involve the use of the telephone to market goods or services, including outbound and inbound calls generated from advertisements or other solicitations to purchase products or services. The quarterly enforcement update issued today can be found on the FTC’s Web site at: www.ftc.gov/bcp/conline/edcams/telemarkfraudenforcement/
    update05oct.htm. The FTC’s telemarketing fraud and abuse enforcement Web page,www.ftc.gov/bcp/conline/edcams/
    telemarkfraudenforcement/index.html, contains a list of the 174 enforcement actions announced since October 1, 2002, with links to related press releases. In addition to helping consumers learn about the Commission’s enforcement actions, the Web page and the quarterly enforcement update provide consumers with easy access to information about the specific frauds and abuses perpetrated using telephone calls and the types of matters prosecuted by the Commission, including matters brought under the TSR and its National Do Not Call Registry.

Authored by:
Camelia Mazard