FTC Actions Stop Deceptive Schemes in "Operation Tele-PHONEY" Cases

Four deceptive telemarketing operations targeted by the Federal Trade Commission have agreed to abandon the illegal tactics they allegedly used to scam consumers – such as charging for products that were never ordered, making bogus claims about their products, and harassing consumers with unwanted phone calls – under settlements with the FTC announced today.

Defendants responsible for the four telemarketing operations, which were sued by the FTC last year as part of the largest telemarketing fraud sweep ever coordinated by the agency, have signed court orders barring them from these and other illegal practices. The law enforcement sweep, “Operation Tele-PHONEY,” included 13 FTC complaints against unscrupulous telemarketers who allegedly defrauded more than 500,000 consumers, resulting in losses of more than $100 million. With the settlements announced today, all defendants in nine of the 13 “Tele-PHONEY” cases have settled the FTC’s charges, and courts have permanently prohibited the telemarketers’ illegal activity. In one other “Tele-PHONEY” complaint, the FTC said today it has added 15 new defendants, and a court has preliminarily barred the illegal conduct of 10 of them.

Combined with the actions brought by other agencies, the “Tele-PHONEY” sweep encompassed more than 180 cases, including both civil and criminal actions in the U.S. and Canada (see press release at: http://www.ftc.gov/opa/2008/05/telephoney.shtm). In many of the FTC actions, federal courts temporarily froze the defendants’ assets and suspended their operations pending trial soon after the complaints were filed.

In the complaints resulting in the settlements announced today, the FTC charged that:

Montreal-based Med Provisions operated a bogus online pharmacy that sold sham “membership packages” to elderly consumers for $389. The defendants claimed their online pharmacy could save customers 30 percent to 50 percent on prescription drug costs, and offered a 30-day money-back “guarantee.” But according to the FTC, consumers who ordered the package got either nothing, or a prescription drug card that turned out to be worthless. Consumers did not get refunds.

Steven Breitling/ICS Financial Firm used phony loan offers to bilk consumers out of $75 each. Consumers received a direct mailing from ICS Financial “guaranteeing” them a loan of between $2,000 and $5,000. Those who responded were contacted by telemarketers, who told them that to get their loan they first had to pay a $75 consulting fee and sign a contract. Consumers who paid the fee never received any loans, and many never heard from the company again, according to the complaint.

City West Advantage, Inc. d/b/a Unified Services allegedly deceived consumers into disclosing their bank account information, and then charged them about $149 without their permission. The defendants called consumers and told them they had won a $1,000 shopping spree or other “free gift,” and that the bank account information they provided would be used to charge them $1.95 for shipping and handling. Consumers who hesitated were called back repeatedly and harassed by telemarketers, even after consumers asked them to stop calling. Consumers who provided their financial information were charged approximately $149 without their consent.

Direct Connection Consulting, Inc., et al. allegedly billed consumers for products they never agreed to buy after bombarding them with a confusing sales pitch over the phone. The defendants contacted consumers with promises of free gift cards, gas cards, or free resort vacations. The telemarketers often read their pitch so fast that consumers didn’t understand or realize they were agreeing to pay for products or services. Consumers who understood the pitch were told that they would not be billed, since they did not provide their billing information. However, although consumers did not know it, the telemarketers already had their billing information and charged their credit cards or debited their bank accounts, without providing the “free” goods or the services they promised.

The four settlements announced today against 16 defendants contain judgments totaling more than $27.6 million, although large portions have been suspended by the courts due to the defendants’ inability to pay. Each of the settlements includes provisions that bar the defendants from further deceiving consumers and restrict the way they do business in the future. In the case of Direct Connection Consulting, Inc., the settlement order also bans JoAnn R. “Jody” Winter, the co-owner and officer of the corporate defendants, from telemarketing of any kind. All the other defendants in this case settled the FTC’s charges in March 2009 (see press release at http://www.ftc.gov/opa/2009/04/suretouch.shtm).

The Commission vote to approve the agreed-upon final order in each case was 4-0. The orders were filed in: 1) The U.S. District Court for the Northern District of Ohio (Med Provisions); 2) The U.S. District Court for the Western District of Oklahoma (Steven Breitling/ICS Financial Firm); 3) The U.S. District Court for the District of Nevada (Publishers Business Services, Unified Services); and 4) The U.S. District Court for the Northern District of Georgia, Atlanta Division (Direct Connection Consulting, Inc.). All orders have been entered by the respective courts.

Amended Complaint in NHS Systems, Inc.

The FTC also has added 15 new defendants to its complaint against NHS Systems, Inc., another company targeted in Operation Tele-PHONEY, and the court has preliminarily stopped the illegal practices of 10 of those defendants. The Order prohibits the 10 new defendants from telemarketing or charging a consumer’s bank account. The other five new defendants had been preliminarily ordered to stop their alleged illegal activity in 2008. The FTC has charged that this operation called consumers and misled them to believe that the defendants were affiliated with U.S. government agencies.

The defendants deceived consumers into providing bank account information, which was then used to bill them for enrollment in a “discount health care program” to which they never agreed. The FTC charged that the 15 defendants were part of the original operation or worked to continue the scheme in a new guise, even after the court ordered a halt to the operation in May and June 2008. Most of the defendants were part of the original scheme and worked to continue the new scheme.

The new defendants include: 1) PHS Enterprises, Inc.; 2) 6676529 Canada, Inc.; 3) Nicole Bertrand; 4) Barry Kirstein; 5) a person using the name “Dannie Boie;” 6) First Step Management, Inc.; 7) Gold Dot, Inc.; 8) Linke Jn Paul; 9) Tasha Jn Paul; 10) Nevada Business Solutions, Inc.; 11) Interface Management, Inc.; 12) Beginning Again, Inc.; 13) Plus Health Savings, Inc.; 14) Physicians Health Systems, Inc.; and 15) Health Management, LLC.

The Commission vote approving the amended complaint was 4-0. The amended complaint was filed in the U.S. District Court for the Eastern District of Pennsylvania on July 6, 2009, and the court entered a temporary restraining order on July 9, 2009, and a preliminary injunction on July 24, 2009.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that a defendant has violated the law. Stipulated final orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Stipulated final orders require approval by the court and have the force of law when signed by the judge.

Copies of the four stipulated final orders and amended complaint are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click: http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.

(FTC File Nos.: 082-3098, 082-3101; 082-3117; 082-3064; 082-3075)
(Civ. Nos.: 1:08CV1051; 08 C 2309; 8:08-cv-00899-T-17-MAP; CV-00620-PMP-PAL; 08-2215; CV-00609-BES-GWF; 08-cv-1739-Batten)
(Tele-PHONEY 5.final.wpd)