Complaint resolution service publishes case studies, recall information and consumer news.

A federal judge has issued a temporary restraining order against a nationwide operation that claimed it could reduce consumers’ debt by up to 60 percent, leading many people into financial ruin and bankruptcy. The Federal Trade Commission charged five companies, including Homeland Financial Services, National Support Services and Prosper Financial Solutions, and their principals with deceptive and unfair practices in violation of Section 5 of the FTC Act.

“These defendants are charged with targeting consumers who were knee deep in debt and luring them with false promises,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “Consumers should be leery of anyone who says they can eliminate your unsecured debt, or that you can pay it off for pennies on the dollar. Debt negotiation can be very risky.”

According to the FTC’s complaint, the defendants have falsely claimed that, for a non-refundable fee of up to 15 percent of a consumer’s unsecured debt, they could reduce all of their unsecured debts, including credit card balances and medical bills, by as much as 40 to 60 percent. To the extent that the defendants initiate negotiations with creditors, they typically have begun only after a consumer has paid 30 to 40 percent of the fee, which could be up to three months after a consumer has stopped making payments to creditors, as the defendants have advised them to do, the complaint stated. The defendants rarely have negotiated settlements with all of a consumer’s creditors, and even when they have successfully negotiated an account, in many cases, the settlement amount is significantly more than 60 percent of what they owe.

In many instances, the complaint stated, the defendants have not contacted a consumer’s creditors to offer a settlement, and consumers who have stopped making payments have been sued by creditors or debt collectors, resulting in garnishment of their wages, additional interest charged to their account, interest rate increases, and late fees. According to the complaint, many consumers who have enrolled in the defendants’ program have seen their credit rating worsen substantially, and typically within six months of enrolling, most consumers have left the program and have found that their debt has grown as a result of penalties, fees, interest, and other charges.

The FTC charged the defendants with misrepresenting how much they could reduce consumers’ debt; not adequately disclosing the likelihood that consumers would be sued if they took the defendants’ advice and stopped making payments to creditors; not disclosing that consumers’ account balances would grow from interest, interest rate increases, late fees, and other charges; and falsely advising consumers that negative information that appeared on their credit report as a result of participating in the defendants’ program would be removed upon completion of the program.

Posted under Finance

A federal judge has ordered a magazine subscription seller to pay a civil penalty of more than $5.4 million and give up more than $1.6 million of his ill-gotten gains for violating a 1996 Federal Trade Commission consent order and the FTC’s Telemarketing Sales Rule (TSR). This is the largest civil penalty the Federal Trade Commission has ever obtained for a violation of a consent order in a consumer protection matter.

“The FTC expects full compliance with its orders, period,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “This case demonstrates that the Commission will prosecute those who flout its orders and deceive consumers.”

Based on an FTC complaint filed by the U.S. Department of Justice, the court entered a judgment against Richard L. Prochnow of Atlanta. The court had found that Prochnow violated the consent order through his ownership and control of Direct Sales International (DSI), which either directly or through its dealers: (1) failed to disclose or misled consumers regarding the cost of magazine packages and individual magazines; and (2) made weekly cost representations even though consumers could not make weekly payments for the magazine packages.

The court also held Prochnow liable for DSI’s failure to tell consumers that their credit cards would be billed for membership in a buying club unless they called within thirty days to cancel, and its failure to provide consumers with information that would enable them to cancel, in violation of the TSR. The court further found Prochnow liable for false statements to consumers that publishers were paid in advance for magazines, which the Court found to be a violation of the TSR.

The court ordered that, with a few narrow exceptions, Prochnow may not own, control, manage, advise, or assist others engaged in a telemarketing business for five years. This ban does not apply to his ownership in Amerinet, a company that processes payments to telemarketers, and Hotdogger, an infomercial company, provided he does not exercise any control over the companies and places his interest in them in the custody and control of an independent third party approved by the court. During the next five years, he must provide the FTC with quarterly reports on his business dealings, and provide copies of the order to heads of non-publicly traded companies in which he has ownership.

In holding Prochnow personally liable for the violations, the court found that he had the authority to control the practices of DSI’s employees and those of the dealers selling magazine subscriptions pursuant to contracts with DSI. The violations of the consent order and the TSR occurred between April 1997 and January 2000, when Prochnow sold DSI. The consent order, which prohibited Prochnow from using deceptive practices to sell magazine subscriptions, had settled FTC charges against Prochnow, then doing business as DSI, and several other corporate and individual parties.

Posted under Customer Service

An operation that placed spyware on consumers’ computers in violation of federal laws will give up more than $2 million to settle Federal Trade Commission charges.

Under a stipulated final judgment and order, the defendants are permanently prohibited from interfering with a consumer’s computer use, including but not limited to distributing software code that tracks consumers’ Internet activity or collects other personal information, changes their preferred homepage or other browser settings, inserts new advertising toolbars or other frames onto their browsers, installs dialer programs, inserts advertising hyperlinks into third-party Web pages, or installs other advertising software code, file, or content on consumers’ computers.

The defendants also are permanently prohibited from making misleading representations regarding the performance, benefits, features, cost, or nature or effect of any type of software code, file, or content, including misrepresenting that the code is an Internet browser upgrade or other computer security software, music, song, lyric, or cell phone ring tone.

The order names Enternet Media Inc., Conspy & Co. Inc., Lida Rohbani, Nima Hakimi, and Baback (Babak) Hakimi, all based in California, whose software codes were “Search Miracle,” “Miracle Search,” “EM Toolbar,” “EliteBar,” and “Elite Toolbar.”

According to the FTC’s complaint, the Web sites of the defendants and their affiliates caused “installation boxes” to pop up on consumers’ computer screens. In one variation of the scheme, the boxes offered a variety of “freeware,” including music files, cell phone ring tones, photographs, wallpaper, and song lyrics. In another, the boxes warned that consumers’ Internet browsers were defective, and offered free browser upgrades or security patches. Consumers who downloaded the supposed freeware or security upgrades did not receive what they were promised; instead, their computers were infected with spyware that interferes with the functioning of the computer and is difficult for consumers to uninstall or remove.

The agency’s complaint also alleges that the defendants’ software code tracks consumers’ Internet activity, changes their home page settings, inserts new toolbars onto their browsers, inserts a large side “frame” or “window” onto browser windows that in turn displays ads, and displays pop-up ads, even when consumers’ Internet browsers are not activated.

At the FTC’s request, a federal judge froze the operation’s assets last fall and ordered it shut down. The settlement requires the defendants to give up $2.045 million of their ill-gotten gains and includes a suspended judgment of $8.5 million for alleged violations of the FTC Act. The Commission vote to approve the settlement was 5-0.

Posted under Privacy

An operation that sold worthless prep materials for post office jobs that didn’t exist, will give up $105,000 to settle Federal Trade Commission charges that the scam violated federal law.
The FTC charged that the operation misrepresented an affiliation with the Postal Service, the availability of postal jobs, and that getting a passing score on a postal entrance exam guarantees applicants a job. The FTC also alleged that using their test preparation materials would not help anyone to pass the postal exam, contrary to the defendants’ claims, and actually contained false and misleading information.

The FTC alleged that, since at least January 2004, the defendants ran classified ads across the nation in employment guides and newspapers. The FTC alleged the ads led consumers to believe that the defendants were hiring for postal jobs and were connected with, or endorsed by, the USPS. One ad stated:

According to the FTC, the telemarketers assured consumers there were jobs available in the caller’s geographic area and that passing the exam required for postal employment would assure them a postal job. Consumers were charged a “registration fee” of $108.80.

In fact, applicants for many entry-level postal jobs are required to take a postal examination. But the tests are usually offered only every few years in any particular district. Also, there are no job placement guarantees based on score. If applicants pass the test by scoring at least 70 out of 100, they are placed on a register, ranked by their score. When a position becomes open, the local post office looks to the applicable register for that geographic location and calls the top three applicants. The score is only one of many criteria taken into account for employment. Information on postal jobs is available at the consumer’s local post office, and applicants generally receive a free packet of information about required exams. The exams test general aptitude, something that cannot necessarily be increased by studying. More information is available at the Postal Service Web site, www.usps.com.

The settlement brings a permanent end to misrepresentations by the defendants that:

* they are connected with or endorsed by the Postal Service;
* postal jobs are currently available in consumers’ geographic areas where defendants’ advertisements appear;
* consumers would receive study materials which would allow them to pass the postal employment exam; and
* a passing score on the postal exam will guarantee consumers a job with the Postal Service.

The order also prohibits the defendants from misrepresenting any material fact about products they are selling and enters a $2,093,183 suspended judgment against the defendants – the total amount of consumer injury. Based on financial documents filed by the defendants, they will pay $105,000 because they are unable to pay more. If the court finds that they misrepresented their financial status, then they will be liable for the full amount.

The defendants, Jeffrey Charles Lord and his company, Job Resources, Inc., are based in Tennessee.

Posted under Customer Service

An operation selling Chinese herbal supplements is banned from claiming its products treat or cure diseases, to settle Federal Trade Commission charges it violated a previous court order. The FTC alleged the sellers of Dia-Cope, a pill claimed to prevent, treat, and cure diabetes, violated the order by misrepresenting the health benefits of their product and misrepresenting that clinical trials proved their claims. The defendants will give up their ill-gotten gains – all of the assets they received from the sale of Dia-Cope.

The defendants originally sold “Sagee,” a Chinese herbal supplement that they claimed could improve memory and concentration, repair damaged brain cells, slow the aging of the brain, increase the learning ability of people with mental handicaps, and treat various diseases and conditions related to brain function, including Alzheimer’s disease, senile dementia, schizophrenia, autism, cerebral hemorrhage, stroke, epilepsy, and Parkinson’s disease. They advertised Sagee mainly in Chinese-language media; some ads also appeared in Vietnamese and English. The supplements were sold by distributors on the Internet and in some stores.

The FTC charged that the claims about Sagee were false and unsubstantiated and an order entered in January 2005 prohibited the defendants from making unsubstantiated health benefit, performance, or efficacy claims for any dietary supplement, food, drug, device, or service. The order also barred them from misrepresenting the existence, results, validity or conclusions of any scientific study.

According to the FTC, the defendants then began advertising Dia-Cope on Web sites available in seven languages: English, Chinese, Japanese, Korean, Indonesian, Spanish, and Russian. The defendants claimed Dia-Cope could prevent, treat, and cure diabetes and claimed that thousands of human clinical trials proved it. Their Web sites, www.sagee.com and www.dia-cope.com, stated that the FDA had approved the product. Bottles of Dia-Cope with 90 capsules sold for $60 – enough with the suggested dosage to last one or two weeks.

According to the FTC, the defendants violated their court order by misrepresenting the health benefits of Dia-Cope, falsely claiming that the FDA had approved the product, and misrepresenting that there was clinical support for their claims. A US District Court entered a temporary restraining order against the California-based defendants, Sagee U.S.A. Group, Inc. and Xiao Hua Li, on July 5, 2006, stopping their deceptive claims.

The modified order against the defendants bans them from claiming that any foods, drugs, devices, services, or dietary supplements can prevent, mitigate, treat, or cure any disease. Under the order, the defendants will give up all of the assets derived from the sale of Dia-Cope, $10,396. The order extends the original order’s monitoring and record-keeping provisions and retains the strict provisions requiring the corporate defendant, Sagee, to monitor the activities of its distributors.

Posted under Health

The marketers of Seasilver, an alleged phony cure-all, have been ordered to pay almost $120 million for failing to comply with an earlier order requiring them to pay $3 million in consumer redress.

In ads for Seasilver, the promoters claimed the product, a liquid dietary supplement containing aloe vera, phyto-silver sea vegetables, herbs, cranberry concentrate, and other ingredients, was clinically proven to treat or cure 650 diseases, including cancer and AIDS, and caused rapid, substantial, and permanent weight loss without dieting. The FTC alleged that the claims were false and unsubstantiated.

In March 2004, the defendants agreed to settle the FTC’s charges. The settlement, filed in federal court, barred the defendants from making false or misleading claims in the future. It also required the defendants to pay $3 million in consumer redress and included a suspended judgment of $120 million, which would become due if the defendants misrepresented their financial status, or did not make the payments as they agreed.

To date, Seasilver, USA, Inc. and Americaloe, Inc., and their owners, Bela Berkes and Jason Berkes, have paid less than $1 million of the consumer redress they agreed to pay. Under the Court’s order, entered on June 20, 2006, the Seasilver marketers are now jointly and severally liable to pay the full amount of $119,237,000, plus interest.

The FTC has secured liens on the defendants’ assets, including a nursery, an aloe farm, and equipment. The two largest distributors of Seasilver, who were named in the FTC’s complaint and settled the charges, have made their separate court-ordered payments of $1 million and $500,000.

The hotline number for this case, 1-866-408-2536, contains more information for interested consumers.

Posted under Customer Service

The Federal Trade Commission has released the results of its latest nationwide undercover shop of electronic and video game stores. The FTC conducted the shop to collect data on the extent to which retailers prevent children from buying video games that have been rated by the Entertainment Software Rating Board (ESRB) as Mature. The FTC also announced a second comment period for an upcoming survey on awareness of and attitudes towards ESRB ratings.

The undercover shop saw a decrease in the number of M-Rated (for Mature) video games sold to unaccompanied children. Video games rated “M” by the ESRB contain content appropriate for those 17 and older. Forty-two percent of the secret shoppers, children between the ages of 13 and 16, who attempted to buy an M-rated video game without a parent were able to purchase one. In the 2003 shop, 69 percent of the shoppers were able to buy one. National sellers were much more likely to restrict sales of M-rated games. Only 35 percent of the secret shoppers were able to purchase such games there. Regional or local sellers sold M-rated games to the shoppers more frequently 63 percent of the time. The shop also marked other improvements by retailers, compared with results from the previous undercover shops by the FTC.

Nationwide Undercover Survey Results:

Was the shopper able to buy the M-rated video game? (Percent Yes)

Did the electronic game store provide information about ratings or ratings enforcement?
(Percent Yes)

Did the cashier or clerk ask the child’s age? (Percent Yes)

2005 Survey Results for National and Local and Regional Retailers (Percent Yes)

The shop, conducted between October 2005 and January 2006, involved 406 stores in 43 states selling electronic or video games. Three hundred and six of the stores were national retailers, while the other 100 were local and regional sellers.

The undercover shop is the fourth conducted in connection with the Commission’s reports on the marketing of violent entertainment media to children. The Commission plans to conduct another undercover shop later this year to test whether young shoppers are able to buy tickets to R-rated films at movie theaters, R-rated movies on DVD, explicit-content labeled music recordings, and M-rated video games.

Posted under Products

One spammer down, many to go

In a joint law enforcement initiative, the Federal Trade Commission and the Department of Justice have brought two separate actions to shut down a spam operation that hijacked logos from AOL and Paypal to con hundreds of consumers into providing credit card and bank account numbers. At the request of the FTC, a U.S. District Court ordered the defendant to halt his identity theft scam, known as “phishing.” The Justice Department obtained a criminal conviction and the defendant is awaiting sentencing.

The scam worked like this: Consumers received e-mail that appeared to come from America Online or Paypal. The “from” line identified the sender as “billing center,” or “account department” and the subject line carried warnings such as “AOL Billing Error Please Read Enclosed Email,” and “Please Update Account Information Urgent!” The text of the message contained a warning that if the consumers did not respond to the e-mail, their account would be cancelled. Some of the spam said, “. . . we have to ask all our members for updated/correct billing information. Please be advised that this is mandatory. If we do not get your updated billing information, your account will be revoked and put under review and may be cancelled.” A hyperlink in the e-mail took consumers to what appeared to be the AOL Billing Center, with AOL’s logo and live links to real AOL Web pages. But the copy-cat Web page belonged to the defendant. The defendant asked consumers to provide information such as their names and mothers’ maiden names, billing addresses, Social Security numbers, dates of birth, bank account numbers, and bank routing numbers. The defendant also asked consumers to provide their AOL screen names and passwords.

The FTC alleges that the defendant used the information that consumers submitted to establish new credit card accounts and to make unauthorized changes – such as changing the address – on existing credit accounts. According to the FTC, he placed orders and made purchases using the unwitting consumers’ credit information.

The Paypal scheme worked in a similar way, with the defendant using the Paypal passwords that consumers provided to access consumers’ Paypal accounts and to purchase goods or services on their accounts.

The FTC charged that the acts and practices were deceptive and unfair, in violation of the FTC Act. In addition, the FTC alleged that the defendant’s practices violated provisions of the Gramm Leach-Bliley Act designed to protect the privacy of consumers’ sensitive financial information.

Defendant Zachary Keith Hill of Houston, Texas was named in the FTC complaint and the DOJ criminal information filed in United States District Court for the Eastern District of Virginia, Alexandria Division.

“As the Hill case demonstrates, the government can make a difference when agencies work together to crack down on Internet identity theft scams,” said Assistant Attorney General Christopher A. Wray of the Criminal Division of the U.S. Department of Justice. “The Department of Justice remains committed to working closely with the FTC to shut down these phishing operations and protect Internet users from thieves who seek to steal their valuable identity and financial information.”

“This investigation demonstrates the importance of interagency cooperation in clamping down on cyberscammers,” said Howard Beales, Director of the FTC Bureau of Consumer Protection. “The DOJ and FTC contributed complimentary skills and enforcement tools to catch up with this phishing scam, shut it down, and send a clear message that electronic identity theft won’t be tolerated.”

These cases were brought with the invaluable assistance of the Federal Bureau of Investigation’s Washington Field Office, and the United States Attorney for the Eastern District of Virginia’s Computer Hacking and Intellectual Property Squad.

The FTC has established a special Criminal Liaison Unit to expand criminal prosecution of consumer fraud. The Criminal Liaison Unit identifies enforcement agencies that may bring specific types of consumer fraud cases, educates criminal law enforcers in areas of FTC expertise, and coordinates training with criminal authorities to help the FTC prepare cases for referral and parallel prosecutions. Since 1996, dozens of FTC civil cases have resulted in concurrent or subsequent criminal prosecutions. The Criminal Liaison Unit will build on these existing FTC efforts to ensure appropriate criminal prosecution of consumer fraud.

Posted under Privacy

Two persons have agreed to settle Federal Trade Commission charges for their roles in a fraudulent business opportunity scheme targeted in early 2005 as part of “Project Biz Opp Flop,” a crackdown on violations of the FTC’s Franchise Rule, which requires that prospective franchisees must be given a full disclosure document about business opportunities they are offered, and Section 5(a) of the FTC Act, which prohibits unfair and deceptive acts or practices affecting commerce.

Scott Douglas Rinaldo was involved with the wrongful practices of World Traders Association Inc., a Nevada corporation, and several other corporate and individual defendants, including International Merchandise Group and The Global Connection. Shannon Kirk Holden was involved with the wrongful practices of The Global Connection during part of the time it was in operation. According to the FTC complaint, the defendants violated the FTC Act and the Franchise Rule by making false and deceptive promises to franchise purchasers who paid as much as $8,000 in return for access to overstocked merchandise, expert training in the surplus goods industry, and substantial income.

Under a stipulated judgment and order for permanent injunction proposed by the FTC, Rinaldo is permanently barred from being involved in, and making misrepresentations concerning, any aspect of commerce in business ventures. Holden is permanently barred from making misrepresentations to consumers who might purchase business ventures, goods, or services.

Judgments representing the amounts of consumer injury attributed to the two defendants – more than $30.7 million for Rinaldo and more than $491,000 for Holden – will be suspended due to their inability to pay. The judgments will be imposed if they are found to have misrepresented their financial condition.

The Commission voted 5-0 on March 7 to authorize staff to file each of the two stipulated judgments and orders for permanent injunction, which occurred on March 16 in U.S. District Court for the Central District of California, Western Division.

Note: A stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of law violations. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Posted under Customer Service

The Federal Trade Commission and the Washington State Attorney General have asked a federal judge to order Debt Solutions Inc. and three other telemarketers in Washington and Florida to stop charging consumers hundreds of dollars for a “debt elimination program” that offers a false promise of substantially reduced interest rates and thousands of dollars in savings.

The agencies jointly filed the action in U. S. District Court in Seattle, seeking an injunction against them and refund of monies paid for violations of Section 5(a) of the FTC Act, the FTC’s Telemarketing Sales Rule (TSR), and Washington’s Consumer Protection Act.

“The defendants’ so-called ‘debt elimination program’ was not the answer for consumers who found themselves in financial hot water,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “There are a variety of legitimate options to reduce debt, including more realistic budgeting, credit counseling from reputable organizations, debt consolidation programs, and, if need be, filing for bankruptcy. In every case, though, people should be wary of any business that claims it can negotiate substantially lower interest rates on credit cards and loans.”

According to the FTC and the State of Washington’s complaint, since at least 2002, Debt Solutions Inc., DSI Financial Inc., DSI Direct Inc., Pacific Consolidation Services Inc., Kenneth Schwartz, Jennifer Ruth Whalen, David C. Schwartz, and Greg Moses have telemarketed and sold what they call a debt elimination program by making unsolicited phone calls to consumers nationwide, and by marketing the program on several Internet Web sites, including www.debt2wealth.com and www.acceleratedfinancialinc.com. The complaint alleges that the defendants falsely represented to consumers that they would be assigned a financial consultant whose special relationships with creditors will enable the consultant to negotiate substantially lower interest rates, saving consumers thousands of dollars, reducing their monthly payments, and paying off their debts three to five times faster–all without higher monthly payments. In fact,according to the complaint, consumers who purchase the program typically do not have theirinterest rates lowered at all, and, if they do, the reductions are rarely more than one percentage point.

Consumers are promised a full refund if they do not save at least $2,500, but few consumers have received the guaranteed refund, according to the agencies’ complaint. Before buying the program for $399 to $629, the complaint alleges, consumers are not told that the promised savings may take decades to achieve, or that most of the savings will result from simply paying more money every month, not from reduced interest rates. The defendants also claim the program is endorsed by the Financial Standards Council in Canada and the Registered Financial Planners Institute of North America, but both claims are false, according to the complaint.

The FTC and the State of Washington’s complaint alleges that the defendants violated Section 5(a) of the FTC Act by falsely representing that purchasers will (1) save thousands of dollars in a short time; (2) have credit card and loan interest rates reduced substantially; (3) pay off their debt much faster without higher monthly payments; and (4) reduce their monthly credit card and loan payments. The complaint also alleges that they falsely represent that they have special relationships with credit card companies and lenders, and that their program is endorsed by the two organizations mentioned above. It also alleges that they misrepresented their money-back guarantee.

The complaint further alleges that the defendants violated the TSR and Washington state law by misrepresenting projected savings, failing to disclose the limits of their money-back guarantee, calling phone numbers listed on the Do Not Call Registry, failing to pay the required annual fee for access to DNC-listed numbers, and calling persons who had asked them to stop calling. The defendants also violated Washington state law by engaging in unfair or deceptive acts or practices and unfair methods of competition.

NOTE: The Commission authorizes the filing of 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 the defendant actually has violated the law. The case will be decided by the court.

Posted under Customer Service