FTC Sweep Protects Consumers from “Dialing for Deception”
April 15, 2002
Complaints Targeting”In-bound” Telemarketing Fraud Filed Against 11 Companies
In what may be the most far-reaching Federal Trade Commission law enforcement sweep ever against “in-bound” telemarketing fraud – where consumers call companies based on classified ads, Internet banners, or other promotions – the FTC today announced the filing of 11 federal district court complaints. Among those charged were the purveyors of advance-fee loans and credit cards, at-home medical billing programs, work-at-home envelope stuffing schemes, and a “consumer protection” agency that was, in reality, no more than a shill for a vending machine business opportunity.
As detailed in the attached table, in each case brought through “Operation Dialing for Deception” the Commission charged the defendants with violating the FTC Act, the Telemarketing Sales Rule (TSR), or both. In all 11 complaints, the FTC is either seeking – or has received – relief ranging from temporary restraining orders to preliminary or permanent injunctions, as well as a freeze of the defendants’ assets and the appointment of a receiver to oversee their finances pending trial, where appropriate.
“Consumers spotting a classified ad or telephone pole promotion and acting on their curiosity by calling the number face the same risk of being misled, deceived, or defrauded as they do when responding to a high-pressure sales call from a telemarketer,” said FTC Bureau of Consumer Protection Director Howard Beales III. “If the offer appears too good to be true, be on guard.”
“White collar crime is on the increase and a favorite weapon of choice is the telephone. Don’t abandon common sense just because you initiated the call, and it would be wise to check with the Better Business Bureau first,” Ken Hunter, president and CEO of the Council of Better Business Bureaus, advised consumers.
A Focus on Medical Billing Scams
Beales said that in addition to the general message that consumers should be careful when calling companies in response to classified ads or similar promotions, five of the cases filed by the FTC illustrate the fact that consumers interested in working at home doing medical billing should be particularly wary of pitches that promise easy money with little or no effort. While the telemarketers may provide lists of local doctors they say are interested in having their billing done by consumers, many times these doctors have not consented to have their information distributed, are not looking for outside help, or may need more skilled employees to complete this technical task.
“I would advise someone looking to start his or her own medical billing business to learn about the challenges involved in medical billing, including the complex laws which apply to [it],” said Cyndee Weston, Executive Director of the American Medical Billing Association. “I would also advise them that up to one year of training may be necessary in order to even begin to market his or her medical billing services to healthcare providers.”
In 2001, the FTC and 43 Better Business Bureaus (BBBs) across the United States and Canada surfed the Internet and newspaper classifieds looking for ads promising consumers they could make fast, easy money running medical billing businesses from home. Hundreds of ads from dozens of companies were identified, with the worst purveyors of medical billing fraud targeted by the five cases announced today. The remainder received warning letters that their practices may be in violation of federal law.
The Commission’s Complaints
The 11 complaints announced today were filed against the following companies and individuals for alleged violations of either the Federal Trade Commission Act, the Telemarketing Sales Rule, or both. The FTC’s allegations are described below:
- Credit Enhancement Services, LLC, et al. Based in Camden, New Jersey and Woodhaven, New York, the defendants allegedly used postcard mailers and in-bound telemarketing to pitch advance-fee credit cards to consumers for a one-time fee ranging from $219.99 to $289. According to the FTC, some consumers who made the payments for their “pre-approved” and “unsecured” card got nothing, while others simply received an information package welcoming them to a discount buying card service, along with applications for major credit cards (for an additional fee).
- Antoine J. Peissel, d/b/a The Woodway Group, et al. Operating out of telemarketing boiler rooms in Houston, Texas, the defendants allegedly operated an advance-fee scheme, originating through “want ads” that promised consumers a loan or other extension of credit after they paid a “processing fee” of between $69 and $89. Few, if any, consumers ever received the loan promised them.
- Capital Choice Consumer Credit, Inc., et al. Operating a large-scale advance-fee scam based in Miami, Florida, the defendants allegedly either debited customers’ bank accounts of $199.95 or obtained payments of $43 after promising to provide a credit card with a $4,000 to $7,000 credit limit. For their money, however, consumers only received an “approval certificate” and application package, and were told that to “activate” their card they had to pay even more money up front. The defendants also sent consumers a blue plastic card – that was not a bank card – for use only with the defendants’ merchandise catalog.
- Universal Bancom, LLC and John Sarabia, d/b/a Nissan Bancorp. Based in Chatsworth, California, the defendants allegedly misrepresented to consumers that they could get a Visa, MasterCard, or other major credit card by paying a $287.25 fee. They also did not disclose that the card was actually a merchant card, not a bank card; that the card could only be used to purchase items from the defendants’ catalog; or that consumers could only pay for 50-75 percent of the cost of the items with the card.
- Electronic Processing Services, Inc., et al. Based in Las Vegas, Nevada, the defendants marketed a $480 medical billing work-at-home opportunity, allegedly misrepresenting that the doctors whose names were supplied were likely to hire consumers to process their billing claims, and that consumers could expect to make a certain amount of money as medical billers.
- International Trader, d/b/a Premier Business Solutions, et al. A Nevada corporation, based in Los Angeles, California, the defendants marketed work-at-home medical billing opportunities through classified advertisements for $189. Through their telemarketing pitch, they allegedly misrepresented: 1) that they would provide consumers with the names of doctors likely to use them to process billing claims from home; 2) that consumers buying their materials could expect to earn a specific level of income (between $15 and $45 per hour); and 3) that consumers could readily obtain a refund upon request.
- Medical-Billing.Com, Inc., d/b/a Professional Management Consultants, et al. A Texas corporation based in Carrollton, Texas, the defendants sold their medical billing package for between $3,500 and $9,500. In telemarketing their program, they allegedly made numerous misrepresentations, including promises that:
1) they would help recruit doctors who would use the consumers to process their billing; 2) customers would earn substantial income providing billing services for health care professionals; and 3) they would give customers a full refund if the program did not meet their performance expectations.
- Electronic Medical Billing, Inc., et al. A Nevada corporation operating in Mission Viejo, California, the defendants sold a medical billing work-at-home business opportunity to consumers for $325. They allegedly misrepresented:
1) that the doctors whose names they provided to consumers were likely to hire them to do their billing; and 2) that consumers could expect to make a certain level of income through medical billing (between $25,000 and $50,000 a year, according to their classified ads).
- Physicians Healthcare Development (PHD Billing), Inc., et al. Based in Burbank, California, the defendants pitched a work-at-home medical billing opportunity for $319 to $425, telling consumers that they could make between $3 and $15 for each claim processed. They allegedly misrepresented that the system they sell will instantly enable consumers to launch a home-based billing business, that consumers can earn substantial income for this work, and that the doctors whose names they provided were prepared to hire the consumers to process their claims.
- Terrance Maurice Howard, d/b/a True Techniques and Absolute Mailers. Based in San Antonio, Texas, the defendants marketed an at-home envelope stuffing business opportunity that they deceptively told consumers could earn between $2,000 and $4,000 a week. They also allegedly deceptively represented that after paying an initial “registration” fee, consumers could expect to make $5 for each envelope stuffed.
- Affiliated Vendors Association, Inc. et al. A for-profit company operating out of Grand Prairie, Texas, the defendants allegedly ran a sham Better Business Bureau-type organization that gave consumers glowing reports about its members – sellers of vending machine business opportunities. The company was allegedly paid by the vending machine sellers for pitching their businesses to consumers over the phone, never told consumers of its connection to the sellers, and misrepresented the support and services that they would provide to business opportunity purchasers.
Relief Sought or Received
In filing each complaint (and accepting the consent with Nissan Bancorp) the FTC is seeking – or has received – relief to immediately stop the violations alleged, freeze the defendants’ assets pending trial, and/or obtain a receiver to ensure all assets are maintained pending trial.
In the following cases, the Commission has either requested or received a temporary restraining order (TRO) to stop the alleged illegal activities: The Woodway Group, Capital Choice Consumer Credit, Electronic Processing Services, Premier Business Solutions, Electronic Medical Billing, PHD Billing, True Techniques, and Affiliated Vendors Association. In the remaining cases, Credit Enhancement Services and Professional Management Consultants, as well as in Affiliated Vendors Association (following the court-granted TRO), the Commission has either asked for or received a preliminary injunction against the companies.
In the following cases, the FTC has either requested or received an asset freeze: Credit Enhancement Services, The Woodway Group, Capital Choice Consumer Credit, Electronic Processing Services, Premier Business Solutions, Electronic Medical Billing, PHD Billing, True Techniques, and Affiliated Vendors Association.
Finally, in the following cases, the Commission has either requested or received the appointment of a receiver: Capital Choice Consumer Credit, Premier Business Solutions, and Electronic Medical Billing.
Under the stipulated final order reached with Universal Bancom and Sarabia d/b/a Nissan Bancorp, the defendants will be banned from selling, or assisting others in selling or marketing, merchant cards. They will also be barred from misrepresenting any fact material to a consumer’s decision to buy goods, and from any future violation of the TSR.
Florida Defendants Barred from Advance-Fee Credit Card Sales
July 18, 2003
Defendants to Pay More Than $600,000 in Consumer Redress as Part of Court Settlement
Under the terms of a final court settlement reached with the Federal Trade Commission and announced today, several Florida-based defendants have been barred from the sale of advance-fee credit cards and will pay more than $600,000 in redress to defrauded consumers. The stipulated final order settles FTC charges that defendants E-Credit Solutions, Inc., Scott A. Burley, the sole officer and director of E-Credit, and Zentel Enterprises, Inc., operated a deceptive advance-fee credit card program in violation of the FTC Act and the Telemarketing Sales Rule (TSR).
The Commission’s Complaint
The Commission’s complaint – originally filed as part of the April 2002 “Operation Dialing for Deception” law enforcement sweep, and subsequently amended – charged the following defendants with operating a large-scale advance-fee credit card scam based in Miami, Florida:
- Capital Choice Consumer Credit, Inc., Millennium Communications and Fulfillment, Inc. (Millennium), Ecommex Corporation, Hartford Auto Club, Inc., and their owner, Ricardo E. Martinez;
- Johnnie Smith, chief executive officer of Millennium;
- Wilfredo Lugo, general manager of Millennium; and
- E-Credit Solutions, Inc., Scott A. Burley and Zentel Enterprises, Inc.
The defendants allegedly marketed an unsecured major credit card with a $4,000 credit limit.
Consumers were required to pay $199.95 to receive the card. The FTC charged that for their money they received a plastic “catalog card” that was not a bank card and only could be used to purchase items from the defendants’ catalogs. In addition, according to the FTC, the defendants debited consumers’ bank accounts for “up-sale” products such as auto club memberships and long-distance telephone cards without first obtaining their authorization, and failed to provide certain disclosures during the sales pitch, as required by the TSR.
Based on these alleged business practices, the Commission charged the defendants with engaging in unfair or deceptive practices in connection with the sale of advance-fee credit cards and with violating the FTC Act and the TSR by causing consumers’ bank accounts to be debited without their authorization.
Terms of the Final Order
The stipulated final order, which the court has now approved, bans defendants E-Credit Solutions, Scott A. Burley, and Zentel Enterprises, Inc. from the sale of advance-fee credit cards and from violating, or assisting others in violating, the TSR in the future. The order also prohibits the defendants from selling their customer lists or transferring any business information to other parties. Finally, it requires that the defendants pay $601,031.58 to be used for consumer redress. The order announced today does not contain provisions related to the alleged up-selling activities.
The Commission, however, continues to pursue these charges against the remaining defendants in a trial that began on June 30, 2003.
Final Judgment Closes Case on Remaining Capital Choice Consumer Credit Defendants
March 11, 2004
$36.7 Million in Consumer Redress, $10 Million Performance Bond Ordered Against Defendants for Their Participation in Major Advance-Fee Credit Card Scam
The Federal Trade Commission today announced a final court judgment entered against the remaining seven of 10 defendants charged in FTC v. Capital Choice Consumer Credit, Inc., et al. The defendants were charged with operating a large-scale advance-fee credit card scam in this “Operation Dialing for Deception” law enforcement sweep case. The judgement requires the defendants to pay $36.7 million in consumer redress for their participation in the scam, requires them to post a $10 million performance bond before engaging in, or assisting others in engaging in, telemarketing in the future, bans them from selling credit cards in the future, and prohibits them from the illegal conduct alleged in the Commission’s complaint.
”This is a terrific victory for consumers,” said Howard Beales, Director of the FTC’s Bureau of Consumer Protection. “The court order not only shuts the door on a scam that duped hundreds of thousands of people, it also requires the defendants to pay millions of dollars in restitution.”
The Commission’s Complaint
The Commission’s complaint charged the following defendants with operating a large-scale advance-fee credit card scam based in Miami, Florida: 1) Capital Choice Consumer Credit, Inc., Millennium Communications and Fulfillment, Inc. (Millennium), Ecommex Corporation, Hartford Auto Club, Inc., and their owner, Ricardo E. Martinez; 2) Johnnie Smith, chief executive officer of Millennium; 3) Wilfredo Lugo, general manager of Millennium; and 4) E-Credit Solutions, Inc., Scott A. Burley, and Zentel Enterprises, Inc.
The defendants marketed a credit card with a $4,000 credit limit. Consumers were required to pay $199.95 to receive the card. The FTC charged that the defendants led consumers to believe that the credit card they were offering was an unsecured, major credit card, such as a MasterCard or Visa. In fact, consumers received a line of credit that could be used only to purchase items from the defendants’ catalogs with a substantial downpayment. In addition, according to the FTC, the defendants debited consumers’ bank accounts for “up-sale” products such as auto club memberships and long-distance telephone cards without first obtaining their authorization, and failed to provide certain disclosures during the sales pitch, as required by the Telemarketing Sales Rule (TSR). Based on these alleged business practices, the Commission charged the defendants with engaging in unfair or deceptive practices in connection with the sale of advance-fee credit cards and with violating the FTC Act and the TSR by causing consumers’ bank accounts to be debited without their authorization.
A stipulated final order, announced by the FTC on July 18, 2003, and subsequently signed by the court, banned defendants E-Credit Solutions, Scott A. Burley, and Zentel Enterprises, Inc. from the sale of advance-fee credit cards and from violating, or assisting others in violating, the TSR in the future. The order also prohibited the defendants from selling their customer lists or transferring any business information to other parties. Finally, it required the defendants to pay $601,031.58 to be used for consumer redress. A trial against the remaining defendants began on June 30, 2003, culminating in the final judgment entered by the court on February 19, 2004, and announced today. The defendants have filed for a rehearing, and that decision is pending with the court.
Terms of the Final Judgment
The final judgment announced today resolves the Commission’s charges against corporate defendants Capital Choice, Millennium, Ecommex, and Hartford Auto Club; and individual defendants Ricardo E. Martinez, Johnnie Smith, and Wilfredo Lugo. It contains both injunctive and monetary provisions, as follows. The judgment first prohibits the defendants, and any entities under their control, from offering for sale or selling any credit card. It also prohibits them from offering for sale or selling any debit card without clearly and conspicuously disclosing the monetary limit of the card. Next, it permanently bars the defendants, and any entities under their control, from debiting or otherwise obtaining funds from a consumer’s bank account or any other type of monetary account, unless they first receive written authorization to do so from the consumer, including the amount of the debit, the date of the debit, the goods or services in question, and the name of the entity that is authorized to make the debit or obtain the funds.
In addition, the judgment permanently bars the defendants from engaging – or helping anyone else in engaging in – telemarketing, unless they first obtain a performance bond of $10 million, conditioned on their future compliance with the FTC Act. The judgment also prohibits the defendants from violating the FTC’s TSR in the future, from distributing their customer lists, and from transferring specific business information.
The judgment also requires the defendants to pay a total $36.7 million in consumer redress, broken down as follows: 1) defendant Ricardo E. Martinez and his companies are liable for the full $36.7 million; 2) defendant Johnnie Smith is jointly liable with Martinez and his companies for $17.6 million of the redress amount; and 3) defendant Wilfredo Lugo is also jointly liable for $16.7 million of the redress amount. Finally, the judgment contains reporting and monitoring provisions to ensure the defendants’ compliance with its terms.