FTC Nets $856,500 in Settlements with Nine Defendants in "Toner Phoner" Fraud Case

The Federal Trade Commission has negotiated settlements, including $856,500 for redress to small businesses, with nine defendants named in its case against perpetrators of an allegedly deceptive "toner phoner" scam. The FTC had charged seven corporations and eight individuals, which did business under the names of District Supply Center, Central Supply Center, and National Supply Center ("Supply Center"), with using telemarketers to victimize small businesses by shipping and charging them exorbitant prices for photocopier toner and other office supplies. The proposed settlements announced today, if approved by the court, would end the litigation against defendants Dennis Connelly; Sam June; Erick Graziano, also known as Eric Knight; Donald Ryan; Donna Green; Colleen McCullough; Jeanine Dora; James Rem; and Intel Marketing of California, Inc.

In addition to ordering payment of $856,500 for consumer redress, the proposed settlements permanently ban individual defendants Dennis Connelly and Sam June from engaging in the telemarketing of office supplies, and require the other individual defendants to post bonds ranging from $25,000 to $200,000 before engaging in telemarketing activities.

The settlements follow FTC charges filed in March against MTK Marketing, Inc.; Nationwide Transport, Inc.; Copy Resource Center, Inc.; Intel Marketing of California, Inc.; Telco Marketing, Inc.; Paragon Shipping, Inc.; and Acacia Properties, Inc. -- all based in Orange County, California -- and the eight individuals. The charges remain pending against the other corporate defendants, although the federal district court in Santa Ana, California, previously issued a preliminary injunction halting the allegedly deceptive practices, appointed a permanent receiver over the corporate defendants, and froze the assets of the defendants.

In its complaint detailing the charges, the FTC alleged that the defendants, in the course of soliciting sales from small businesses, made numerous misrepresentations, including that they were the business's regular supplier of photocopier toner. The defendants allegedly would tell the business that there had been a price increase in the product or that an increase was about to occur, and would urge the business to place one last order at the "old" price. In fact, the FTC charged, the defendants had no affiliation with the business’s regular supplier or with its original equipment manufacturer. Additionally, the FTC charged, the defendants typically charged prices several times higher than prices the company normally paid for toner.

In addition, after one order was placed, the defendants allegedly told businesses that their order consisted of multiple shipments and that the business was obligated to accept and pay for the additional shipments, which was not true. The defendants also shipped unordered products to the businesses and invoiced them as though the businesses had ordered the products, the FTC alleged. Finally, the complaint alleged that the defendants quoted a price to business but failed to disclose that a substantial charge would be added to the invoices for freight and handling.

The settlements with defendants Dennis Connelly and Sam June permanently ban them from engaging in the telemarketing of office supplies. The other defendants would be prohibited from engaging in deceptive acts and practices similar to those alleged in the FTC complaint. Specifically, the settlements would prohibit those defendants from falsely representing that:

• they are representatives of, or are affiliated with, the consumer's regular supplier of office products or original equipment manufacturer;
• a price increase has occurred or is imminent;
• an order consists of multiple shipments; and
• consumers ordered merchandise shipped to them.

In addition, the settlements with the other individual defendants would require that Ryan, Graziano and Rem post a $200,000 performance bond, and Green, Dora and McCullough post a $25,000 performance bond, before engaging in the telemarketing of office supplies.

The settlements would also prohibit the defendants from shipping unordered office products and from failing to disclose substantial freight and handling charges. In addition, the settlements would prohibit the defendants from selling or transferring their customer lists so that these consumers will not be pursued by other telemarketers.

As to redress, the final judgments would make the defendants liable for redress in the following amounts:

• Connelly would be required to pay $450,000 ($350,000 within five days and an additional $100,000 within ninety days secured by residences in Laguna Niguel, California, and Bridgeport, Connecticut);
• June would be required to pay $15,000 within five days;
• Don Ryan would be required to pay $60,000 ($40,000 within five days and an additional $20,000 secured by a residence in Laguna Niguel, California within 180 days);
• Erick Graziano would be required to pay $52,300 within five days and an additional $28,700 secured by a residence in Ukiah, California;
• James Rem would be required to pay $28,000 within five days;
• Donna Green would be required to pay $5,000 within 60 days secured by a residence in Oceanside, California;
• Jeanine Dora would be required to pay $5,000 within five days;
• Colleen McCullough would be required to pay $12,500 within five days; and
• Intel Marketing would be required to pay $200,000 within five days.

The Commission vote to authorize staff to file the proposed settlements was 5-0. The settlements were filed in the U.S. District Court for the Central District of California, in Santa Ana, on August 1, 1996. The FTC's Los Angeles Regional Office handled the investigation with assistance from the Orange County District Attorney’s Office, the Newport Beach Police Department, the Mendocino County District Attorney, the Ukiah Police Department, Sonoma County District Attorney, the Santa Rosa Police Department, and the Better Business Bureau.

NOTE: These stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Final judgments have the force of law when signed by the judge.

Copies of the three stipulated final judgments will be available shortly from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov

(Civil Action No. 96-230 LHM (EEX))

(FTC File No. 962 3054)