FTC Settlement in Paging License Application case to Net Nearly $200,000 in Consumer Redress

The Federal Trade Commission announced today that Bell Connections, Inc. and four individuals, defendants in a case the FTC filed in federal district court in Los Angeles last January as part of “Project Roadblock,” have signed a settlement that would result in a redress fund totaling nearly $200,000 for consumers victimized by their Federal Communications Commission (FCC) paging license application scheme. The settlement also would require each of the individual defendants -- Jimmie Justus, Michael Berman, Donald Lee Dayer and Erwin Allen Strauss -- to post a $275,000 bond before selling similar or related services or any investment. In addition, the settlement contains broad prohibitions on false claims in connection with sales of investments and telemarketed products or services, including a ban on false claims about the income, profit, risk and other specified aspects of investing in FCC licenses.

Project Roadblock was a coordinated effort by the FTC and states securities regulators targeting fraudulent high-tech investment schemes, many of which involved the sale of services related to FCC licenses for paging and 900 number systems. The crackdown involved 85 actions against high-pressure telemarketing operations pitching investments in these and other emerging telecommunications systems. An FTC alert, titled “Telecommunication Scams Using FCC Licenses," cautions consumers to hang up the phone if a telemarketer calls touting the profits and minimizing the risks of investing in communications systems and licenses, noting that FCC licenses are mere permission to use the airwaves to provide communications services. "A license holder must develop a communications system to make the license valuable and comply with FCC rules," the FTC alert states. "Fraudulent telemarketers often take most of the money they solicit from consumers as profit and commissions."

In the Bell Connections case, the FTC charged the defendants with misrepresenting the value and investment potential of FCC paging licenses to induce consumers to pay between $1,580 and $2,900 in “license application preparation fees.” Among other things, the FTC alleged that the defendants misrepresented that the FCC restricts entities and individuals from obtaining multiple paging licenses for use in a given geographic area and, as a result, that the purchase of paging licenses was an excellent investment likely to generate substantial profits.

Upon filing of the initial FTC complaint (which later was amended to add two of the individual defendants), the federal district court in Los Angeles issued a temporary restraining order barring the challenged sales practices and freezing the defendants’ assets. The asset freeze and conduct restrictions were extended in a preliminary injunction entered by the court on Feb. 12, 1996.

The settlement announced today, if approved by the court, would end the litigation. Specifically, the final order would bar the defendants, in connection with promoting any application preparation services for FCC licenses, any investment, or any telemarketed product or service, from falsely representing the risk, value, expected income of profit, or any other material fact. It also includes specific prohibitions against false claims:

• regarding the income or profit from leasing, selling or otherwise transferring an FCC license;
• about the income or profit a consumer can earn from an FCC license without constructing a system for the licenses;
• about the number of FCC licenses that one may acquire directly from the FCC for use in a given area;
• that the purchase of application preparation services for FCC licenses, or an investment in a tecommunications business, is an excellent or low-risk investment likely to generate substantial profits;
• about the FCC’s fees or requirements for acquiring or utilizing FCC licenses or the amount of a customer’s payment that will be used for application and engineering fees;
• regarding the amount of a consumer’s investment that will be used to pay for building and operating a telecommunications business, the likelihood that a consumer won’t need to contribute additional money to pay for construction and operation, or the extent of efforts made to build and operate a communications system; and
• about the likelihood that others will lease or buy FCC-issued licenses or the extent of efforts made to acquire, lease, buy or utilize FCC licenses.

In addition, the order would require the defendants to make a number of disclosures regarding FCC regulations for any licenses they promote, including restrictions on the transfer of licenses and the time by which the licenses must be constructed or used to provide telecommuni cations services.

The $275,000 bond requirement would apply to the four individual defendants each time they engage in a covered activity, and for five years thereafter, for the protection of their customers.

The consumer redress fund will be established through collection of as much as possible on a $1 million judgment against Bell Connections, and from the turning over and/or liquidation of frozen assets from the individual defendants. If possible, the funds will be redistributed to consumers victimized by the defendants’ scheme; otherwise, the funds will be deposited in the U.S. Treasury.

Finally, the order contains various reporting and record keeping provisions that would assist the FTC in monitoring the defendants’ compliance. The Commission vote to accept the settlement for filing in court was 5-0. It was filed in U.S. District Court for the Central District of California, in Los Angeles, on Dec. 10.

NOTE: This consent order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent orders have the force of law when signed by the judge.

Copies of the consent order and other documents associated with Project Roadblock are available 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 news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases, related documents and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC File No. X960030)
(Civil Action No. 96-455 KMW (SHx))