Defendants in FTC's "Project Jackpot" Enforcement Sweep Targeting Phony Prize Promotions Agree To Settle Charges

Multinet Marketing, LLC, related companies and their principals, have agreed to settle charges brought by the Federal Trade Commission and the Attorneys General of Vermont, Texas and Wisconsin in July 1996 as part of "Project Jackpot," a major federal/state enforcement effort targeting firms that fraudulently offered purportedly valuable prizes to consumers to induce them to purchase products such as a vacation or a diamond and sapphire bracelet. As part of the settlement, defendants Clarence J. Servaes and his son, Jack Michael Servaes would be required to pay more than $50,000 in consumer redress and post a performance bond in the amount of $500,000 before engaging in any telemarketing activities in the future. The states of Vermont, Wisconsin, and Texas joined as co-plaintiffs in this lawsuit.

According to the complaint detailing the allegations in this case, Huntsville, Texas-based Multinet Marketing, LLC, and related companies mailed out certificates telling consumers that they had won prizes. When consumers called, Multinet telemarketers requested their credit card number to charge between $300 and $600 to receive one or two "major" prizes listed on their certificate, other promotional items, and magazine subscriptions. According to the complaint, however, Multinet misrepresented the value of the prizes it awarded. For example, the complaint alleged that the "vacation" prize was a certificate that did not include airfare, and imposed so many additional undisclosed costs and conditions, that few, if any, consumers had used it. The FTC's complaint named as defendants, Clarence Jack Servaes, an officer of Multinet, Jack Michael Servaes, an officer of Multinet and a director of World Class Vacations, Inc., the defendant company providing the vacation certificates to Multinet.

Further, according to the FTC, defendant American Readers Service sponsored the Multinet prize promotion, provided customer service, and appeared on consumers' credit cards as the merchant in the transaction. The FTC charged ARS with assisting and facilitating Multinet under the Telemarketing Sales Rule. ARS settled the FTC's charges in Oct. 1996.

The proposed settlement of these charges would require the individual defendants to pay more than $50,000 in consumer redress, and would require them each to post a performance bond in the amount of $500,000 before engaging in any telemarketing activity in the future.

In addition to prohibiting all of the defendants from violating any provision of the Telemarketing Sales Rule, the settlement would prohibit them from misrepresenting:

• the value of any prize offered in a prize promotion;
• that consumers must purchase goods or services to participate in a prize promotion; and
• the nature, quality, or value of any goods or services offered in connection with a prize promotion.

Further, the settlement would prohibit the defendants from failing to disclose:

• any material cost, restriction, limitation or condition to receive, redeem or use a prize offered in a prize promotion; and
• the odds of being able to receive the prize being offered, that no purchase is necessary to win a prize or participate in a prize promotion, or the no purchase/no payment method of participating in the prize promotion.

The settlement also would require the defendants to comply with consumer protection statutes of Wisconsin, Texas, and Vermont.

In addition, the defendants would be prohibited from providing their customer lists to anyone unless instructed to do so by the court. Finally, the proposed settlement contains a number of recordkeeping and reporting requirements designed to assist the FTC to monitor compliance with the settlement.

"Project Jackpot," coordinated by the Federal Trade Commission, resulted in 56 enforcement actions against 79 defendants in 17 states. The FTC filed eight actions, the state Attorneys General filed 43 actions, and the U.S. Postal Service filed five actions.

The FTC filed the proposed settlement in the U. S. District Court for the Northern District of Texas, Dallas Division, on Oct. 28. The settlement is subject to approval by the judge. The Commission vote to file the proposed settlement was 4-0.

NOTE: This stipulated final judgment and order for permanent injunction is for settlement purposes only and does not constitute an admission by the defendants of a law violation. The judgment has the force of law when signed by the judge.

Copies of the settlement, as well as other documents associated with "Project Jackpot," 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 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.: 3-96CV1998-H)
(FTC Matter No. X960081)