FTC Obtains $800,000 Civil Penalty Against Telebrands Corporation for Alleged Violations of FTC Rule

A federal district court has granted the Federal Trade Commission's request to modify a 1996 consent decree that prohibits Telebrands Corporation and its president, Ajit Khubani, from violating the FTC's Mail or Telephone Order Rule. The modified order resolves FTC allegations that the defendants violated the rule and the 1996 order in numerous sales transactions after January 1, 1997, and routinely failed to comply with the recordkeeping provisions of the 1996 order.

The modified consent decree supersedes the 1996 order, enhances the recordkeeping requirements and requires the defendants to hire and pay the expenses of a monitor with expertise in mail or telephone order fulfillment. The monitor will audit defendants' records and procedures and report to the court and the FTC any violations of the rule and all steps that should be taken to bring the defendants' business practices into compliance. The modified consent decree also prohibits the defendants from violating the Mail Order Rule in the future and requires them to pay $800,000 in civil penalties. Telebrands and Khubani agreed to the modified order without admitting wrongdoing.

Telebrands Corporation, a mail/telephone order company based in Fairview, New Jersey, sells various products through print ads in general circulation newspapers and broadcast ads. This is the third time that Ajit Khubani has been charged with violating the Mail Order Rule and the second time that Telebrands Corporation has been charged. In 1990, Khubani and the company he was operating at that time, Direct Marketing of Virginia, Inc., also known as The Direct Connection, were charged with violating the Mail Order Rule and agreed to pay a $30,000 civil penalty. In 1996, the FTC reached a settlement with Khubani and Telebrands resolving charges that they violated the Mail Order Rule by failing to notify consumers about delays in shipping their orders, and by failing to cancel orders and make prompt refunds in instances where the company failed to ship the order on time or receive the consumer's consent to a delay. At that time, Telebrands and Khubani agreed to pay a $95,000 civil penalty.

The Mail or Telephone Order Merchandise Rule requires a company that takes orders for merchandise by mail, telephone or computer to ship ordered merchandise within the time stated in its advertising. If no time is stated, the company must send the merchandise within 30 days of receiving the properly completed order. If a company is unable to ship the order before the deadline, it must promptly send the consumer an option notice offering the choice of agreeing to a revised shipping date or canceling the order and receiving a prompt refund. When there will be a subsequent delay, the company must send a second option notice and, if the consumer does not respond, must cancel the order and issue a prompt refund. (The delay notice also must give the consumer a cost-free method of responding.)

The FTC's court pleading alleges that the defendants repeatedly violated the rule and the recordkeeping provisions of the 1996 order in the processing and selling of their products, such as the Static Duster, the Moving Train Watch, the Sky Glider (a glider type indoor exerciser), the Fuji Pillow, and Total Perfection (an electric depilatory device). The company advertised these products nationally on TV and in print ads in publications such as TV Guide, USA Today, Family Circle and newspapers such as the Chicago Tribune, St. Louis Post- Dispatch and the Denver Post. The FTC alleged that the defendants violated the Mail or Telephone Order by sending delay notices late, delaying shipment without getting the consumer's agreement to do so, or shipping merchandise after the revised shipment date and without the consumer's consent to further the delay.

The Commission staff was assisted in its investigation by the Western Virginia Better Business Bureau in Roanoke, Virginia.

The Commission vote to authorize the Department of Justice to file the modified consent decree on behalf of the FTC was 4-0. The modified consent decree was filed on September 1, 1999 in the U.S. District Court for the Western District of Virginia, Roanoke Division, and signed by Judge James C. Turk.

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

Copies of the court-filed consent and other documents pertaining to Telebrands are available from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 1-877-FTC-HELP (877-382-4357); TDD 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. Copies of news releases also are available on the FTC's web site at http://www.ftc.gov

(FTC Matter No. 982 3106)
(Civil Action No. 96-0827-R)