Deceptive Toner-phoner Defendants to Pay $2 Million in Consumer Redress to Settle FTC Charges;

Modern Concept Marketing, Inc., its president, Joseph Moadeb, and its vice president, Sam Jenkala, have agreed to pay $2 million for consumer redress to settle federal charges that they operated a fraudulent toner-phoner business. According to the Federal Trade Commission, this is one of the largest redress settlements that it has obtained in a toner-phoner fraud case. In addition to paying consumer redress, the proposed settlement also requires the defendants to post a $1 million performance bond before marketing any nondurable office supplies in the future. The complaint alleged that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR). Modern is located in Reseda, California, and is known to its customers as Central Data Supply or Supreme Business Products. The settlement announced today resolves the case.

The FTC filed its case against Modern in December 1999, as part of "Operation Misprint"-- a multi-agency effort to crack down on bogus office and maintenance supply telemarketing schemes that targeted large and small businesses, as well as schools, government agencies, and nonprofit institutions all over the U.S.

In its complaint, the FTC alleged that the defendants' telephone sales presentations included promises that Modern's laser toner cartridges would have a much longer life than the products that the consumers were currently using and that the consumers would save money by using their products. The defendants' telemarketers routinely represented that their laser cartridges were "new" Hewlett Packard or IBM/Lexmark products. In fact, according to the complaint, the defendants principally sold "remanufactured" (that is, used and refilled) laser cartridges that did not provide longer life. The defendants also charged substantially higher prices for their cartridges than similar or better office supplies from regular suppliers and added substantial, undisclosed shipping and handling charges, sometimes hundreds of dollars.

Finally, the complaint charged the defendants with billing consumers for products supposedly sent on a "trial" basis and shipping consumers more products than they had ordered.

The proposed settlement would prohibit the defendants from engaging in violations of the FTC Act and the TSR. The defendants also would be prohibited from using taped verification calls in response to consumer disputes, unless the defendants have also taped the actual sales presentations and made the tapes available to consumers; engaging in collection activity, other than routine invoicing, on any transactions that occurred before the court issued the temporary restraining order; and selling their customer lists. The settlement also would require the defendants to provide an affirmative disclosure that their laser toner cartridges are remanufactured or recycled, unless the cartridges sold to consumers are actually new.

The settlement would require the defendants to pay $2 million in consumer redress, with the first payment due within five days of entry of the order and the second payment due 180 days thereafter. In addition, the defendants are required to post a $1 million performance bond before engaging in the marketing of toner cartridges or other nondurable office supplies. Finally, the settlement contains various recordkeeping and reporting requirements to assist the FTC in monitoring the defendants' compliance.

The Commission vote authorizing staff to file the stipulated final judgment and order was 5-0. It was filed in the U.S. District Court, Central District of California, Western Division, on May 2, 2001, and requires the court's approval. The FTC's Northwest Regional Office in Seattle handled the investigation.

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

Copies of the Stipulated Order are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the online complaint form. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Robert Schroeder or Randy Brook
Northwest Region - Seattle
206-220-4477 or 206-220-4487

(FTC Matter No. X000011)
(Civil Action No.: CV-99-13003-HLH (Mcx))