FTC Files Suit Against Massive Telemarketing Fraud Operation

A federal district court has ordered a temporary halt to an Arizona-based telemarketing operation which, according to the Federal Trade Commission, has used deceptive and unfair practices to bilk consumers across the country out of millions of dollars. The FTC has alleged that two individual defendants, Harvey Sloniker and Tye Sloniker, telemarketed non-existent products and services through a maze of interrelated companies, which include the corporate defendants Corporate Marketing Solutions, Inc., Corporate Industries, Inc., ATM Machine Wrap, Inc., Bankcard Recovery Services, Inc., Direct Wireless+, Inc., National Consolidation Foundation, Inc., and Sierra Management Properties, Inc. At the Commission's request, the court froze the defendants' assets, and appointed a temporary receiver pending a hearing on the FTC's motion for a preliminary injunction. The FTC sought this relief to bring an immediate halt to the defendants' fraud and to prevent the destruction of evidence and dissipation of assets pending the preliminary injunction hearing.

The complaint, filed in the U.S. District Court for the District of Arizona, alleges that since at least 1998, the Slonikers and their various companies have been engaged in deceptive telemarketing on behalf of a string of third-party client companies. According to the FTC, the defendants operated numerous telemarketing boiler rooms known as "contract rooms" that employed large numbers of telemarketers trained to deceive consumers. From these contract rooms, the defendants sold non-existent credit cards and bogus identity theft and telemarketing fraud protection services to consumers for hefty advance fees, the FTC alleged.

The complaint alleges that the defendants violated the FTC Act and the Telemarketing Sales Rule by engaging in numerous misrepresentations in the sale of advance-fee credit cards and various consumer fraud protection services. The defendants often began their sales pitches by representing to consumers that they are affiliated with, or calling on behalf of, a bank or financial institution or, depending on the product or service, a consumer protection agency. They then represented that the consumer had been pre-approved for a major credit card, such as a VISA or Mastercard credit card, and was guaranteed or highly likely to receive such a card in exchange for an advance fee. In some instances, the defendants also represented that the consumer will receive additional bonus products or services in conjunction with obtaining a credit card. In fact, according to the complaint, the defendants are not affiliated with any banks, financial institutions or consumer protection agencies, and no consumers ever received the promised credit cards or the promised bonus products or services.

The complaint further alleges that the defendants represented to consumers that criminals are stealing from the Internet consumers' personal information, such as their social security numbers and credit card numbers. The defendants then allegedly told consumers that without the defendants' protection service, the consumers would be liable for any unauthorized charges on their credit card accounts. The defendants promised the consumers that, in exchange for a fee, they would remove the consumers' identity information from the Internet and remove the consumers' names from lists used by telemarketers and merchants. According to the FTC, neither of these alleged services was ever performed by the defendants, nor are they even possible to perform.

The complaint also alleges that the defendants routinely obtained consumers' personal financial information through false pretenses, and that this practice constitutes illegal "pretexting," which is a violation of Section 521 of the Gramm-Leach-Bliley Act. In addition, the complaint alleges that the defendants engaged in the unauthorized charging or debiting of consumers' credit card or bank accounts, in violation of the FTC Act.

The Commission vote to authorize staff to file the complaint in district court was 5-0. The complaint was filed under seal in the United States District Court for the Arizona District, Phoenix Division, on July 8, 2002, and the judge signed the Temporary Restraining Order with Asset Freeze on the same day. The seal was lifted on July 16, 2002.

NOTE: The FTC files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have violated the law. The case will be decided by the court.

For updates on the status of the Sloniker case, interested parties may call the hotline number at 202-326-3788.

Copies of the complaint 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 complaint form at http://www.ftc.gov. 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.