The Pendleton Group Banned from Selling Office Supplies and Ordered to Pay Redress as Part of Settlement with FTC

The Pendleton Group, Inc., and its principal, James C. Caouette, have agreed to a settlement that permanently bans them from selling non-durable office supplies, and are required to pay $35,000 for consumer redress to settle Federal Trade Commission charges. According to the FTC, The Pendleton Group operated a typical toner-phoner scam. They called consumers pretending to be the consumers' regular toner supplier, claimed the price of toner had increased or was going to increase, and purportedly gave consumers a chance to buy toner at the "old price" if they acted quickly. In addition to the ban and redress, the settlement prohibits the defendants from violating the FTC Act and the Telemarketing Sales Rule (TSR), and from making material misrepresentations in connection with the sale of all goods and services.

The FTC filed its complaint against The Pendleton Group, doing business as Product Distribution Center, Superior Ink Products, and Lakeshore Industries, and Caouette in October 2001 as part of "Operation Ditch the Pitch," a federal-state law enforcement initiative designed to protect consumers from unscrupulous telemarketers and cold-call sellers. The defendants are incorporated in Nevada, and operated their scam from an office located in Huntington Beach, California. The complaint alleged that The Pendleton Group tricked businesses, schools, and organizations into ordering toner by pretending to be the consumers' regular supplier, and that consumers, believing that they were dealing with their regular toner supplier, agreed to buy the toner from the defendants to get the offered discount. When consumers received the toner, the invoice prices were two-to four-times higher than consumers normally paid their real toner supplier.

The stipulated permanent injunction to settle the charges bans the defendants from engaging, participating, or assisting others in the advertising, marketing, telemarketing, promoting, offering for sale, sale, or distribution of any nondurable office supplies. The settlement also prohibits the defendants from misrepresenting or assisting others in misrepresentng:

• that they are a person's regular supplier of a good or service;
• that the price of a good or service will or has increased;
• that they will charge a person the same price they normally pay for a good or service; and
• any fact material to a person's decision to purchase or accept any good or service.

The order also prohibits the defendants from violating the TSR by making false or misleading statements to induce consumers to pay for any good or service, and by failing to disclose their identity to consumers. The settlement requires the defendants to pay $35,000 in redress, but contains an avalanche clause that would require the defendants to pay $3.8 million if it is found that they misrepresented their financial status to the FTC. The order further prohibits the defendants from selling their customer lists.

Finally, the settlement contains various recordkeeping requirements to assist the FTC in monitoring the defendants' compliance.

The Commission vote to authorize staff to file the stipulated permanent injunction and final judgment order was 5-0. It was filed in the U.S. District Court for the Central District of California, Southern Division, and approved by the court on September 27, 2002.

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

Copies of the stipulated permanent injunction 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.

(FTC Matter No. X020010)
(Civil Action No. SACV 01-930 DOC (Anx))