Operators of Massive Telemarketing Fraud Operation Settle FTC Charges

Harvey and Tye Sloniker, two brothers who allegedly used deceptive and unfair practices to bilk consumers across the country out of millions of dollars, are permanently banned from telemarketing as part of a settlement with the Federal Trade Commission. According to the FTC, the Slonikers, operating out of Arizona, employed large numbers of telemarketers trained to deceive consumers. From their "contract rooms," the defendants allegedly telemarketed nonexistent advance-fee, low-interest credit cards, and bogus identity theft and telemarketing fraud protection services, often on behalf of third-party client companies. In addition to the lifetime ban from telemarketing, the settlement requires the Slonikers to pay a $525,000 judgment.

In a complaint filed in July 2002, the FTC alleged that the Slonikers telemarketed their fraudulent products and services through a maze of interrelated companies, which included 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. The complaint alleged that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) by engaging in numerous misrepresentations. The complaint also alleged that the defendants engaged in illegal "pretexting" - obtaining consumers' personal financial information through false pretenses - in violation of Section 521 of the Gramm-Leach-Bliley Act. The complaint further alleged that, upon obtaining the consumers' personal financial information, the defendants charged consumers' credit cards or electronically debited fees from consumers' bank accounts without having obtained the consumers' authorization to do so, in violation of Section 5 of the FTC Act.

The final order, entered by the Court on February 3, 2003, contains a comprehensive lifetime telemarketing ban on Harvey and Tye Sloniker. The ban also prohibits them from assisting and facilitating in telemarketing. In addition, the final order prohibits the Slonikers from misrepresenting:

• they are affiliated with a bank, financial institution, VISA, MasterCard, or a consumer protection agency;
• consumers will receive the promised products or services; and
• any information material to a consumer's decision to purchase goods or services promised.

The settlement further prohibits the defendants from misrepresenting that they already possess and are merely verifying a consumer's credit card numbers, or that they require a consumer to provide evidence of a valid personal bank account to establish the consumer's eligibility for a credit card. Further, the settlement prohibits the defendants from debiting money from a consumer's bank account, or causing a consumer's bank account to be debited, without the consumer's written authorization.

The settlement contains other fencing-in devices to prevent similar deceptive marketing practices should the defendants sell other types of goods or services that are outside the scope of the order's telemarketing ban. It also requires the defendants to pay a $525,000 judgment, which contains an avalanche clause that would require the defendants to pay the full $20 million judgment immediately if it is found that they made any false statements in their financial documents.

Finally, the settlement contains various recordkeeping provisions to assist the FTC in monitoring the Slonikers' compliance.

The Commission vote to authorize staff to file the stipulated final judgment and order for permanent injunction was 5-0. It was filed in the U.S. District Court, District of Arizona, Phoenix Division, on February 6, 2003.

NOTE: This stipulated final judgment and order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Stipulated final judgments have the force of law when signed by the judge.

Copies of the stipulated final judgment and 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 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 File No. 022-3001
(Civil Action No. CIV '02 1256 PHX RCB)