FTC Obtains Permanent Bar Against Rebate Scheme Defendants

The Federal Trade Commission today announced a court order against two New York-based individuals, Joel Granik and Joseph Lichter, settling allegations that they ran a company, Cyberrebate.com, now in bankruptcy, that unfairly took in millions of dollars by promising rebates to consumers that were never paid. According to the FTC’s complaint, the defendants sold products marked up to 10 times the retail value of the products, but failed to pay the “100 percent” rebate they promised to purchasers. In settling charges that their conduct was deceptive and unfair, the defendants have been permanently barred from offering certain types of rebates in connection with the sale of any product, are prohibited from making misrepresentations like those alleged in the complaint, and will pay $40,000 to the United States Treasury.

The stipulated final order announced today, which requires the court’s approval, settles the FTC’s charges against defendants Joel Granik and Joseph Lichter, individually, and as officers of Cyberrebate.com, Inc. Granik and Lichter operated the corporation out of Valley Stream, New York, on Long Island.

“Companies can’t use rebates to ‘bait’ consumers with the promise of cash back and then not live up to their end of the bargain,” said Lydia Parnes, Acting Director of the FTC’s Bureau of Consumer Protection. “Consumers who comply with the requirements of a rebate deserve prompt payment in full. By banning these two defendants from ever running a similar business, we’re protecting consumers – and reminding companies to honor their rebate promises.”

Cyberrebate’s Alleged Business Practices

The FTC contends that since at least 1998, and continuing until Cyberrebate filed for bankruptcy in May of 2001, the individual defendants sold consumers products on the Internet through their own Web site, cyberrebate.com. In early 2001, they changed their pricing policy from moderately marking up prices and promising rebates to pricing products at up to 10 times their retail value. To induce customers to purchase these high-priced products, in many cases, the defendants told consumers that the products would be “free” after they sent in and received a rebate for the purchase price. For example, the defendants sold a 13-inch RCA television, which retailed for several hundred dollars, for $1,099.99 and promised to provide consumers with a $1,099.99 rebate within 10 to 14 weeks after it was submitted.

The defendants allegedly continued using this tactic to induce customers to buy their products, even after it became apparent that purchasers’ rebate return rate was very high – exceeding their ability to live up to their promises of “free” merchandise. They then simply failed to pay the promised rebates – either within the time promised or at all – according to the Commission’s complaint.

The Commission’s Complaint

According to the Commission, in many instances, Granik and Lichter violated the FTC Act by falsely stating that consumers who bought their products would receive a cash rebate within 10 to 14 weeks. The FTC alleges that many consumers who submitted fully completed rebate claim forms did not get a rebate in the time promised, and thousands of consumers did not receive the promised rebates at all. In addition, the complaint states that in many cases, after the defendants received properly completed rebate forms, they either extended the time period for delivery without providing consumers the opportunity to agree to the delay, or rejected payment by modifying the terms and conditions of the rebate offer in an unfair manner.

Terms of the Consent Decree

Under the terms of the consent decree, which requires court approval, Granik and Lichter are permanently barred from offering certain types of rebates. The ban applies to any business owned or controlled by the defendants that provides rebates to consumers. In addition, the decree prohibits the defendants from other conduct including: 1) misrepresenting the terms or conditions of any rebate offer, including, but not limited to, the time in which any cash or credit rebate will be mailed or otherwise provided to consumers; 2) failing to provide any rebate within the time specified when the consumer makes a purchase, or if no time is specified, within 30 days; 3) violating the FTC’s Mail Order Rule in connection with any rebate provided in the form of merchandise; 4) failing to provide any rebate in the form of services or any other consideration (other than cash, credit, or merchandise) within the time specified; and 5) misrepresenting any material terms of any rebate program, including the status of, or reasons for, the delay in providing the rebate to consumers.

Finally, the order requires Granik and Lichter to pay $40,000 to the United States Treasury and also contains a right to reopen provision should the Commission find that the defendants have misrepresented their financial condition.

The Commission vote authorizing the staff to file the complaint and consent in settlement of the court action was 5-0. The complaint and consent decree were filed in the U.S. District Court for the Eastern District of New York on August 20, 2004, before Judge J. Hurley.

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

Copies of the documents mentioned in this release 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, DC 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, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide

(FTC File No. 012-3143; Civ. No. CV-04-3616)