Court Order, Default Judgment Close FTCs Case Against Alleged Do Not Call Fraudsters

Concluding a case against several defendants who deceptively claimed they could register consumers on the Federal Communications Commission’s (FCC) Do Not Call (DNC) Registry to prevent telemarketing calls – before the Registry even existed – the Federal Trade Commission today announced a stipulated final court order and separate default judgment against the remaining two defendants in the case.

The FTC’s original complaint charged defendants Telephone Protection Agency (TPA) and Alex McKaughn, Robert Thompson, and Rebecca Phillips with violating both the FTC Act and the Telemarketing Sales Rule (TSR) through their allegedly deceptive conduct. The court order announced today bans McKaughn from all telemarketing activities and prohibits him from making misrepresentations similar to those alleged in the complaint. The default judgment against Thompson – TPA’s vice president – bans him from telemarketing and contains terms prohibiting marketing misrepresentations. The default judgment also includes a monetary judgment of more than $672,000, the amount of consumer harm the defendants allegedly caused. The FTC’s claims against TPA and Phillips were settled previously.

The Commission’s Complaint

According to the FTC’s complaint, the defendants cold-called consumers offering to list them on the FCC do not call list. At the time the calls were made, however, the FCC did not have a do not call list in place, and the defendants had no way of listing consumers, who were charged as much as $99.95 for their first year of “service.”

Starting in November 2001, the defendants cold-called consumers and promoted a service that supposedly would stop unwanted telemarketing calls and protect the consumer’s personal financial information. In many instances, the defendants billed consumers’ credit cards or debited their bank accounts even though the consumers never agreed to buy the service.

In addition, some consumers received a package of written materials from the defendants containing a number of misrepresentations. For example, the defendants represented that they would register customers with “the FCC’s National NO CALL List” and “provide a monthly list to companies nationwide” of their customers’ “demand for privacy.” Both claims were false, the FTC alleged, as the FCC did not have a do not call list in place at the time, and the defendants did not provide a monthly list to companies nationwide to protect consumers’ privacy.

Based on their alleged unauthorized billing and misrepresentations to consumers, the complaint charged the defendants with violating the FTC Act and the TSR.

The Stipulated Order and Default Judgment

The stipulated final order announced today bans defendant McKaughn from all telemarketing activities. It further prohibits him from misrepresenting the nature of any telemarketing reduction or privacy protection services he may offer in the future through any means besides telemarketing, and prohibits him from billing consumers without first getting their express written authorization to do so after providing clear and conspicuous cost disclosures. While the order does not contain a monetary penalty, based on McKaughn’s inability to pay, it provides the FTC the right to reopen the matter if he is found to have misrepresented his financial condition. In such a case, he would be liable for $672,717.85 in consumer harm alleged in this matter.

The default judgment against defendant Thompson also contains a permanent ban on telemarketing or helping anyone else engaged in telemarketing activities. It prohibits Thompson from making the misrepresentations alleged in the complaint, including the following: 1) that consumers will receive fewer telemarketing calls, or none at all, as a result of the defendant’s products or services; 2) that he can register consumers with, or enroll them in any federal, state, or local registry to prevent them from receiving calls from telemarketers, including the FTC’s National Do Not Call Registry; 3) that he will protect or enhance a consumer’s privacy or the confidentiality of his or her personal financial information by any means; 4) that he will reduce, prevent, or halt unsolicited marketing offers from reaching consumers, including telemarketing calls, spam, and regular mail; and 5) that consumers will receive any type of device that will allow them to reduce or eliminate unwanted telemarketing calls. Finally, the judgment contains provisions to ensure Thompson does not bill consumers without their authorization, and requires him to pay $672,717.85.

The Commission vote authorizing the staff to file the stipulated final order and judgment against defendant McKaughn was 4-0. The order was filed in the U.S. District Court for the Western District of North Carolina on August 2, 2005 and has been signed by the judge. The default judgment against defendant Thompson was filed in the U.S. District Court of the Western District of North Carolina on August 19, 2005 and also has been approved by the court.

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

Copies of the stipulated final order and default judgment 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, 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. X040045, Civ. No. 5:04cv49)