Telemarketers Settle Charges of Misleading Consumers with Free Product Pitches

A group of sellers and telemarketers charged in 2008’s “Operation Tele-PHONEY” interagency law enforcement sweep have agreed to post a $5 million performance bond before calling consumers and have been barred from violating federal law, including the Federal Trade Commission’s Telemarketing Sales Rule (TSR).

The complaint, brought jointly by the Federal Trade Commission and the Commonwealth of Kentucky by Jack Conway, Attorney General of Kentucky, charged that the defendants’ bogus pitches for “free” products and services misled consumers. All but one of the defendants named in the complaint have now settled the charges.

According to the joint complaint, the defendants misled consumers into thinking they were calling from a major retailer or from the consumers’ credit card company, confused consumers with fast-talking sales pitches, and didn’t deliver the free goods and services they promised – instead, they charged consumers’ credit cards or debited their bank accounts, even when the consumers said they did not want the products being sold. The case was brought as part of “Operation Tele-PHONEY,” the largest telemarketing fraud law enforcement sweep ever conducted by the FTC.

The complaint alleged that the defendants called consumers with promises of free gift cards, gas cards, or resort vacations. The defendants then used a variety of means to trick consumers into saying the word “yes,” which the defendants then used as their purported authorization to bill the consumers. For example, in some cases, the defendants told consumers they had to confirm their acceptance of the free goods or services being offered.

In other instances, the defendants asked consumers to help them by listening to a “pretend” telemarketing pitch, answering “yes” when prompted, and then rating the defendants’ sales skills: these consumers were told that they could cancel later in the call, after the recording was completed. The complaint charged that the defendants’ telemarketers often read their pitch so rapidly that many consumers did not understand or realize they were agreeing to pay for products or services.

Consumers who did understand the telemarketers’ pitch allegedly were told that they would not be charged for any products, as they had not provided their billing information. However, the defendants often charged consumers’ credit cards or debited their bank accounts anyway. In addition, consumers who were charged for products did not receive the “free” goods or the services promised. The defendants’ telemarketers also allegedly often harassed consumers who refused to participate in the call.

The agreed-upon order announced today, which has been entered by the court, permanently bars the settling defendants from telemarketing or assisting others in telemarketing, unless they first obtain a $5 million performance bond. The bond will remain in effect as long as they are involved in telemarketing and for three years after they stop. The bond will act as an insurance agreement whose funds can be used to provide redress to any consumers harmed by the defendants’ telemarketing activities. The order also requires that the settling defendants comply with the FTC Act, federal telemarketing laws, and the Kentucky Consumer Protection Act.

The order also prohibits the settling defendants from misrepresenting: 1) that they are contacting consumers from, or on behalf of, or are affiliated with a major retailer or credit card company; 2) that they will provide consumers with free goods or services or help with unwanted credit card charges; and 3) that consumers’ credit card accounts will not be charged nor their bank accounts debited. In addition, the settling defendants are barred from misrepresenting any goods or services offered, charging any consumers’ credit card or debiting their bank account without their express agreement to be charged, and helping others to violate these provisions or any provision of the TSR.

Finally, the settling defendants are subject to a monetary judgment of $15,707,917.86, which has been suspended in part due to their inability to pay. The settling defendants have been ordered to turn over assets worth approximately $1.3 million, including proceeds that will be received from the sale of two aircraft. The remainder of the judgment will become due if the defendants are later found to have misrepresented their financial condition. The settling defendants also are prohibited from distributing their customer information.

The agreed-upon final judgment and order announced today settles the complaint against: 1) Direct Connection Consulting, Inc., doing business as (dba) Sure Touch Long Distance; 2) Digicom, LLC, dba DigiTouch Long Distance; and 3) Elliott Borenstein, individually and as an owner, officer, or manager of Direct Connection Consulting, Inc., and Digicom, LLC. Litigation continues against JoAnn R. (Jody) Winter, individually and as an owner, officer, or manager of Direct Connection Consulting, Inc., and Digicom, LLC.

The Commission vote approving the consent order settling the court action against all defendants except Winter was 4-0. The action was filed in the U.S. District Court for the Northern District of Georgia and the court entered the final order on March 23, 2009.

NOTE: Stipulated final judgments and orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Stipulated orders have the force of law when signed by the judge.

Copies of the documents related to this matter are available from the FTC's web site at http://www.ftc.gov and the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. X080039; Civ. No. 1:08-cv-1739-TCB)
(Suretouch.final.wpd)