FTC Files Federal Court Actions Against Two Office Supply Schemes That Targeted Nonprofits and Small Businesses

The Federal Trade Commission has charged two separate office supply operations with targeting non-profit organizations and small businesses, such as child care centers, educational institutions, churches, and hospitals, and tricking them into paying for overpriced office and cleaning supplies they never ordered.

At the FTC’s request, federal courts in California and Maryland have temporarily halted and frozen the assets of the two operations. The agency seeks to permanently stop the illegal practices and obtain refunds for the defendants' victims.

“The defendants lied to small businesses, charities and churches to get them to pay for overpriced supplies they didn’t order,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “That’s not only shameful, it’s also illegal.”

In the California case, Telestar Consulting Inc., also doing business as Kleritec and United Business Supply, and Karl Wesley Angel, allegedly used a variety of tactics to persuade consumers to pay for unordered merchandise. For example, the FTC alleges that the defendants called the consumers to offer supposed deals on, or free samples of, items like art supplies and cleaning products. They also asked consumers to accept an additional shipment by falsely calling it a “backorder” that was supposedly part of an order the consumer had already paid for, and then billed them for the so-called “backorder.” In other instances, the defendants claimed consumers had agreed to multiple shipments, when at most they had agreed to only one shipment. In addition, in instances in which consumers agreed to make a purchase, the defendants allegedly failed to disclose the total cost and quantity of goods, and the terms of the sale.

According to the FTC’s complaint, on numerous occasions, the defendants threatened to send consumers to “collections” when they challenged the defendants’ right to bill them or did not pay promptly. Consumers who paid under a mistaken belief that they had to do so – some paid thousands of dollars more than what they were legally obligated to pay – often received more unordered merchandise and bills for payment.

The defendants in the Maryland case are American Industrial Enterprises LLC, Easton Chemical Supply Inc., Lighting X-Change Company LLC, LMS Lighting & Maintenance Solutions LLC, Werner International Enterprises Inc., Benjamin Cox, Vincent Stapleton and John Tharrington. The complaint also names a relief defendant, TBC Companies Inc., that profited from the scheme. According to the FTC’s complaint, Lighting X-Change telemarketers falsely indicated that they had done business with the consumers earlier and that they were offering a free sample or catalog, without properly disclosing that they were making a sales call. The person who processed the invoices was often not the same person who received the shipments and did not know the merchandise had not been ordered. Those who paid became targets for future shipments of unordered merchandise and invoices seeking payment.

In both cases, the defendants are charged with violating the FTC Act, the Telemarketing Sales Rule, and the Unordered Merchandise Statute by shipping and billing for unordered merchandise.

The Commission vote authorizing the staff to file the complaints was 4-0. The U.S. District Court for the Central District of California entered a temporary restraining order against the Telestar defendants on February 1, 2016, followed by an amended temporary restraining order against the Telestar defendants on February 2, 2016. The U.S. District Court for the District of Maryland, Northern Division, entered a temporary restraining order against the Lighting X-Change defendants on February 2, 2016.

To learn more, read the FTC’s Small Business Scams.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. These cases will be decided by the courts.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). Like the FTC on Facebook, follow us on Twitter, read our blogs and subscribe to press releases for the latest FTC news and resources.