FTC Charges Canadian Defendants in Business Directory Scam

The Federal Trade Commission has charged a group of Canadian defendants with scamming small businesses and charities in the United States out of millions of dollars by billing them for business directory services they did not order or authorize, in violation of federal law. The FTC charges that the defendants refuse consumers’ requests to cancel the services, and use an in-house collection service to harass consumers whose accounts allegedly are past-due.

According to the FTC’s complaint, defendants Pinacle Publishing and M.D.S.C. Publishing have made telemarketing calls to small businesses, charities, and other organizations across the U.S. since at least 2000. The defendants allegedly claim that they are calling to verify consumers’ names, addresses, and telephone numbers for listing in their business directory. Consumers are allegedly led to believe that they are already listed in this directory and that the defendants are updating information in connection with a renewal of the listing. The FTC alleges that the defendants record consumers verifying their information, and later use the recordings to prevent them from canceling unauthorized orders. Consumers often are not told that there is a fee associated with being listed in the business directory.

The FTC’s complaint states that, after speaking with consumers, the defendants mail invoices, typically billing consumers $389.99 for a “2 YEAR SILVER STAR LISTING at ‘www.allpinacle.com,’” $279.99 for a two-year listing in M.D.S.C.’s “American Business Directory,” or $336.99 for the “M.D.S.C. AMERICAN CORPORATE & COMMUNICATIONS C-D DIRECTORY.” The invoices allegedly claim that the consumer with whom the defendants spoke authorized the order. The FTC charges that the defendants mailed invoices even to those consumers who expressly said they were not interested in the directory.

According to the FTC, upon receiving the invoices, many consumers realize that no one from their organization ordered a directory listing. When they call to cancel the order, they allegedly are told that the defendants have a tape recording of the order being placed. The defendants allegedly claim that the recording is a “binding oral contract,” and they therefore refuse to allow consumers to cancel orders. In numerous instances, consumers refuse to pay the invoices and are then referred to defendants’ in-house collections department, which allegedly harasses them with phone calls and repeated dunning notices and threatens to initiate legal action and damage consumers’ credit ratings. In some cases, the in-house collections department employees allegedly masquerade as lawyers retained by the defendants to force consumers to pay their invoices. The FTC contends that many consumers ultimately pay the invoices because they believe it is the only way to stop the harassment.

The FTC alleges that the defendants also try to convince consumers to pay the invoices by pledging that they will not contact the consumers again after the invoices are paid. Once the invoices have been paid in reliance on such a pledge, however, the defendants allegedly proceed to send the consumer additional invoices and to attempt to collect on those new invoices.

The FTC’s complaint, which names 4049705 Canada Inc. (d/b/a Pinacle); 3782484 Canada Inc. (d/b/a M.D.S.C. Publishing); and Terrence Croteau as defendants, states that the defendants violated the FTC Act by misrepresenting that they have a preexisting business relationship with consumers; that consumers have agreed to purchase a business directory or directory listing; that they have retained lawyers to collect on consumers’ accounts; and that they will not contact consumers again if the consumers will make full or partial payments. The FTC has asked the court to issue a temporary restraining order that bars the defendants’ illegal business practices and freezes the defendants’ assets.

The FTC received significant assistance in this case from the Niagara Regional Police Service, Ontario, Canada, and the Toronto Strategic Partnership, a cross-border fraud law enforcement partnership which, in addition to the FTC, includes the Ontario Provincial Police, Anti-Rackets Section; the Toronto Police Service Fraud Squad; the Ontario Ministry of Consumer and Business Services; Canada’s Competition Bureau; the York Regional Police Service Fraud Squad; the United States Postal Inspection Service; and the Ohio Attorney General’s Office.

The Commission vote to authorize staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division,
on July 19, 2004.

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. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the Commission’s complaint 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 in English or Spanish (bilingual counselors are available to take complaints), 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. 042-3110)
(Civ. No. 04C 4694)