FTC Settlement Bans Telemarketers from Selling Healthcare-Related Products

Telemarketers who allegedly tricked consumers into buying purported health insurance are permanently banned from selling healthcare-related products under a settlement with the Federal Trade Commission.  The case is part of the FTC’s ongoing efforts to crack down on fraudsters who prey on vulnerable consumers seeking health insurance, including the uninsured, the unemployed, and those with pre-existing medical conditions.

In September 2012, the FTC charged Roy D. Hamilton and his wife, Judy M. Hamilton, and their companies, Health Service Providers, Inc., Magnolia Health Management Corporation, Magnolia Technologies Corporation, and Fav Marketing Inc. (HSP defendants), with fraudulently selling bogus health insurance for the Independent Association of Businesses (IAB).  The HSP defendants allegedly called consumers who had submitted their contact information to websites that claimed to offer quotes for traditional health insurance or equivalent coverage.  According to the FTC, after paying an initial fee ranging from $50 to several hundred dollars and a monthly fee ranging from $40 to $1,000, consumers eventually learned they had not purchased comprehensive health insurance, but were deceived into buying an IAB membership that supposedly provided discounts on services such as golf, travel, and some limited health related services and insured benefits.

In addition to the ban against selling healthcare-related products, the settlement order prohibits the HSP defendants from misrepresenting material facts about any goods or services, selling or otherwise benefiting from consumers’ personal information, and from violating the FTC’s Telemarketing Sales Rule, including calling consumers on the Do Not Call Registry.  The order also imposes an $11.8 million judgment that has been suspended following the HSP defendants’ surrender of assets to the FTC.

Litigation continues against the remaining defendants behind the allegedly fraudulent health insurance scheme:  IAB Marketing Associates LP, Independent Association of Businesses, HealthCorp International Inc., JW Marketing Designs LLC, International Marketing Agencies, LP, International Marketing Management LLC, Wood LLC, James C. Wood, James J. Wood, Michael J. Wood, and Gary D. Wood.  The FTC has also sought to amend its complaint against the remaining defendants in the case, adding two individuals as relief defendants who allegedly benefitted from the scheme but did not participate in it.

The Commission vote approving the consent order and authorizing the staff to file the amended complaint was 4-0-1, with Chairman Leibowitz not participating.  The FTC filed its motion to amend the complaint on February 13, 2013, and the consent order was entered by the U.S. District Court for the Southern District of Florida on February 19, 2013.

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 consent order is for settlement purposes only and does not constitute an admission by the defendant that the law has been violated.  Consent orders have the force of law when approved and signed by the District Court judge.

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