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A federal district court in Las Vegas has ordered an immediate halt to a telemarketing “recovery room” operation after hearing evidence from the Federal Trade Commission that the defendants misrepresented to consumers that it will recover all or a substantial portion of the money lost in previous telemarketing scams. The FTC further alleged that Fraud Action Network, Inc. (FANS) of Las Vegas, Nevada, and two individuals, violated the recently enacted Telemarketing Sales Rule by collecting “up- front” recovery fees -- as much as 10 to 20 percent of the amount consumers previously lost. The FTC has asked the court to ultimately order a permanent halt to the alleged scheme, and to freeze the defendants’ assets to preserve funds for consumer redress.

“This is the first case brought by the FTC against a recovery room under its new Telemarketing Sales Rule and it targets a particularly egregious type of fraud,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “The rule provision specifically prohibits telemarketers from collecting fees from consumers for recovery room services before seven days after the services are delivered. Recovery rooms generally provide false hope to victims who, ultimately, are victimized again. With the rule and this case, the FTC makes clear that it will vigorously pursue the perpetrators of these types of schemes.”

The FTC’s complaint, which details the specific charges in this case, states that FANS, its president, Michael Starrion, and office manager, Rena Warden, telemarketed recovery room services to consumers throughout the United States. The defendants told consumers that they had obtained their names from a list of victims of previous telemarketing fraud, and that FANS had recovered substantial amounts of money for its former customers, according to the complaint. The defendants then told consumers that for a fee of 10 to 20 percent of the consumer’s previous losses -- or a minimum fee of $400 -- FANS would recover their losses within six weeks to three months.

Consumers who agreed to purchase the recovery room services from FANS paid either by credit card or personal check.

The FTC’s complaint specifically alleges that the defendants falsely represented that:

  • they would recover all or a substantial portion of the money that consumers lost in previous telemarketing schemes;
  • former customers have recovered all or a substantial portion of the money they lost in previous telemarketing schemes; and
  • the defendants will recover those losses within six weeks to three months.

In addition, the FTC alleged that the defendants violated the Telemarketing Sales Rule by requesting or receiving payment for recovery services before delivery.

The court ordered an immediate asset freeze to preserve funds for consumer redress, and the FTC has asked the court ultimately to order a permanent injunction against the defendants to prohibit them from engaging in similar schemes.

The FTC filed its complaint, under seal, in the U.S. District Court for the District of Nevada, in Las Vegas on March 6. The seal was lifted March 8. The Commission vote to authorize staff to file the complaint was 5-0.

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 actually has violated the law. The case will be decided by the court.

Copies of the complaint in this case, and an FTC brochure titled “Telemarketing Recovery Room Scams,” that advises consumers on how to protect themselves from such schemes, are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(Civil Action No. CV-S-96-191-LDG (RLH))

(FTC File No 952 3451)

(FANS-1)

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