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FTC Requires Community Health Systems, Inc. to Divest Two Hospitals as a Condition of Acquiring Rival Hospital Operator

The Federal Trade Commission will require one of the nation’s largest hospital operators, Community Health Systems, Inc. (CHS) to divest hospitals and related assets, including outpatient facilities, in Alabama and South Carolina as a condition of its proposed $7.6 billion acquisition of rival health system Health Management Associates, Inc. (HMA).

Under a proposed settlement with the FTC, CHS will sell the Riverview Regional Medical Center and all of its associated operations and businesses near Gadsden, Alabama, and the Carolina Pines Regional Medical Center and of its associated operations and businesses near Hartsville, South Carolina, to Commission-approved buyers within six months after the order is issued.

The divestitures resolve Commission charges that the combination would likely substantially lessen competition for general acute care (GAC) inpatient services sold to commercial health plans and provided to commercially insured patients in two local markets: 1) Etowah County, including the city of Gadsden, Alabama; and 2) Darlington County, South Carolina. Absent relief, CHS’s acquisition of HMA would eliminate valuable price and quality competition that has benefitted local patients in these two markets.

In the Gadsden, Alabama area, the transaction would have combined HMA’s Riverview Regional Medical Center with CHS’s Gadsden Regional Medical Center, the only other significant hospital in the Gadsden area, leading to a near-monopoly in GAC services provided to commercially insured patients. In the Darlington County area, the deal would have combined CHS’s Carolinas Hospital-Florence and HMA’s Carolina Pines Regional Medical Center, reducing the number of significant competing providers of GAC services to commercially insured patients from three to two.

Headquartered in Franklin, Tennessee, CHS is a for-profit health system that owns 135 hospitals in 29 states. CHS is the second-largest hospital chain in the United States, and generated about $13 billion in revenue in 2012. HMA is a for-profit health system headquartered in Naples, Florida, that owns 71 hospitals in 15 states. In 2012, HMA generated $5.9 billion in revenue.

The settlement also requires the companies to hold separate the assets to be divested and to maintain their economic viability, marketability, and competitiveness until the sales are complete. CHS also is required to provide the Commission prior notice of any acquisition of a GAC inpatient services provider in these areas for 10 years.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 4-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through February 21, 2014, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.

Comments also can be submitted electronically by following the instructions on the web-based form. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative 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. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20001. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC Settles with Twelve Companies Falsely Claiming to Comply with International Safe Harbor Privacy Framework

Twelve U.S. businesses have agreed to settle Federal Trade Commission charges that they falsely claimed they were abiding by an international privacy framework known as the U.S.-EU Safe Harbor that enables U.S. companies to transfer consumer data from the European Union to the United States in compliance with EU law.

The companies settling with the FTC represent a cross-section of industries, including retail, professional sports, laboratory science, data broker, debt collection, and information security. The companies handle a variety of consumer information, including in some instances sensitive data about health and employment. The twelve companies are:

Apperian, Inc.: Company specializing in mobile applications for business enterprises and security;
Atlanta Falcons Football Club, LLC: National Football League team;
Baker Tilly Virchow Krause, LLP: Accounting firm;
BitTorrent, Inc.: Provider of peer-to-peer (P2P) file sharing protocol;
Charles River Laboratories International, Inc.: Global developer of early-stage drug discovery processes;
DataMotion, Inc.: Provider of platform for encrypted email and secure file transport;
DDC Laboratories, Inc.: DNA testing lab and the world’s largest paternity testing company;
Level 3 Communications, LLC: One of the six largest ISPs in the world;
PDB Sports, Ltd., d/b/a Denver Broncos Football Club: National Football League team;
Reynolds Consumer Products Inc.: Maker of foil and other consumer products;
Receivable Management Services Corporation: Global provider of accounts receivable, third-party recovery, bankruptcy and other services; and
Tennessee Football, Inc.: National Football League team.

“Enforcement of the U.S.-EU Safe Harbor Framework is a Commission priority. These twelve cases help ensure the integrity of the Safe Harbor Framework and send the signal to companies that they cannot falsely claim participation in the program,” said FTC Chairwoman Edith Ramirez.

According to the twelve complaints filed by the FTC, the companies deceptively claimed they held current certifications under the U.S.-EU Safe Harbor framework and, in three of the complaints, also deceptively claimed certifications under the U.S.-Swiss Safe Harbor framework. The U.S.-EU and U.S.-Swiss Safe Harbor frameworks are voluntary programs administered by the U.S. Department of Commerce in consultation with the European Commission and Switzerland, respectively. To participate, a company must self-certify annually to the Department of Commerce that it complies with the seven privacy principles required to meet the EU’s adequacy standard: notice, choice, onward transfer, security, data integrity, access, and enforcement. A participant in the U.S.-EU Safe Harbor framework may also highlight for consumers its compliance with the Safe Harbor by displaying the Safe Harbor certification mark on its website.

The FTC complaints charge each company with representing, through statements in their privacy policies or display of the Safe Harbor certification mark, that they held current Safe Harbor certifications, even though the companies had allowed their certifications to lapse. The Commission alleged that this conduct violated Section 5 of the FTC Act. However, this does not necessarily mean that the company committed any substantive violations of the privacy principles of the Safe Harbor frameworks.

Under the proposed settlement agreements, which are subject to public comment, the companies are prohibited from misrepresenting the extent to which they participate in any privacy or data security program sponsored by the government or any other self-regulatory or standard-setting organization.

Consumers who want to know whether a U.S. company is a participant in the U.S-EU or U.S.-Swiss Safe Harbor program may visit http://export.gov/safeharbor to see if the company holds a current self-certification.

These cases are being brought with the valuable assistance of the U.S. Department of Commerce. These companies were also the subject of complaints filed in 2013 by Chris Connolly and Galexia, Inc.

The Commission votes to accept the consent agreement packages containing the proposed consent orders for public comment were 4-0. The FTC will publish descriptions of the consent agreement packages in the Federal Register shortly. The agreements will be subject to public comment for 30 days, beginning today and continuing through Feb. 20, 2014, after which the Commission will decide whether to make the proposed consent orders final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments in electronic form should be submitted using the following Web links:

Apperian, Inc.
Atlanta Falcons Football Club, LLC
Baker Tilly Virchow Krause, LLP
BitTorrent, Inc.
Charles River Laboratories International, Inc.
DataMotion, Inc.
DDC Laboratories, Inc.
Level 3 Communications, LLC
PDB Sports, Ltd., d/b/a Denver Broncos Football Club
Reynolds Consumer Products Inc.
Receivable Management Services Corporation
Tennessee Football, Inc.

Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

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 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC Staff Advises District of Columbia Public Service Commission On Dynamic Pricing Proposal for Residential Electricity Customers

The Federal Trade Commission staff submitted a reply comment in response to a request from the District of Columbia Public Service Commission (DC PSC) for comments on Potomac Electric Power Company’s (Pepco’s) proposed dynamic pricing program for residential customers.

Pepco’s proposal would offer cost savings to customers who respond to incentives to reduce electricity consumption during peak demand periods – incentives made possible via use of devices such as “smart” electric meters. The FTC staff comment encourages the DC PSC to adopt the proposal as “a constructive initial step toward improving the efficiency of the electric system in a way that can benefit many customers but also leave the existing price structure in place for customers who do not (or cannot) respond to the efficiency incentives.” It also recommends that the DC PSC “periodically review the effects of the proposed approach with a focus on the accuracy of the price signals being conveyed, consumer participation in and satisfaction with the program, and methods to enhance consumer participation and satisfaction over time.”

“It is particularly appropriate,” the comment states, “to provide incentives (in the form of bill savings) to customers who trim their electricity consumption from the grid when it is stressed by unusually high demand, and who thereby help utilities and grid operators to meet the challenge of continuously balancing supply and demand on the electric system.”

The staff comment concurs with a comment by the National Energy Marketers Association (NEM) that consumer education programs authorized by the DC PSC should be competitively neutral. “Thus,” the comment says, “we urge the DC PSC to guard against authorizing consumer education programs that focus exclusively on the virtues of Pepco’s own dynamic pricing offers and that may provide consumers with incomplete or misleading information about offers from competing marketers.”

The comment also concurs with NEM’s view that marketers should have sufficient access to the data from smart meters to operate their alternative dynamic pricing offers. “Relative to Pepco, marketers should not be competitively handicapped by discriminatory access to the smart meter data . . . ,” the comment states. The comment also recommends that the DC PSC ensure that appropriate safeguards are in place with respect to the personal information that smart meters generate about customers and ensure that entities that receive such personal information protect it appropriately. In addition, the comment suggests that the DC PSC require Pepco to inform its customers that it is using their data for purposes of dynamic pricing.

The Commission vote approving the comment was 4-0. (FTC File No. V140001; the staff contact is John H. Seesel, Associate General Counsel for Energy, Office of the General Counsel, 202-326-2702).

Down to Earth Designs, Inc. Settles FTC Charges That Its Environmental Claims for Diapers and Related Products Were Deceptive

Portland, Oregon-based Down to Earth Designs, Inc., which does business as gDiapers, has settled Federal Trade Commission charges that it made deceptive claims about its products’ biodegradability, compostability, and other environmentally friendly attributes. The proposed settlement order bars gDiapers from making claims alleged in the complaint, unless they are true and not misleading, are adequately substantiated, and meet specific requirements in the FTC’s recently revised Green Guides.

gDiapers markets and sells the gDiapers diaper system, which includes a reusable outer shell (gPants) and disposable pad inner liners (gRefills), as well as baby wipes (gWipes). According to the FTC’s complaint, the company advertised both gRefills and gWipes as biodegradable and compostable. The company also claimed that gDiapers diapers were plastic-free, and that disposing of gRefills by flushing them down the toilet was environmentally beneficial.

“Whether they’re buying diapers or dishwashers, consumers base their purchasing decisions on claims about a product’s attributes,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “And the claims for these diapers just didn’t pass our smell test. Consumers can count on the FTC to make sure claims made by marketers are meeting the standards for truthfulness, accuracy, and substantiation.”

The FTC’s complaint alleges that the company made false or misleading representations in marketing gRefills and gWipes as biodegradable. These representations include claims that: the products are “100% biodegradable” and “certified” biodegradable; gRefills and gWipes will biodegrade when tossed in the trash; gRefills will biodegrade when flushed; and gRefills offer an environmental benefit because they can be flushed. In fact, the complaint alleges, gRefills and gWipes are not biodegradable because they do no completely break down and decompose into elements found in nature within one year after customary disposal, which is in the trash.

information from product company website indicating biodegradable properties of the diaper liners

Product website claimed biodegradability and compostability of diaper liners.

The complaint also alleges that the company has not obtained independent, third-party certification of biodegradability. Additionally, the complaint charges that gDiapers did not rely on adequate substantiation for its claims that gRefills and gWipes biodegrade when thrown away in the trash. The complaint also alleges that gRefills do not biodegrade when flushed, and that the company did not rely on, and could not substantiate, that gRefills offer an environmental benefit, because they can be flushed.

Next, the complaint alleges that gDiapers misled consumers when advertising gRefills and gWipes as compostable at home. According to the complaint, the company failed to adequately disclose that consumers cannot safely home compost gRefills and gWipes soiled with solid human waste – a material limitation. Where gDiapers did disclose that limitation, in many cases the disclosure was not clear and conspicuous. For example, gDiapers made an unqualified home compostable claim on its website’s homepage, only to reveal the limitation on other site pages. Additionally, the complaint alleges that gDiapers lacked substantiation for its claim that gWipes are home compostable.

Finally, the company advertised gDiapers as plastic free, positioning the product as one that would help consumers “end plastic diaper use.” These claims, the complaint alleges, were deceptive, because the gPants component of the gDiapers system contains plastic.

The proposed order prohibits gDiapers from making biodegradable and compostable claims, unless the claims are true, not misleading, substantiated by competent and reliable scientific evidence, and meet specific requirements outlined in the FTC’s revised Green Guides. Additionally, any claims that a disposable diaper or wipe is compostable must clearly and prominently disclose that the product cannot be composted if soiled with solid human waste.

The proposed order also prohibits “free of” certain materials claims, such as plastic, unless the claim is true, not misleading, and substantiated by competent and reliable scientific evidence. It also prohibits specific environmental benefit claims unless the representations are true, not misleading, and sufficiently substantiated. General environmental benefit representations are prohibited unless gDiapers discloses the specific environmental benefit, and each reasonable interpretation of the represented benefit is true and substantiated. The proposed order also prohibits gDiapers from making misrepresentations about certifications, including independent third-party certifier evaluations.

For a complete description of the terms of the proposed order, see the analysis to aid public comment for this matter.

Information for Consumers and Businesses

Information about shopping green for consumers can be found on the FTC’s website. More information about environmental marketing can be found in the agency’s Green Guides for businesses.

The Commission vote to accept the consent agreement packages containing the proposed consent order for public comment was 4-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through February 18, 2014, after which the Commission will decide whether to make the proposed consent order final.

Interested parties can submit comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

FTC Announces Revised Thresholds for Clayton Act Antitrust Reviews for 2014

The Federal Trade Commission has revised the thresholds that determine whether companies are required to notify federal antitrust authorities about a transaction under Section 7A of the Clayton Act, the Hart-Scott-Rodino (HSR) Antitrust Improvements Act.

The HSR Act requires companies to notify authorities if the size of the parties at issue and the value of a transaction exceeds the filing thresholds, absent an applicable exemption. The FTC is required to revise various thresholds set forth in the HSR Act annually, based on the change in gross national product. For instance, for 2014, the size of transaction threshold for reporting proposed mergers and acquisitions subject to enforcement under Section 7A of the Clayton Act will increase from $70.9 million to $75.9 million. A full listing of current thresholds can be found on the FTC’s website, which will be updated once the revised thresholds are published in the Federal Register.

The FTC also announced revisions to the thresholds that trigger a prohibition preventing companies from having interlocking memberships on their corporate boards of directors under Section 8 of the Clayton Act. The Act requires that the Commission revise those thresholds annually, based on the change in the level of gross national product. The new thresholds for the Act’s prohibition on interlocking directorates are $29,945,000 for Section 8(a)(1) and $2,994,500 for Section 8(a)(2)(A).

The votes to approve Federal Register notices announcing the threshold revisions were 4-0. The revised thresholds under Section 7A will apply to all transactions that close on or after the effective date of the notice, which is 30 days after its publication in the Federal Register. The thresholds for Section 8 became effective upon publication in the Federal Register. (FTC File No. P859910; the staff contact for Section 7A is Kathryn E. Walsh, Bureau of Competition, 202-326-2977; the staff contact for Section 8 is Michael J. Bloom, Bureau of Competition, 202-326-2475.)

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20001. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

TeleCheck to Pay $3.5 Million for Fair Credit Reporting Act Violations

TeleCheck Services, Inc., one of the nation’s largest check authorization service companies, along with its associated debt-collection entity, TRS Recovery Services, Inc., have agreed to pay $3.5 million to settle Federal Trade Commission charges that they violated the Fair Credit Reporting Act (FCRA).

The penalty matches the second-largest ever obtained by the FTC in an FCRA case. Earlier this year, another check authorization company, Certegy Check Services, Inc., agreed to pay a $3.5 million fine to settle FTC allegations similar to those made against TeleCheck.

TeleCheck, based in Houston, Texas, is a consumer reporting agency (CRA) that compiles consumers’ personal information and uses it to help retail merchants throughout the United States determine whether to accept consumers’ checks. Under the FCRA, consumers whose checks are denied based on information TeleCheck provided to the merchant have the right to dispute that information and have TeleCheck investigate and correct any inaccuracies.

The FTC’s complaint alleges, among other things, that TeleCheck did not follow proper dispute procedures, including refusing to investigate disputes. The complaint also alleges that TeleCheck failed to follow reasonable procedures to assure the maximum possible accuracy of the information it provided to its merchant clients as required by the FCRA, and failed to promptly correct errors on consumers’ reports.

In addition, the complaint alleges that TRS, which handles consumer debt taken on by TeleCheck and furnishes information about consumers to TeleCheck, violated the requirements of the FTC’s Furnisher Rule, which requires entities furnishing information to CRAs to ensure the accuracy and integrity of the information provided.

“If CRAs like TeleCheck provide merchants with inaccurate information, those merchants may wrongly deny consumers the ability to buy even the most essential items, like food and medicine. The FCRA gives consumers the right to dispute and correct inaccurate information,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “The Commission takes violations of these rights seriously.”

The order settling the FTC’s charges requires TeleCheck and TRS to alter their business practices to comply with the requirements of the FCRA and the Furnisher Rule in the future. This case is part of a broader initiative to target the practices of data brokers, which often compile, maintain, and sell sensitive consumer information. Consumer reporting agencies like TeleCheck are data brokers that sell information to companies making important decisions about consumers, such as their ability to get credit or pay for goods and services by check.

Information for Business

The FTC has information for businesses on the Furnisher Rule, which can be found on the Commission’s website. Information regarding what businesses should know about consumer reports also is available.

The Commission vote approving the referral of the complaint to the Department of Justice and consent in settlement of the court action was 4-0. The complaint and proposed consent were filed in the U.S. District Court for the District of Columbia on January 16, 2014 against TeleCheck, Inc. and TRS Recovery Services, Inc. The proposed consent decree is subject to court approval.

NOTE: The Commission authorizes the filing of 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. Consent decrees have the force of law when signed by the District Court judge.

Apple Inc. Will Provide Full Consumer Refunds of At Least $32.5 Million to Settle FTC Complaint It Charged for Kids’ In-App Purchases Without Parental Consent

Apple Inc. has agreed to provide full refunds to consumers, paying a minimum of $32.5 million, to settle a Federal Trade Commission complaint that the company billed consumers for millions of dollars of charges incurred by children in kids’ mobile apps without their parents’ consent.

Under the terms of the settlement with the FTC, Apple also will be required to change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for items sold in mobile apps.

“This settlement is a victory for consumers harmed by Apple’s unfair billing, and a signal to the business community: whether you’re doing business in the mobile arena or the mall down the street, fundamental consumer protections apply,” said FTC Chairwoman Edith Ramirez. “You cannot charge consumers for purchases they did not authorize.”

The FTC’s complaint alleges that Apple violated the FTC Act by failing to tell parents that by entering a password they were approving a single in-app purchase and also 15 minutes of additional unlimited purchases their children could make without further action by the parent.

Apple offers many kids’ apps in its App Store that allow users to incur charges within the apps. Many of these charges are for virtual items or currency used in playing a game. These charges generally range from 99 cents to $99.99 per in-app charge.

The complaint alleges that Apple does not inform account holders that entering their password will open a 15-minute window in which children can incur unlimited charges with no further action from the account holder. In addition, according to the complaint, Apple has often presented a screen with a prompt for a parent to enter his or her password in a kids’ app without explaining to the account holder that password entry would finalize any purchase at all.

The rapidly expanding mobile arena has been a focus of the Commission’s consumer protection efforts. In addition to its consumer protection enforcement activity in the mobile sphere, last year, the FTC issued staff reports addressing mobile payments and providing recommendations for the mobile industry on how to protect consumers as new and innovative payment systems come into use, advocating improved privacy disclosures in the mobile environment, and addressing advertising disclosures in the context of mobile devices.

In its complaint, the FTC notes that Apple received at least tens of thousands of complaints about unauthorized in-app purchases by children. One consumer reported that her daughter had spent $2,600 in the app “Tap Pet Hotel,” and other consumers reported unauthorized purchases by children totaling more than $500 in the apps “Dragon Story” and “Tiny Zoo Friends.” According to the complaint, consumers have reported millions of dollars in unauthorized charges to Apple.

The settlement requires Apple to modify its billing practices to ensure that Apple obtains consumers’ express, informed consent prior to billing them for in-app charges, and that if the company gets consumers’ consent for future charges, consumers must have the option to withdraw their consent at any time. Apple must make these changes no later than March 31, 2014.

Under the settlement, Apple will be required to provide full refunds, totaling a minimum of $32.5 million, to consumers who were billed for in-app charges that were incurred by children and were either accidental or not authorized by the consumer. Apple must make these refunds promptly, upon request from an account holder. Apple is required to give notice of the availability of refunds to all consumers charged for in-app charges with instructions on how to obtain a refund for unauthorized purchases by kids. Should Apple issue less than $32.5 million in refunds to consumers within the 12 months after the settlement becomes final, the company must remit the balance to the Commission.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 3-1, with Commissioner Wright voting no. Chairwoman Ramirez and Commissioner Brill issued a joint statement, and Commissioner Ohlhausen issued a separate statement. Commissioner Wright issued a dissenting statement.

The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through Feb. 14, 2014, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments in electronic form should be submitted online by following the instructions on the web-based form. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

Defendants in Phony Mortgage Relief Scheme to Pay Nearly $3.6 Million; Orders Ban Them from Mortgage Relief Business

The South Florida-based defendants in an alleged mortgage relief scam will surrender their assets and be banned permanently from providing mortgage relief and debt relief services to consumers under a settlement with the Federal Trade Commission. This settlement represents the FTC’s largest judgment to date against a purported mortgage assistance relief provider.

In 2012, as part of the Distressed Homeowner Initiative, a multi-agency federal enforcement crackdown, the FTC charged 11 companies and five individuals with running an illegal mortgage relief scheme, which operated under various names, including Prime Legal Plans. Using Reaching U Network, a sham non-profit front, and a maze of other companies, the scheme reeled in consumers with false promises that enrollment would save their homes from foreclosure or result in lower mortgage payments. The FTC obtained a court order shutting down the operation and freezing the defendants’ corporate and personal assets pending settlement of the case.

“Rather than make good on their promise to offer people relief from mortgage trouble, these schemers put their targets even further behind financially,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “They broke the law by taking money upfront and making false promises.”

The FTC charged that the defendants promised consumers that they would prevent foreclosure or significantly lower their mortgage payments by conducting audits of consumers’ loans and providing access to full-service, expert legal representation to fight their lenders. The defendants, who marketed their programs in English and Spanish through a national outbound telemarketing campaign, allegedly told consumers that “80 percent of mortgages contain some fraud” and, in some cases, that even a small error in their loan documents could nullify the mortgage. The defendants also allegedly told consumers that they would be assigned an expert mortgage foreclosure defense attorney in their state who would “halt the foreclosure process” and save their homes. But instead of helping consumers, the defendants charged them illegal advance fees ranging from $595 to $750 per month, while delivering little or no help and driving them deeper into debt. In addition to alleging that the defendants deceived consumers, the FTC charged that the scheme violated the Mortgage Assistance Relief Services Rule’s ban on advance fees for mortgage relief. The FTC also asserted that the Defendants placed numerous calls to numbers listed on the national Do Not Call Registry.

Under the settlements announced today, the defendants are banned from participating in the mortgage relief and debt relief industries, and are prohibited from misrepresenting various features of any product or service or making advertising claims that are unsupported by competent and reliable evidence. They also are prohibited from placing unsolicited calls both to numbers listed on the Do Not Call Registry and to any number in an area code for which they have not paid the fee to access the list of numbers on the Do Not Call Registry.

The settlements require the Defendants to pay nearly $3.6 million to redress consumer victims. Under the terms of the settlements:

A $25.1 million judgment, reflecting the total amount of fees taken in by the scheme, is imposed on Derek Radzikowski, Jason Desmond, Prime Legal Plans LLC, and five other corporate defendants. The judgment will be suspended when they surrender their assets – an estimated $3.5 million. The order also resolves allegations against Desmond’s wife, relief defendant Shelie Desmond, by requiring her to turn over an estimated $110,000 in unearned ill-gotten gains that she received from the scheme.
$1,428,658 judgments are imposed on Andrew Primavera and Lazaro Dinh and four corporate defendants. The judgments, entered August 22, 2013, reflect these defendants’ ill-gotten gains, and were suspended after they surrendered their assets: about $20,0000 from Dinh and $1,600 from Primavera. The Dinh order also resolved allegations against two relief defendants: the San Lazaro Irrevocable Life Insurance and its trustee, Dinh’s sister Maria Soltura. The $336,929 judgment against Soltura and the Trust was suspended when the FTC received the $1,575 that was frozen in the trust’s bank account when the FTC shut down the operation last year.
A $392,215 judgment was imposed against Christopher N. Edwards and Reaching U Network, Inc., and a $102,417 judgment was imposed upon Kim E. Landolfi. The judgments, entered May 22, 2013, reflect these defendants’ ill-gotten gains and were suspended when they surrendered frozen assets to the FTC: approximately $950 from Edwards and Reaching U Network, Inc. and $40,000 from Landolfi.

If it is later determined that a defendant provided false financial information to the FTC, the full amount of the judgment against that defendant will become due.

Under federal law, foreclosure rescue and loan modification service providers are banned from collecting fees until homeowners have a written offer from their lender or servicer that they deem acceptable. For consumer information about avoiding mortgage and foreclosure rescue scams, see this FTC material.

The Commission vote approving the consent decree for Radzikowski, Desmond, Prime Legal Plans LLC; Freedom Legal Plans, LLC; Frontier Legal Plans, LLC; American Hardship, LLC; Legal Servicing and Billing Partners LLC; and Back Office Support Systems LLC was 4-0. The consent decree was filed in the U.S. District Court for the Southern District of Florida and entered by the court on December 27, 2013.

NOTE: Consent decrees have the force of law when approved and signed by the District Court judge.

FTC, Florida Attorney General Sue to Halt Operation that Used Robocalls to Fraudulently Pitch Medical Alert Devices to Seniors Nationwide

At the request of the Federal Trade Commission and the Office of the Florida Attorney General, a U.S. district court has temporarily halted and frozen the assets of an Orlando-based operation that used pre-recorded telephone calls, commonly known as robocalls, to pitch purportedly “free” medical alert devices to senior citizens by false representing that the devices had been purchased for them by a relative or friend. The defendants also allegedly led consumers to believe that the devices were endorsed by various health organizations and that they would not be charged anything before the devices were activated.

The agencies are seeking a court order permanently banning the defendants from engaging in the allegedly fraudulent and illegal conduct, and providing restitution to consumers who were victimized.

“These telemarketers used illegal robocalls to make a sales pitch that was 100 percent false,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “They lied about the product, about whether health organizations had endorsed it, and about its cost. And all the while, their M.O. was to take advantage of older people’s concerns about their health. We’re so glad to work with our partners in Florida to stop this fraud.”

Life Watch alert device, top and bottom views, with accompanying power adapter, telephone cable, and wristband. Top of device has a large blue button labeled help and a pink LifeWatchUSA activation instruction label. Bottom has a yellow label 'Property of LifeWatchUSA' with address in Lynbrook, New York

Top and bottom views of the LifeWatch alert device involved in the sales pitch.

“We will not tolerate unscrupulous individuals targeting the elderly. This company received more than $13 million in commissions since March 2012, and we will do everything in our power to compensate consumers who lost money due to the fraudulent medical alert scheme,” said Florida Attorney General Pam Bondi. “I thank the Federal Trade Commission for its partnership in this effort, which involved thousands of affected consumers, and the numerous other agencies who joined in the effort to stop these business practices.”

According to the joint agency complaint, the defendants violated the FTC Act, the Commission’s Telemarketing Sales Rule (TSR), and Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA) by blasting robocalls to senior citizens falsely stating that they were eligible to receive a free medical alert system that was bought for them by a friend, family member, or acquaintance. Many of the consumers who received the defendants’ calls were elderly, live alone, and have limited or fixed incomes.

Consumers who pressed one (1) on their phones for more information were transferred to a live representative who allegedly continued the deception by saying that the medical alert systems are recommended by the American Heart Association (AHA), the American Diabetes Association (ADA), and the National Institute on Aging (NIA). In addition, the telemarketers falsely stated that the monthly monitoring fee for the system will be charged only once the medical alert system has been installed and activated. In reality, the defendants started charging consumers who agreed to receive the system immediately, regardless of whether the system had been activated or not.

Based on this alleged conduct, the joint complaint charges the defendants with misrepresenting a range of facts, including that someone the consumer knows already purchased the system for them, that the defendants’ medical alert system is endorsed by the AHA, ADA, and NIA, and that consumers will not be charged until the system has been activated. The complaint also charges the defendants with violating the TSR by making illegal robocalls, including to consumers on the National Do Not Call Registry, and by failing to disclose the caller’s telephone number or identity.

The Commission vote approving the complaint was 4-0. The complaint was filed in the U.S. District Court for the Middle District of Florida, Orlando Division, on January 6, 2014. The following day, the court entered a temporary restraining order, freezing the defendants’ assets and appointed a temporary receiver over their business. A preliminary injunction hearing in the case is scheduled for January 16, 2014.

The defendants include: 1) Worldwide Info Services, Inc., also doing business as (d/b/a) The Credit Voice; 2) Elite Information Solutions Inc., also d/b/a The Credit Voice; 3) Absolute Solutions Group Inc, also d/b/a The Credit Voice; 4) Global Interactive Technologies, Inc., also d/b/a The Credit Voice Inc.; 5) Global Service Providers, Inc.; 6) The Credit Voice, Inc, also d/b/a TCV; 7) Live Agent Response 1 LLC, also d/b/a LAR; 8) Arcagen, Inc., also d/b/a ARI; 9) American Innovative Concepts, Inc.; 10) Unique Information Services Inc.; 11) Michael Hilgar; 12) Gary Martin; and 13) Joseph Settecase.

The FTC and Florida Attorney General’s Office appreciate the assistance of the following agencies, offices, and organizations in helping to investigate and bring this case: 1) the Indiana Office of the Attorney General; 2) the Minnesota Office of the Attorney General; 3) the Florida Department of Agriculture and Consumer Services; 4) the Better Business Bureau Serving Eastern Missouri and Southern Illinois; 5) the American Heart Association; 6) the American Diabetes Association; 7) the National Institute on Aging; 8) the United States Postal Inspection Service, including its Atlanta, Boston, and Houston divisions; and 9) the Seminole County Sheriff’s Office, Financial Crimes Task Force.

Information for Consumers

The FTC has tips for consumers, as well as two consumer education videos explaining robocalls and describing what consumers should do when they receive one. See ftc.gov/robocalls for more information. In addition, the FTC has a new consumer blog post on deceptive medical alert robocalls, which can be found on the agency’s website.

NOTE: The Commission authorizes the filing of 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.

FTC’s Tax Identity Theft Awareness Week Offers Consumers Advice, Guidance

Next week, January 13-17, is the Federal Trade Commission’s Tax Identity Theft Awareness Week. The FTC is hosting 16 events across the country along with a series of national webinars and Twitter chats designed to raise awareness about tax identity theft and provide consumers with tips on how to protect themselves, and what to do if they become victims.

Identity theft has been the top consumer complaint to the FTC for 13 consecutive years, and tax identity theft has been an increasing share of the Commission’s identity theft complaints. In 2010, tax identity theft accounted for just 15 percent of the FTC’s identity theft complaints from consumers, while in 2011 it made up 24 percent of the overall identity theft complaints. In 2012, tax identity theft accounted for more than 43 percent of the identity theft complaints, making it the largest category of identity theft complaints by a substantial margin.

“This week’s events are designed to teach consumers more about how to protect themselves from tax ID theft and how to respond if they become victims,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “As consumers begin making preparations to file their taxes, now is the right time for them to learn more about this important issue.”

On Jan. 15, the FTC will host webinars in English at 1:30 p.m. ET and in Spanish at 3:30 p.m. ET. Links to the webinars will be available from the Tax Identity Theft Awareness Week webpage at ftc.gov/taxidtheft. At 2 p.m. ET on Jan. 16, the FTC will co-host a Twitter chat on @FTC with the Identity Theft Resource Center using the hashtag #IDTheftChat. At the same time, the FTC will also host a Spanish-language chat on @laFTC using the hashtag #roboimpuestos.

The 16 Tax Identity Theft Awareness Week events hosted by the agency will be held in cities in Alabama, California, the District of Columbia, Florida, Georgia, Maryland, Nevada, New York, Ohio, South Carolina, Texas, Washington and Virginia. The events held in Huntsville, Ala., Ft. Jackson, S.C. and Ft. Belvoir, Va., will focus on the particular needs of military service members, veterans and their families when it comes to fighting tax identity theft. Various events will include representatives of the IRS, AARP and local U.S. Attorney’s offices, who will provide additional information to consumers.

The FTC has created consumer education materials on tax identity theft as well as information for consumers about how to protect yourself from identity theft and what to do if you become a victim of identity theft.

In addition to the FTC-hosted events, the FTC has created an array of materials for use by local and state law enforcement agencies, consumer advocates and others in creating events of their own or providing information to consumers on how to prevent, recognize and respond to tax id theft.

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