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FTC Sues Prepaid Calling Card Distributor for Deceiving Consumers

The Federal Trade Commission extended its crackdown in the billion-dollar prepaid calling card industry, asking a U.S. district court to permanently halt the illegal practices of a major calling card distributor and its principals. The FTC has charged Diamond Phone Card, Inc., a distributor of prepaid calling cards based in Elmhurst, New York, and its principals with advertising that the calling cards they sold provided more minutes than they actually delivered. The complaint also alleges that the defendants failed to adequately disclose fees that could reduce the value of the calling cards. The FTC is seeking to force the defendants to give up the money they made through their deceptive tactics.

Diamond Phone Card marketed the cards to recent immigrants, many of whom rely on calling cards to stay in touch with family and friends in other countries. The defendants’ advertisements made bold claims about the number of minutes the cards would provide for calls to a wide range of international locations, including the Dominican Republic, El Salvador, Mexico, India, Pakistan, and Guatemala. But the FTC charges that consumers didn’t receive the number of minutes advertised. For example, a calling card claiming to deliver 400 calling minutes to Mexico provided only 106 minutes of calling time, and one claiming to deliver 50 minutes of calling time to Honduras actually delivered only 20 minutes.

The FTC’s complaint also alleges that the defendants failed to properly disclose “maintenance” and other fees. For example, the defendants’ ads trumpeted in large, colorful text the number of calling minutes their cards purportedly would provide. Less obvious to consumers, however, was a 79-cent “maintenance” fee that applied to $2 and $5 cards, and was “disclosed” in nearly illegible print on the very bottom of the advertisement.

This complaint follows two recent FTC actions against distributors of prepaid calling cards. In February 2009, Alternatel, Voice Prepaid, and Mystic Prepaid agreed to pay $2.25 million to resolve FTC allegations that they had deceived consumers. In June 2009, another leading distributor of prepaid cards, Clifton Telecard Alliance, agreed to pay $1.3 million to settle similar FTC charges. The FTC has established a joint federal-state task force to address deceptive advertising and marketing practices in the prepaid calling card industry.

The complaint against Diamond Phone Card, Inc., and the company’s principals, Nasreen Gilani and Samsuddin Panjawani, was filed in U.S. District Court for the Eastern District of New York. The Commission vote to file the complaint was 4-0.

This case was brought with the invaluable assistance of El Salvador’s Defensoría del Consumidor, Colombia’s Superintendencia de Industria y Comercio, the Egypt Consumer Protection Authority, Mexico’s Procuraduría Federal del Consumidor (PROFECO), Panama’s Autoridad de Protección al Consumidor y Defensa de la Competencia (ACODECO), and Peru’s Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (INDECOPI).

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.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. 082-3038)
(DiamondPhone)

FTC Seeks Comment on ConocoPhillips’s Petition to Amend Its Propane Supply Agreement with NGL

The Federal Trade Commission is seeking public comment on a petition from ConocoPhillips requesting approval to amend its propane supply agreement with NGL Supply, Inc., pursuant to a 2002 Commission consent order. The FTC order was issued to resolve competitive concerns raised by the merger of Conoco Inc. and Phillips Petroleum Company required ConocoPhillips to divest assets relating to the propane business and to supply propane to the acquirer of the propane business.

To comply with the order, ConocoPhillips sold the Phillips propane business to NGL. ConocoPhillips is now petitioning the Commission to approve amendments to the propane supply agreement with NGL to ensure that ConocoPhillips has adequate stocks of propane at relevant times of the year, and is able to continue to supply propane to its own customers and to NGL. As detailed in the petition, a public version of which can be found on the FTC’s Web site and as a link to this press release, the proposed amendments govern the summer supply of propane to NGL when ConocoPhillips’s supplies drop below certain levels.

The Commission is accepting public comments on the petition for 30 days, beginning
today and continuing through September 8, 2009. To file a public comment, please click on the
following hyperlink: http://www.ftc.gov/os/2009/08/C4058publiccomment.pdf and follow the
instructions at that site. All comments will be posted on the Commission’s Web site and become part of the public record. (FTC Docket No. C-4058; the staff contact is Daniel P. Ducore,
Bureau of Competition, 202-326-2526; see press release dated September 22, 2002, at
http://www.ftc.gov/opa/2002/09/fyi0250.shtm.)

Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.

(FYI 38.2009.wpd)

Statement of Bureau of Competition Director Richard Feinstein Regarding the Announcement that Google CEO Eric Schmidt Has Resigned from Apple’s Board

On August 3, 2009, Apple announced that Eric E. Schmidt, Chief Executive Officer of Google, was stepping down from its board. “We have been investigating the Google/Apple interlocking directorates issue for some time and commend them for recognizing that sharing directors raises competitive issues, as Google and Apple increasingly compete with each other,” said Bureau of Competition Director Richard Feinstein. “We will continue to investigate remaining interlocking directorates between the companies.”

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, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of
Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

Bureau of Competition Statement Regarding the Announcement that Thoratec Corporation Will Not Proceed with Its Proposed Acquisition of HeartWare International

Following the Federal Trade Commission’s approval of a lawsuit to block the transaction, Thoratec Corporation today announced that it has abandoned its proposed $282 million acquisition of HeartWare International. The FTC’s complaint charged that the deal would be illegal because it would substantially reduce competition in the U.S. market for left ventricular assist devices (LVADs), a life-sustaining treatment for patients with advanced heart failure. The FTC’s complaint charged that Thoratec sought to maintain its monopoly on the commercial sale of LVADs in the United States by acquiring HeartWare.

“Today’s announcement is a major victory for the patients who rely on these critically important life-saving medical devices. Now that Thoratec and HeartWare have called off their proposed merger, U.S. consumers who are already facing increasing health care costs will reap the benefits of both current and future competition between these two companies,” said Richard Feinstein, Director of the FTC’s Bureau of Competition.

(FTC File No. 091-0064)
(Thoratec Statement.final.wpd)

Statement by FTC Chairman Jon Leibowitz on Adoption of the Pay for Delay Amendment to the Americas Affordable Health Choices Act of 2009 by the House Energy and Commerce Committee

I commend the House Energy and Commerce Committee for adopting the Protecting Consumer Access to Generic Drugs Act (H.R.1706) as an amendment to the omnibus health reform legislation. If enacted into law, this measure will put an end to the sweetheart deals between brand and generic pharmaceutical companies that force consumers to wait –sometimes years– for more affordable generic drugs. We estimate that this critical provision will save consumers about $3.5 billion per year and advance the cause of affordable health care for all Americans.

(PayForDelay.wpd)

FTC Approves Final Consent Order in Matter Concerning Kellogg Company

For Your Information

July 31, 2009

Following a public comment period, the Commission has approved a final consent order in the matter of Kellogg Company and authorized the staff to provide responses to the commenters of record. The FTC’s complaint charged that Kellogg’s advertising claims touting a breakfast of Frosted Mini-Wheats as “clinically shown to improve kids’ attentiveness by nearly 20%” were false and violated federal law.

The Commission vote approving the final order was 4-0. (FTC File No. 082-3145; the staff contact is Kial S. Young, Bureau of Consumer Protection, 202-326-3525; see press release dated April 20, 2009, at http://www.ftc.gov/opa/2009/04/kellogg.shtm.)

(FYI 37.2009.wpd)

Contact Information

MEDIA CONTACT:

Office of Public Affairs
202-326-2180

FTC Challenges Thoratec’s Proposed Acquisition of HeartWare International

The Federal Trade Commission has authorized a lawsuit to block Thoratec Corporation’s proposed $282 million acquisition of rival medical device maker HeartWare International, Inc., charging that the transaction would substantially reduce competition in the U.S. market for left ventricular devices (LVADs), a life-sustaining treatment for patients with advanced heart failure. Thoratec currently has a monopoly on the commercial sale of LVADs in the United States, and the FTC’s administrative complaint alleges that Thoratec seeks to maintain its monopoly by acquiring HeartWare, thus eliminating the only significant threat to Thoratec’s continued dominance of the LVAD market.

The Commission will seek a preliminary injunction in federal district court to stop the transaction and limit the harm to competition, pending completion of the administrative trial.

“We can’t have health care reform that truly benefits American consumers unless we have competition, and competition is particularly important when it comes to life-saving devices such as the LVAD,” said FTC Bureau of Competition Director Richard Feinstein. “We need competition and innovation in these critical cardiac devices – not monopoly. By stopping the acquisition, the Commission’s action will ensure that consumers have a choice of innovative products at lower prices for these critical cardiac devices.”

LVADs are surgically-implantable miniaturized blood pumps designed to support and sustain patients suffering from end-stage heart failure, typically a fatal condition. LVADs provide full circulatory support by assuming the work of the left ventricle, the heart’s primary pumping chamber. End-stage heart failure patients have severely weakened hearts, and the only curative treatment is a heart transplant. LVADs provide temporary support for end-stage heart failure patients awaiting a donor heart and may function as a permanent therapy for patients ineligible to receive a heart transplant.

Thoratec, based in Pleasanton, California, is the world’s leading supplier of LVADs. Thoratec’s flagship product, the HeartMate II, and its first-generation LVAD, the HeartMate XVE, are the only LVADs currently on the market that is approved for commercial sale by the FDA. Under a February 12, 2009, merger agreement Thoratec proposes to acquire all of the outstanding voting securities of HeartWare in a transaction valued at approximately $282 million.

HeartWare, headquartered in Framingham, Massachusetts, is one of a small number of companies developing LVADs. HeartWare’s device, the HVAD, is currently being used by patients participating in clinical trials and is positioned to be the next LVAD approved by the FDA. It offers a novel design that promises superior reliability with fewer surgical complications and is poised to be the first and most significant competitive threat to Thoratec’s LVADs when it gains FDA approval, as expected, by 2012. The few other companies developing LVADs are significantly behind HeartWare in their clinical trials, and none of these LVADs is likely to reach the market as soon as or be as competitive as the HVAD.

The Commission’s administrative complaint charges that Thoratec’s proposed acquisition of HeartWare would be anticompetitive and violate federal antitrust laws. The complaint alleges that Thoratec is willfully attempting to monopolize and conspiring to maintain its monopoly in the U.S. LVAD market, thereby denying patients the potentially life-saving benefits of competition between Thoratec and HeartWare. Competition from HeartWare has already forced Thoratec to innovate even though the HVAD is still in clinical trials, according to the complaint. This competition will intensify once HeartWare’s HVAD receives FDA approval, resulting in lower prices and enhanced features that will increase the availability and quality of these life-saving devices.

The three-count complaint charges Thoratec with: 1) substantially lessening competition in violation of Section 7 of the Clayton Act; 2) illegally attempting and conspiring to maintain its monopoly; and 3) engaging in unfair methods of competition in violation of Section 5 of the FTC Act. It also notifies the parties that the administrative complaint seeking to stop the transaction will be heard on December 28, 2009.

The Commission votes approving the filing of the administrative and federal district court complaints were 4-0.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law.

Copies of the public versions of the Commission’s complaints will be available soon 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, D.C. 20580. 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, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 091-0064)
(Thoratec.final.wpd)

Court Orders Internet Pagejackers to Return Ill-Gotten Gains

A federal court has held three Internet pagejackers in contempt and ordered them to return more than $555,,000 in ill-gotten gains for flouting a previous court order that barred them from deceptive business practices.

At the request of the Federal Trade Commission, the U.S. District Court for the District of New Hampshire has ordered defendants Sanford Wallace, Walter Rines, and Online Turbo Merchant, Inc. to return money that they made by violating a previous court order and collecting personal information about Internet users without their consent. According to the FTC, the operation targeted users of MySpace.com, diverting them to different Web sites and then bombarding them with ads to earn advertising commissions. The agency charged that the defendants subjected MySpace users to “phishing,” “pagejacking,” and “mousetrapping” scams.

The FTC’s complaint charged that the defendants obtained personal information about MySpace users without their consent by sending deceptive “phishing” messages that appeared to be from MySpace or other MySpace users; redirected users to Web sites other than those they chose to visit by “pagejacking” them to Web sites displaying advertisements; and modified and disabled users’ Web-browser navigation controls, a practice known as “mousetrapping”that allows scammers to take charge of which sites consumers visit.

The previous court order was part of a settlement reached with the FTC in October 2006 that prohibited Rines and others acting in concert with him from collecting personal information from Internet users without their advance consent. In the action announced today, the court ruled that Rines, Wallace, and Rines’s firm, Online Turbo Merchant, violated that provision. The court granted the FTC’s request to hold Rines’s business partner Wallace in contempt because, although Wallace was not part of the 2006 settlement, he had notice of the order and helped Rines collect personal information online without users’ prior consent, in violation of the order. The court held that Rines also violated a separate provision in the order that required him to post a $500,000 performance bond before downloading or installing computer code or other content that causes the display of ads or collects personal information.

In its original complaint, filed in October 2005, the FTC charged Odysseus Marketing, and its principal, Rines, with luring consumers to their Web site by offering free software,
including a program that supposedly allowed them to engage in anonymous peer-to-peer file sharing. According to the FTC, the bogus software was bundled with spyware that intercepted and replaced search results and barraged consumers’ computers with pop-up ads. The FTC alleged that the defendants’ software captured consumers’ personal information and transmitted the information to the defendants’ servers. Consumers were unable to locate or uninstall the spyware through reasonable means, the agency charged.

The FTC filed its motion asking the court to hold Rines, Wallace, and Online Turbo Merchant in contempt for targeting users of MySpace.com with another “phishing” scheme in January 2008.

(FTC File No.X050069; Civil Action No. 05-CV-330-SM)
(Odysseus.wpd)

FTC Seeks Public Comment on Proposed Rules to Protect Consumers of Debt Relief Services

In an ongoing effort to better protect financially distressed consumers, the Federal Trade Commission is seeking public comment on proposed rules to combat deceptive and abusive telemarketing of debt relief services – services that purportedly can reduce consumers’ credit card and other unsecured debt.

In the Noticed of Proposed Rulemaking (NPRM) announced today, the Commission proposes amendments to the Telemarketing Sales Rule (TSR) that would:

Prohibit companies from charging fees until they have provided the debt relief services;
Require disclosures about the debt relief services being offered, including how long it will take to obtain promised debt relief and how much it will cost;
Prohibit specific misrepresentations about material aspects of debt relief services, including success rates and whether a debt relief company is nonprofit;
Extend the TSR to cover calls consumers make to debt relief services in response to their advertisements; and
Define the term “debt relief service” to cover any service to renegotiate, settle, or in any way alter the payment terms or other terms of the debt between a consumer and one or more unsecured creditors or debt collectors, including a reduction in the balance, interest rate, or fees owed.

The NPRM provides an overview of the debt relief services industry, including three major categories of debt relief – credit counseling, debt settlement, and debt negotiation – and
the abuses observed in each area. It also describes FTC and state law enforcement efforts to combat deceptive and abusive practices in this industry. Additionally, the NPRM summarizes
the Commission’s September 2008 public workshop, “Consumer Protection and the Debt Settlement Industry.”

The FTC adopted the TSR on August 16, 1995. It requires certain disclosures and prohibits misrepresentations during telemarketing calls. It also bars abusive practices, including
charging up-front fees for certain services such as credit repair, recovery services, and offers of a loan or other extension of credit when granting it is “guaranteed” or is represented as having a
high likelihood of success. The TSR was amended in 2003 to create the National Do Not Call Registry and again in 2008 to curtail telemarketing calls that deliver prerecorded messages.

Comments should include the reference “Telemarketing Sales Rule – Debt Relief Amendments – R411001.” Full instructions for submitting comments are found in the Addresses section of the Notice. The NPRM has a 60-day public comment period, which ends on October 9, 2009. Additionally, the NPRM announces that the Commission will hold a public forum on this rulemaking, and it provides instructions for individuals wishing to participate. The date of the public forum will be announced separately.

The Commission vote approving the NPRM was 4-0. It can be found now on the FTC’s Web site at http://www.ftc.gov/os/2009/07/R411001tsrnprm.pdf and as a link to this press release.

(FTC File No. R411001)
(TSR 09.final.wpd)

FTC Announces Expanded Business Education Campaign on ‘Red Flags’ Rule

To assist small businesses and other entities, the Federal Trade Commission staff will redouble its efforts to educate them about compliance with the “Red Flags” Rule and ease compliance by providing additional resources and guidance to clarify whether businesses are covered by the Rule and what they must do to comply. To give creditors and financial institutions more time to review this guidance and develop and implement written Identity Theft Prevention Programs, the FTC will further delay enforcement of the Rule until November 1, 2009.

The Red Flags Rule is an anti-fraud regulation, requiring “creditors” and “financial institutions” with covered accounts to implement programs to identify, detect, and respond to the warning signs, or “red flags,” that could indicate identity theft. The financial regulatory agencies, including the FTC, developed the Rule, which was mandated by the Fair and Accurate Credit Transactions Act of 2003 (FACTA). FACTA’s definition of “creditor” includes any entity that regularly extends or renews credit – or arranges for others to do so – and includes all entities that regularly permit deferred payments for goods or services. Accepting credit cards as a form of payment does not, by itself, make an entity a creditor. “Financial institutions” include entities that offer accounts that enable consumers to write checks or make payments to third parties through other means, such as other negotiable instruments or telephone transfers.

The FTC’s Red Flags Web site, www.ftc.gov/redflagsrule, offers resources to help entities determine if they are covered and, if they are, how to comply with the Rule. It includes an online compliance template that enables companies to design their own Identity Theft Prevention Program through an easy-to-do form, as well as articles directed to specific businesses and industries, guidance manuals, and Frequently Asked Questions to help companies navigate the Rule.

Although many covered entities have already developed and implemented appropriate, risk-based programs, some – particularly small businesses and entities with a low risk of identity theft – remain uncertain about their obligations. The additional compliance guidance that the Commission will make available shortly is designed to help them. Among other things,
Commission staff will create a special link for small and low-risk entities on the Red Flags Rule Web site with materials that provide guidance and direction regarding the Rule. The Commission has already posted FAQs that address how the FTC intends to enforce the Rule and other topics – www.ftc.gov/bcp/edu/microsites/redflagsrule/faqs.shtm. The enforcement FAQ states that Commission staff would be unlikely to recommend bringing a law enforcement action if entities know their customers or clients individually, or if they perform services in or around their customers’ homes, or if they operate in sectors where identity theft is rare and they have not themselves been the target of identity theft.

The three-month extension, coupled with this new guidance, should enable businesses to gain a better understanding of the Rule and any obligations that they may have under it. These steps are consistent with the House Appropriations Committee’s recent request that the Commission defer enforcement in conjunction with additional efforts to minimize the burdens of the Rule on health care providers and small businesses with a low risk of identity theft problems. Today’s announcement that the Commission will delay enforcement of the Rule until November 1, 2009, does not affect other federal agencies’ enforcement of the original November 1, 2008, compliance deadline for institutions subject to their oversight.

(Red Flags July 09)

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