Markets Wired

The Federal Trade Commission and seven state attorneys general have charged a payment processor with violating federal and state laws by debiting, or attempting to debit from consumers’ bank accounts on behalf of numerous fraudulent telemarketers and Internet-based merchants.

The FTC and the attorneys general of Illinois, Iowa, Nevada, North Carolina, North Dakota, Ohio, and Vermont have charged the defendants with offering payment processing services to a variety of merchants, many of which were engaged in deceptive telemarketing or Internet-based schemes. These schemes were designed to extract money from consumer bank accounts by inducing consumers, through misrepresentations and omissions in connection with the marketing of products or services, to provide the merchant with the consumer’s personal bank account information. The merchants then transmitted the bank account information to the defendants, who processed debits to the consumers’ bank accounts.

Between June 23, 2004 and March 31, 2006, the defendants processed more than $200 million in debits and attempted debits to consumers’ bank accounts, the complaint alleges, and more than $69 million of the attempted debits were returned or rejected by consumers or their banks for various reasons, indicating the lack of consumer authorization. In many instances, after the defendants debited accounts, the merchants failed to deliver the promised products or services, or sent consumers relatively worthless items. The complaint alleges that by providing access to the banking system and the means to extract money from consumers’ bank accounts, the defendants played a critical role in their clients’ fraudulent and deceptive schemes.

“Payment processors play a key role in many commercial transactions, and they are positioned to monitor return rates on these transactions,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “The defendants purportedly saw extremely high return rates and looked the other way. We allege that consumers lost millions of dollars as a result, and that the company’s conduct violated federal and state laws.”

The complaint states that in many cases the defendants, collectively known as YMA, accepted clients whose applications contained signs of deceptive activity, including sales scripts with statements that were facially false or highly likely to be false. The complaint also alleges that YMA anticipated that many of its clients would generate high rates of returned or reversed transactions, a sign that unauthorized debits from consumers’ accounts were likely. After these merchants became YMA clients, they did generate high return rates – from 20 percent to more than 80 percent. According to the complaint, YMA closely monitored its clients’ return rates, and therefore was aware of its clients’ high return rates.

Named as defendants in the complaint are Your Money Access, LLC d/b/a Netchex Corp., Universal Payment Solutions, Check Recovery Systems, Nterglobal Payment Solutions, Subscription Services, Ltd.; YMA Company, LLC, Derrelle Janey, and Tarzenea Dixon. The complaint charges them with violating Section 5 of the FTC Act by unfairly processing debit transactions to consumers’ bank accounts, and violating the Telemarketing Sales Rule by providing substantial assistance or support to sellers or telemarketers who they knew, or consciously avoided knowing, were violating the TSR. The complaint also charges them with violating the Illinois Consumer Fraud Act, the Iowa Consumer Fraud Act, Nevada’s Deceptive Trade Act, the North Carolina Unfair and Deceptive Trade Practices Act, the Ohio Consumer Sales Practices Act, and the Vermont Consumer Fraud Act. The complaint seeks a permanent bar on further violations, monetary relief, including consumer redress and the disgorgement of ill-gotten gains, and civil penalties under applicable state claims.

The Commission vote to authorize staff to file the complaint and to include the seven states as co-plaintiffs was 5-0. The complaint was filed in the U.S. District Court for the Eastern District of Pennsylvania.

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 FTC works for the consumer 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, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.

Commission approval of final consent orders: Following a public comment period, the Commission has approved the issuance of a final consent order in the matter concerning Kyphon Inc.’s proposed acquisition of certain vertebral compression fracture repair system assets of Disc-O-Tech Medical Technologies Ltd. and Discotech Orthopedic Technologies, Inc. The Commission vote approving the issuance of the final order was 3-0-2, with Commissioners Pamela Jones Harbour and William E. Kovacic recused. (FTC File No. 071-0101; the staff contact is Jonathan Klarfeld, Bureau of Competition, 202-326-3187; see press release dated October 9, 2007.)

Following a public comment period, the Commission has approved the issuance of a final consent order in the matter concerning Compagine de Saint-Gobain and Owens Corning. The Commission vote approving the issuance of the final order was 5-0. (FTC File No. 061-0281; the staff contact is Wallace W. Easterling, Bureau of Competition, 202-326-2936; see press release dated October 26, 2007.)

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.

An operation that foisted sexually explicit online pop-up ads on unwitting consumers has agreed to settle Federal Trade Commission charges that the practice violated federal law. The settlement bars the defendant from displaying sexually explicit online ads to consumers who are not seeking out sexually explicit content.

According to the FTC, AdultFriendFinder.com, which touts itself as “The World’s Largest Sex & Swingers Personal Community,” and its affiliates use pop-up ads to drive traffic to its Web sites. Some of the ads have included graphic depictions of sexual behavior, exposing consumers, including children, to sexually explicit images. Such ads were displayed to consumers who were searching online using terms such as “flowers,” “travel,” and “vacations.” In some cases, defendant’s sexually explicit ads were distributed using spyware and adware.

The agency alleged that the practice of displaying graphic pop-up ads without consumer consent was unfair, and violated the FTC Act.

The settlement bars the defendant from displaying sexually explicit ads to consumers unless the consumers are actively seeking out sexually explicit content or unless the consumers have consented to viewing sexually explicit content. It requires the defendant to take steps to ensure that its affiliates comply with the restriction, and end its relationship with any affiliates who do not comply. It also requires the defendant to establish an Internet-based mechanism for consumers to submit complaints. Finally, the settlement contains bookkeeping and record- keeping requirements to allow the Commission to monitor compliance.

The defendant named in the FTC complaint is Various, Inc., a California corporation doing business as AdultFriendFinder, AdultFriendFinder.com, and Cams.com.

The Commission vote to authorize staff to file the complaint and stipulated final order was 5-0. The complaint and stipulated final order for permanent injunction will be filed today in the U.S. District Court for the Northern District of California, San Jose Division.

NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

The FTC works for the consumer 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, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://www.ftc.gov/bcp/consumer.shtm.

Federal Trade Commission Chairman Deborah Platt Majoras today named former FTC Commissioner Thomas B. Leary the 2007 recipient of the Miles W. Kirkpatrick Award. Citing his significant contributions to the agency and its mission to protect consumers and encourage competition, Chairman Majoras said, “Today, we recognize the outstanding contributions of a very special lawyer who has worked to make the FTC worthy of Americans’ trust and respect . . . Tom Leary epitomizes what the Miles W. Kirkpatrick Award is about: a career-long commitment to improving antitrust jurisprudence and to an effective, intellectually honest, open, and collegial Federal Trade Commission. . . . Over a tenure that included working with three chairmen and five other commissioners, Tom has set a high standard for collegiality, consensus, and teamwork.”

Leary, an FTC commissioner from 1999 through 2005, brought more than 40 years of experience as an antitrust attorney in the private sector. He had been a partner at Hogan & Hartson, in Washington, DC, since 1983. Before joining that firm, he was an assistant general counsel of General Motors with overall responsibility for antitrust, consumer protection, and commercial law matters, and prior to that he was a partner at White & Case in New York. Leary received his undergraduate degree in economics from Princeton University and a law degree from Harvard Law School, where he was an editor and an officer of the Harvard Law Review.

The Kirkpatrick Award was established in 2001 to honor the commitment, talent, and contributions of individuals who have made lasting and significant contributions to the FTC throughout their public and private careers. It is named for a legendary figure in the antitrust community for his dynamic leadership of the American Bar Association’s 1969 commission to study the FTC. The Kirkpatrick Report resulted in a mandate for substantial reform and reorganization of the agency, including recruitment of highly qualified and motivated new talent.

Previous recipients of the award were Basil J. Mezines, Robert Pitofsky, Jodie Bernstein, Caswell O. Hobbs, III, and Calvin J. Collier.

Protecting the personal information of customers, clients, and employees is good business. The Federal Trade Commission has a new online tutorial to alert businesses and other organizations to practical and low- or no-cost ways to keep data secure.

The tutorial, “Protecting Personal Information: A Guide for Business,” at www.ftc.gov/infosecurity, takes a plain-language, interactive approach to the security of sensitive information. Although the specifics depend on the type of company and the kind of information it keeps, the basic principles are the same: any business or office that keeps personal information needs to take stock, scale down, lock it, pitch it, and plan ahead. The tutorial explains each of these principles, and includes checklists of steps to take to improve data security.

The tutorial supplements brochures, slide presentations, and articles on information security already on the Web site and available from the FTC for free. The agency is encouraging businesses and other organizations to share this important information with employees who handle personal information such as Social Security numbers, credit card numbers, financial account numbers, and other sensitive personal information.

The FTC works for the consumer 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, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.

The Federal Trade Commission has wrapped up its case against the purveyors of an envelope stuffing business opportunity by settling charges with the remaining defendants, who falsely promised that consumers would earn a substantial income merely by stuffing envelopes or mailing brochures. These defendants and their spouses will give up all of their frozen assets.

The FTC charged that the defendants falsely claimed that consumers were likely to earn a substantial amount of money, such as $600 or $2000 per week, by stuffing envelopes or mailing brochures, and that they would not need to sell any products or services to earn it. According to the FTC, however, it was only after consumers invested $60 to $180 that they learned the defendants would pay them only if their mailings resulted in sales (and, even then, consumers never received any income).

The amended complaint named Mark E. Shelton, Wholesale Marketing Group, LLC, Wholesale Marketing Group, Inc., Jeremy Wilson, individually and doing business as Pure Home Air Profits, Robert M. Gomez, Luis D. Aviles, and Carl J. Shelton, Jr., as defendants. In addition, the amended complaint named Marianne Shelton, Julie Shelton, and M. Edward Shelton Hypnotherapy, LLC, as relief defendants. According to the FTC, the relief defendants, while not accused of wrongdoing, received monies to which they were not entitled.

Four of the named defendants, Wholesale Marketing Group, LLC, Wholesale Marketing Group, Inc., Robert M. Gomez, and Luis D. Aviles, settled with the Commission last year. Two additional defendants, Carl J. Shelton, Jr. and Jeremy Wilson, and all three relief defendants are now settling. These defendants will give up all of their frozen assets. In addition, the orders entered against Carl J. Shelton, Jr. and Jeremy Wilson prohibit misrepresentations about any goods or services and include suspended monetary judgments of $1,493,793.69, which would become due if it is found that they misrepresented their financial status. The Court also entered monetary judgments against Julie Shelton for $83,350 and Shelton Hypnotherapy for $16,750. Again, the full judgments would become due if it is found that they misrepresented their financial status. There is no suspended monetary judgment for Marianne Shelton because she is turning over the total amount of the fraudulent funds that she received.

In addition, the FTC also announces that it has dismissed the amended complaint against Mark E. Shelton following a separate Court finding that he was in contempt of a previous order. He is now under a modified court order.

The Commission vote to authorize staff to file the stipulated final orders was 5-0. The stipulated final orders for permanent injunction were filed in the U.S. District Court for the Northern District of Illinois.

NOTE: These stipulated final orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

The FTC works for the consumer 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, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.

The Federal Trade Commission announced today that it has agreed to settle its complaint against Barr Laboratories, whose agreement with Warner Chilcott, the Commission alleges, unlawfully delayed entry of Barr’s generic version of Warner Chilcott’s Ovcon birth control pill into the market.

As a result of the settlement, Barr must refrain from entering into anticompetitive supply agreements with branded companies similar to Barr’s agreement with Warner Chilcott regarding Ovcon, refrain from entering other agreements with branded manufacturers that unreasonably restrain competition, and notify the Commission of a broader group of agreements with branded companies that have the potential to harm competition. The terms of the proposed settlement will expire in 10 years.

Entry of the final order against Barr brings to an end the FTC’s prosecution against Warner Chilcott and Barr for conspiring to keep a generic version of Ovcon off the market. According to the FTC’s complaint filed in November 2005, Warner Chilcott paid Barr $20 million in return for Barr’s agreement not to sell a generic version of Ovcon until May 2009. Last year, under threat of a preliminary injunction, Warner Chilcott abandoned the portion of its agreement that kept Barr from marketing a generic version of Ovcon. Shortly afterward, Barr began selling generic Ovcon tablets in the United States. As a result of the FTC’s actions, women taking Ovcon now have the choice to purchase a lower-cost generic version of the product.

The Commission vote approving the proposed settlement and authorizing the staff to file it with the court was 5-0. It was filed on November 9, 2007, in the U.S. District Court for the District of Columbia and was signed by the judge and entered by the court on November 27.

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.