Electronic Retailer - August 2011 - 14

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FtC Forum

What’s the Worst that Could Happen?
by LESLEy FAIR Over the years, most entrepreneurs have been in a meeting when someone has suggested a strategy that raised legal concerns. Perhaps it was the sale of a money-making venture, a “rescue” program for people in debt or a sales method that involved the iffy use of customers’ credit card information. Weighing the potential for profits against the risk of detection, the bad apple invariably asks, “What’s the worst that could happen?” Most executives are aware of the civil ramifications of questionable business practices: asset freezes, injunctions, refunds and costly litigation. But they should consider another sobering consequence of illegality: federal prison. The Federal Trade Commission has civil law enforcement authority, but its Criminal Liaison Unit (CLU) works closely with federal and state criminal enforcement counterparts when a company’s practices cross that line. For example, the FTC’s investigation of a business opportunity initially resulted in a default judgment against the defendants. But that’s not where the matter ended. After a two-week trial, one corporate officer was convicted of mail and wire fraud for his part in the Costa Rica-based scam. Another defendant was sentenced to 62 months and ordered to pay $9.8 million restitution for his role as a salesman and shill. So far, the efforts of Department of Justice’s Office of Consumer Protection deceived by bogus claims of debt help. A later contempt action unearthed evidence that he’d concealed assets, leading to criminal charges. In another matter, based on an FTC complaint against a debt collection outfit, the judge put a permanent halt to its operations and ordered it to pay refunds to the people it had bilked. However, the day after the appellate court declined to reconsider the case, a defendant removed from a safe deposit box coins valued at $335,000 – assets the judge had ordered him to turn over to the FTC for consumer refunds. The defendant was sentenced to 41 months in prison. Defendants who flout other order provisions risk prosecution, too. In May, a federal judge in California sentenced a defendant to 23 months in prison for violations stemming from his role in a work-at-home promotion. The FTC entered into a settlement, requiring him to post a bond before marketing any business venture. Disregarding the order, he incorporated a new business and began marketing medical billing software without posting the bond. He pleaded guilty to criminal contempt charges brought by the Department of Justice. Cases like these show the close working relationship between criminal enforcers and the FTC’s Criminal Liaison Unit. CLU promotes the prosecution of FTC defendants and their associates in cases of egregious fraud, substantial consumer loss and brazen violations of orders. We’ve all heard about people “you wouldn’t want to meet in a dark alley.” CLU and their criminal enforcement counterparts are people that marketing professionals wouldn’t want to meet in a well-lit courtroom. Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection.

Litigation have resulted in guilty pleas or verdicts against seven defendants. The eighth is pending extradition to the United States, but he remains in custody in Costa Rica, where he also faces murder charges. In other cases, criminal prosecutions have resulted when defendants tried to hold onto money courts had ordered for consumer refunds. For example, the founder of what was once the nation’s largest debt counseling company was sentenced to 18 months in prison following a guilty plea on obstruction of justice charges brought by the U.S. Attorney for Maryland. The case traces back to an FTC settlement ordering the defendant to turn over all assets to a $35 million redress fund for consumers

Most executives are aware of the civil ramifications of questionable business practices: asset freezes, injunctions, refunds and costly litigation. But they should consider another sobering consequence of illegality: federal prison.
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electronicRetaileR | august 2011

Electronic Retailer - August 2011

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