FTC ALLEGES DEBT SELLERS POSTED SENSITIVE PERSONAL INFORMATION ONLINE

FROM:  U.S. FEDERAL TRADE COMMISSION 

FTC Alleges Debt Brokers Illegally Exposed Personal Information of Tens of Thousands of Consumers on the Internet

At the request of the Federal Trade Commission, a federal court has ordered two debt sellers that posted the sensitive personal information of more than 70,000 consumers online to notify the consumers and explain how they can protect themselves against identity theft and other fraud in light of the disclosures.

In two separate cases, the FTC alleges the debt sellers posted consumers’ bank account and credit card numbers, birth dates, contact information, employers’ names, and information about debts the consumers allegedly owed on a public website. The complaints allege that the debt sellers exposed this sensitive information in the course of trying to sell portfolios of past-due payday loan, credit card, and other purported debt.

According to the complaint, the defendants posted their portfolios, in the form of Excel spreadsheets, on the website without encryption, appropriate redaction, or any other protection, meaning any visitor to the website could access and download the spreadsheets, and use the information to exploit consumers. The website where the information was posted caters to the debt collection industry but was open to public viewing. The FTC alleges that the portfolios have been accessed at least over 500 times.

“Debt brokers and collectors who play fast and loose with people’s sensitive personal and financial information are causing tremendous harm,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Companies must treat sensitive consumer information with appropriate care and security, and the FTC will take action when they fail to do so."

In its complaints, the FTC alleges the disclosures violated the consumers’ privacy, put them at risk of identity theft, and exposed them to “phantom” debt collection, a practice in which unscrupulous debt collectors try to extract payments from consumers when they do not have authority to collect the debts. The FTC noted that the disclosures also publicly branded the consumers as debtors, putting them at risk of other harms, including possible loss of employment or employment opportunities.

The defendants in the two cases include Cornerstone and Company, LLC, of Riverside, Calif., and its owner, Brandon Lambert; and Bayview Solutions, LLC, of St. Petersburg, Fla., and its owner, Aron Tomko.

The FTC’s complaints allege the defendants violated the FTC Act by unfairly exposing consumers’ personal information without their knowledge or consent. The agency is asking the court to stop the defendants from repeating these actions in the future and to require the defendants to provide redress to consumers injured by their actions.

The court entered a preliminary injunction against the defendants in the Cornerstone case on September 10, 2014. The defendants in the Bayview case agreed to the entry of a preliminary injunction in their case, which was entered on Nov. 3, 2014. In addition to requiring the defendants to notify affected consumers, the injunctions require the companies to use reasonable safeguards for consumer information in their possession.

This case is part of the FTC’s continuing crackdown on scams that target consumers from every community in financial distress. Due to the FTC’s action, the spreadsheets containing the consumers’ personal information have been removed from the internet. For more information for consumers on debt collection and related issues, see Dealing with Debt on the FTC’s website.    

The Commission votes authorizing the staff to file the complaints were 5-0. The complaints were filed in the U.S. District Court for the District of Columbia.

DOJ SETTLES FOR $5 MILLION IN ILLEGAL PREMERGER COORDINATION CASE

FROM:  U.S. JUSTICE DEPARTMENT 

FRIDAY, NOVEMBER 7, 2014

JUSTICE DEPARTMENT REACHES $5 MILLION SETTLEMENT WITH FLAKEBOARD, ARAUCO, INVERSIONES ANGELINI AND SIERRAPINE FOR

ILLEGAL PREMERGER COORDINATION

Department Obtains Civil Penalties of $3.8 Million and Disgorgement of $1.15 Million

WASHINGTON — The department today announced a settlement with Flakeboard America Limited; its parent companies, Celulosa Arauco y Constitución S.A. and Inversiones Angelini y Compañía Limitada; and SierraPine.  The settlement requires the companies to pay a combined $3.8 million in civil penalties for violating the Hart–Scott–Rodino (HSR) Act of 1976.  In addition, for violating Section 1 of the Sherman Act, Flakeboard must disgorge $1.15 million in illegally obtained profits and both Flakeboard and SierraPine must establish antitrust compliance programs and agree to certain restrictions.

The settlement resolves the department’s allegations that Flakeboard, Arauco and SierraPine engaged in illegal premerger coordination while Flakeboard’s proposed acquisition of three SierraPine mills was under antitrust review by the Department of Justice.

Flakeboard and SierraPine abandoned the proposed acquisition on Sept. 30, 2014, after the department expressed concerns about the transaction’s likely anticompetitive effects in the production of medium-density fiberboard (MDF).  MDF is a manufactured wood product widely used in furniture, kitchen cabinets, and decorative mouldings.

The department today filed, in U.S. District Court for the Northern District of California, a civil antitrust complaint alleging violations of the HSR Act (Section 7A of the Clayton Act) and Section 1 of the Sherman Act.  At the same time, the department filed an agreement that, if approved by the court, would resolve the lawsuit.

“Companies proposing to merge must remain separate and independent during the government’s investigation,” said Bill Baer, Assistant Attorney General of the Department of Justice’s Antitrust Division.  “These two competitors did not.  Instead they closed a plant and allocated customers when they should have been competing vigorously.  As a result both companies are paying substantial civil penalties and Flakeboard is being forced to surrender the ill-gotten profit it gained from violating the antitrust laws.”

According to the complaint, before the proposed acquisition, SierraPine operated particleboard mills in Springfield, Oregon, and Martell, California, that competed directly with Flakeboard’s particleboard mill in Albany, Oregon.  Particleboard is an unfinished wood product that is widely used in countertops, shelving, low-end furniture, and other finished products.  The Springfield and Martell mills were included in the proposed acquisition along with a third SierraPine mill that produced MDF.  The complaint alleges that after announcing the proposed acquisition on Jan. 14, 2014, and before the expiration of the HSR Act’s mandatory premerger waiting period, Flakeboard, Arauco, and SierraPine illegally coordinated to close SierraPine’s particleboard mill in Springfield, Oregon, and move the mill’s customers to Flakeboard.  This unlawful coordination led to the permanent shutdown of the Springfield mill on March 13, 2014, and enabled Flakeboard to secure a significant number of Springfield’s customers for its Albany mill.  The defendants’ conduct constituted an illegal agreement to restrain trade in violation of Section 1 of the Sherman Act, and prematurely transferred operational control, and therefore beneficial ownership, of SierraPine’s business to Flakeboard in violation of the HSR Act.

The HSR Act requires companies planning acquisitions or mergers that meet certain thresholds to file premerger notification documents with the department and the Federal Trade Commission.  The HSR Act also requires that the merging parties observe a mandatory waiting period before proceeding with the transaction.  If the government determines that a transaction violates the antitrust laws, it may seek to block that transaction before the waiting period expires.  Each party is subject to a maximum civil penalty of $16,000 per day for each day they violate the HSR Act.

The complaint alleges that the defendants’ HSR Act violation occurred from January 17, 2014, when Flakeboard and SierraPine began coordinating on the closure of the Springfield mill, until the expiration of the waiting period on Aug. 27, 2014.  The companies cooperated with the investigation by voluntarily providing the department with evidence of their unlawful premerger conduct, which was a significant factor in the department’s decision to reduce the maximum HSR penalty.  The $1.15 million in disgorgement under the Sherman Act represents a reasonable approximation of the ill-gotten profit Flakeboard received as a result of the parties’ coordination to close Springfield and move the mill’s customers to Flakeboard.

Flakeboard is a Delaware corporation with its U.S. headquarters in Fort Mill, South Carolina.  Flakeboard’s parent company is Celulosa Arauco y Constitución (Arauco), which is held by Inversiones Angelini y Compañía Limitada, a Chilean corporation headquartered in Santiago, Chile, and the ultimate parent entity named on the HSR filing.

SierraPine is a California limited partnership headquartered in Roseville, California.

As required by the Tunney Act, the proposed settlement, along with the department’s competitive impact statement, will be published in the Federal Register.  Any person may submit written comments concerning the proposed settlement during a 60-day comment period to Peter Mucchetti, Chief, Litigation I Section, Antitrust Division, U.S. Department of Justice, 450 5th Street, N.W., Suite 4100, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the U.S. District Court for the District of Columbia may enter the proposed final judgment upon finding that it is in the public interest.

HEALTHCARE COMPANY TO PAY $350 MILLION TO SETTLE FALSE CLAIMS ACT ALLEGATIONS

FROM:  U.S. JUSTICE DEPARTMENT 

Wednesday, October 22, 2014

DaVita to Pay $350 Million to Resolve Allegations of Illegal Kickbacks

DaVita Healthcare Partners, Inc., one of the leading providers of dialysis services in the United States, has agreed to pay $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to induce the referral of patients to its dialysis clinics, the Justice Department announced today. DaVita is headquartered in Denver, Colorado and has dialysis clinics in 46 states and the District of Columbia.

The settlement today resolves allegations that, between March 1, 2005 and February 1, 2014, DaVita identified physicians or physician groups that had significant patient populations suffering renal disease and offered them lucrative opportunities to partner with DaVita by acquiring and/or selling an interest in dialysis clinics to which their patients would be referred for dialysis treatment. DaVita further ensured referrals of these patients to the clinics through a series of secondary agreements with the physicians, including  entering into agreements in which the physician agreed not to compete with the DaVita clinic and non-disparagement agreements that would have prevented the physicians from referring their patients to other dialysis providers.

“Health care providers should generate business by offering their patients superior quality services or more convenient options, not by entering into contractual agreements designed to induce physicians to provide referrals,” said Deputy Assistant Attorney General for the Justice Department’s Civil Division Jonathan F. Olin. “The Justice Department is committed to protecting the integrity of our healthcare system and ensuring that financial arrangements in the healthcare marketplace comply with the law.”

The government alleged that DaVita used a three part joint venture business model to induce patient referrals.  First, using information gathered from numerous sources, DaVita identified physicians or physician groups that had significant patient populations suffering renal disease within a specific geographic area. DaVita would then gather specific information about the physicians or physician group to determine if they would be a “winning practice.” In one transaction, a physician’s group was considered a “winning practice” because the physicians were “young and in debt.”  Based on this careful vetting process, DaVita knew and expected that many, if not most, of the physicians’ patients would be referred to the joint venture dialysis clinics.

Next, DaVita would offer the targeted physician or physician group a lucrative opportunity to enter into a joint venture involving DaVita’s acquisition of an interest in dialysis clinics owned by the physicians, and/or DaVita’s sale of an interest in its dialysis clinics to the physicians. To make the transaction financially attractive to potential physician partners, DaVita would manipulate the financial models used to value the transaction.  For example, to decrease the apparent value of clinics it was selling, DaVita would employ an assumption it referred to as the “HIPPER compression,” which was based on a speculative and arbitrary projection that future payments for dialysis treatments by commercial insurance companies would be cut by as much as half in future years. These manipulations resulted in physicians paying less for their interest in the joint ventures and realizing returns on investment which were extraordinarily high, with pre-tax annual returns exceeding 100 percent in some instances.

Last, DaVita ensured future patient referrals through a series of secondary agreements with their physician partners. These included paying the physicians to serve as medical directors of the joint venture clinics, and entering into agreements in which the physicians agreed not to compete with the clinic. The non-compete agreements were structured so that they bound all physicians in a practice group, even if some of the physicians were not part of the joint venture arrangements. These agreements also included provisions prohibiting the physician partners from inducing or advising a patient to seek treatment at a competing dialysis clinic. These agreements were of such importance to DaVita that it would not conclude a joint venture transaction without them.

The Government’s complaint identifies a joint venture with a physicians’ group in central Florida as one of several examples illustrating DaVita’s scheme to improperly induce patient referrals. The group had previously been in a joint venture arrangement involving dialysis clinics with Gambro, Inc., a dialysis company acquired by DaVita in 2005. Prior to the acquisition, Gambro had entered into a settlement with the United States to resolve alleged kickback allegations that, among other things, required Gambro to unwind its joint venture agreements. As a consequence, Gambro purchased the group’s interest in the joint venture clinics and agreed to a “carve-out” of the associated non-competition agreement which allowed the group to open its own dialysis clinic nearby, which it did. After acquiring Gambro, DaVita bought a majority position in the group’s newly established dialysis clinic, and sold a minority position in three DaVita-owned clinics. Despite the fact that each of the clinics involved were roughly comparable in terms of size and profits, DaVita agreed to pay $5,975,000 to acquire a 60 percent interest in the group’s clinic, while selling a 40 percent interest in the three clinics it owned for a total of $3,075,000. As part of this joint venture, the group agreed to enter into new non-compete agreements.

“This case involved a sophisticated scheme to compensate doctors illegally for referring patients to DaVita’s dialysis centers.   Federal law protects patients by making buying and selling patient referrals illegal, so as to ensure that the interest of the patient is the exclusive factor in the referral decision,” said U.S. Attorney John Walsh.  “When a company pays doctors and/or their practice groups for patient referrals, the company’s focus is not on the patient, but on the profit to be extracted from providing services to the patient.”

In conjunction with today’s announcement, the U.S. Attorney’s Office noted that after extensive review, it is closing its criminal investigation of two specific joint ventures.

As part of the settlement announced today, DaVita has also agreed to a Civil Forfeiture in the amount of $39 million based upon conduct related to two specific joint venture transactions entered into in Denver, Colorado.   Additionally, DaVita has entered into a Corporate Integrity Agreement with the Office of Counsel to the Inspector General of the Department of Health and Human Services which requires it to unwind some of its business arrangements and restructure others, and includes the appointment of an Independent Monitor to prospectively review DaVita’s arrangements with nephrologists and other health care providers for compliance with the Anti-Kickback Statute.

“Companies seeking to boost profits by paying physician kickbacks for patient referrals – as the government contended in this case – undermine impartial medical judgment at the expense of patients and taxpayers,” said Daniel R. Levinson, Inspector General for the U.S. Department of Health and Human Services.  “Expect significant settlements and our continued investigation of such wasteful business arrangements.”

The settlement resolves allegations originally brought in a lawsuit filed under the qui tam or whistleblower provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery.  The suit was filed by David Barbetta, who was previously employed by DaVita as a Senior Financial Analyst in DaVita’s Mergers and Acquisitions Department. Mr. Barbetta’s share of the recovery has yet to be determined.          

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $22.4 billion through False Claims Act cases, with more than $14.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The case was handled by the United States Attorney’s Office for the District of Colorado, the Civil Division of the United States Department of Justice, and the U.S. Department of Health and Human Services, Office of Inspector General.

The lawsuit is captioned United States ex rel. David Barbetta v. DaVita, Inc. et al., No. 09-cv-02175-WJM-KMT (D. Colo.).  The claims settled by this agreement are allegations only; there has been no determination of liability.

FEDERAL BANKING AGENCIES REPORT FINDS DEFICIENCIES IN UNDERWRITING STANDARDS AND RISK MANAGEMENT

FROM:  FEDERAL DEPOSIT INSURANCE CORPORATION 

For Immediate Release November 7, 2014 

Credit Risk in the Shared National Credit Portfolio is High; Leveraged Lending Remains a Concern

The credit quality of large loan commitments owned by U.S. banking organizations, foreign banking organizations (FBOs), and nonbanks is generally unchanged in 2014 from the prior year, federal banking agencies said Friday. In a supplemental report, the agencies highlighted findings specific to leveraged lending, including serious deficiencies in underwriting standards and risk management of leveraged loans.

The annual Shared National Credits (SNC) review found that the volume of criticized assets remained elevated at $340.8 billion, or 10.1 percent of total commitments, which approximately is double pre-crisis levels. The stagnation in credit quality follows three consecutive years of improvements. A criticized asset is rated special mention, substandard, doubtful, or loss as defined by the agencies' uniform loan classification standards. The SNC review was completed by the Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency.

Leveraged loans as reported by agent banks totaled $767 billion, or 22.6 percent of the 2014 SNC portfolio and accounted for $254.7 billion, or 74.7 percent, of criticized SNC assets. Material weaknesses in the underwriting and risk management of leveraged loans were observed, and 33.2 percent of leveraged loans were criticized by the agencies.

The leveraged loan supplement also identifies several areas where institutions need to strengthen compliance with the March 2013 guidance, including provisions addressing borrower repayment capacity, leverage, underwriting, and enterprise valuation. In addition, examiners noted risk-management weaknesses at several institutions engaged in leveraged lending including lack of adequate support for enterprise valuations and reliance on dated valuations, weaknesses in credit analysis, and overreliance on sponsor's projections.

Federal banking regulations require institutions to employ safe and sound practices when engaging in commercial lending activities, including leveraged lending. As a result of the SNC exam, the agencies will increase the frequency of leveraged lending reviews to ensure the level of risk is identified and managed.

In response to questions, the agencies also are releasing answers to FAQs on the guidance. The questions cover expectations when defining leveraged loans, supervisory expectations on the origination of non-pass leveraged loans, and other topics. The FAQ document is intended to advance industry and examiner understanding of the guidance, and promote consistent application in policy formulation, implementation, and regulatory supervisory assessments.

Other highlights of the 2014 SNC review:

Total SNC commitments increased by $379 billion to $3.39 trillion, or 12.6 percent from the 2013 review. Total SNC outstanding increased $206 billion to $1.57trillion, an increase of 15.2 percent.

Criticized assets increased from $302 billion to $341 billion, representing 10.1 percent of the SNC portfolio, compared with 10.0 percent in 2013. Criticized dollar volume increased 12.9 percent from the 2013 level.

Leveraged loans comprised 72.9 percent of SNC loans rated special mention, 75.3 percent of all substandard loans, 81.6 percent of all doubtful loans, and 83.9 percent of all nonaccrual loans.

Classified assets increased from $187 billion to $191 billion, representing 5.6 percent of the portfolio, compared with 6.2 percent in 2013. Classified dollar volume increased 2.1 percent from 2013.

Credits rated special mention, which exhibit potential weakness and could result in further deterioration if uncorrected, increased from $115 billion to $149 billion, representing 4.4 percent of the portfolio, compared with 3.8 percent in 2013. Special mention dollar volume increased 29.6 percent from the 2013 level.
The overall severity of classifications declined, with credits rated as doubtful decreasing from $14.5 billion to $11.8 billion and assets rated as loss decreasing slightly from $8 billion to $7.8 billion. Loans that were rated either doubtful or loss account for 0.6 percent of the portfolio, compared with 0.7 percent in the prior review. Adjusted for losses, nonaccrual loans declined from $61 billion to $43billion, a 27.8percent reduction.

The distribution of credits across entity types—U.S. bank organizations, FBOs, and nonbanks—remained relatively unchanged. U.S. bank organizations owned 44.1 percent of total SNC loan commitments, FBOs owned 33.5 percent, and nonbanks owned 22.4 percent. Nonbanks continued to own a larger share of classified (73.6 percent) and nonaccrual (76.7 percent) assets than their total share of the SNC portfolio (22.4 percent). Institutions insured by the FDIC owned 10.1percent of classified assets and 6.7 percent of nonaccrual loans.
The SNC program was established in 1977 to provide an efficient and consistent review and analysis of SNCs. A SNC is any loan or formal loan commitment, and asset such as real estate, stocks, notes, bonds, and debentures taken as debts previously contracted, extended to borrowers by a federally supervised institution, its subsidiaries, and affiliates that aggregates $20 million or more and is shared by three or more unaffiliated supervised institutions. Many of these loan commitments also are participated with FBOs and nonbanks, including securitization pools, hedge funds, insurance companies, and pension funds.

In conducting the 2014 SNC Review, the agencies reviewed $975 billion of the $3.39 trillion credit commitments in the portfolio. The sample was weighted toward noninvestment grade and criticized credits. In preparing the leveraged loan supplement, the agencies reviewed $623 billion in commitments or 63.9 percent of leveraged borrowers, representing 81 percent of all leveraged loans by dollar commitments. The results of the review and supplement are based on analyses prepared in the second quarter of 2014 using credit-related data provided by federally supervised institutions as of December 31, 2013, and March 31, 2014.

TEXAS BUSINESS TO FORFEIT OVER $1.3 MILLION FOR FAILING TO FILE IRS FORM 8300

FROM:  U.S. JUSTICE DEPARTMENT

Wednesday, October 29, 2014

Texas Electronics Business Sentenced for Violating Cash Reporting Requirement

A Texas electronics business was ordered today to forfeit more than $1.3 million for failing to report that amount in cash transactions to the IRS, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division.

D-Tronics, a McAllen, Texas, electronics business, was sentenced today by U.S. District Judge Micaela Alvarez of the Southern District of Texas for failing to file an IRS Form 8300 corresponding to a cash transaction of more than $10,000.  In addition, in accordance with its plea agreement, D-Tronics will forfeit more than $1.350 million, which represents the amount of unreported currency.  The forfeiture is among the highest against a trade or business for violating the Form 8300 filing requirement.  A Form 8300 filing is required to be filed when anyone engaged in trade or business receives more than $10,000 in U.S. currency in one or two or more related sales transactions.

In addition, Pedro Diaz, 45, the owner of D-Tronics, was sentenced to one year of probation for failing to supply information concerning foreign bank accounts in which he had an interest.  Both Diaz and D-Tronics entered guilty pleas in July 2014.

The case was investigated by the Internal Revenue Service – Criminal Investigation and prosecuted by Trial Attorney Keith Liddle in the Money Laundering and Bank Integrity Unit of the Criminal Division’s Asset Forfeiture and Money Laundering Section.

CONTRACTOR TO PAY OVER $220,000 TO WORKERS FOR PRESHIFT AND POSTSHIFT HOURS WORKED

FROM:  U.S. DEPARTMENT OF LABOR 

Carpentry business to pay more than $220K in back wages and damages to workers

Employer failed to record and pay for preshift and postshift hours worked
LOS ANGELES — A southern California carpentry contractor has agreed to pay $111,305 in overtime back wages and the same amount in liquidated damages to 29 workers.

An investigation by the U.S. Department of Labor's Wage and Hour Division in Orange found Next Level Door & Millwork Inc. in violation of the Fair Labor Standards Act's overtime and record-keeping provisions for failure to record and compensate workers for all hours worked.

"It is an employer's responsibility to record and pay for all work hours. Failure to do so adversely impacts not only employees and their families, but provides an unfair competitive edge over those employers who abide by the rules," said Rudy Cortez, the director of the division's San Diego District Office. "We are pleased that Next Level Door & Millwork has agreed to include Wage and Hour Division contact information and information about recording preshift and postshift work in all new hire packages it distributes."

Investigators found that employees were required to report to the shop to pick up materials and tools or to drive the company truck to the job site. Workers were also required to return the items to the shop after leaving the job site. The employer failed to pay for that time.

Next Level Door & Millwork is a licensed interior and exterior finish carpentry contractor with approximately 50 employees working at headquarters in Indio. At the time of the investigation, the company worked as a subcontractor for Pulte Home Corp. at the Hawthorne development project in Irvine. The company has satellite locations in Riverside and in Las Vegas.

The FLSA requires that covered employees be paid at least a minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers are required to provide employees with a notice about FLSA's tip credit provisions, to maintain accurate time and payroll records and to comply with the hours, hazardous orders and other restrictions applying to workers under age 18. The FLSA provides that employers who violate the law are, as a general rule, liable to employees for back wages and an equal amount in liquidated damages.

ROBOCALLING, MOBILE CRAMMING SCHEME DEFENDANTS TO PAY $10 MILLION TO SETTLE FTC CHARGES

FROM:  U.S. FEDERAL TRADE COMMISSION 

October 22, 2014

Defendants in Massive Spam Text Message, Robocalling and Mobile Cramming Scheme to Pay $10 Million to Settle FTC Charges

A series of defendants will pay approximately $10 million to the Federal Trade Commission to settle charges that they operated a massive scam that sent unwanted text messages to millions of consumers, many of whom later received illegal robocalls, phony “free” merchandise offers, and unauthorized charges crammed on their mobile phone bills.

The settlement marks the completion of a major effort by the FTC to crack down on the senders of unwanted text messages offering consumers “free” gift cards to retailers such as Best Buy, Walmart and Target. The messages contained links to websites that led consumers through a process that the FTC alleges was designed to get consumers’ personal information for sale to marketers, their mobile phone numbers to cram unwanted charges on their bill, and to drive them to paid subscriptions for which the scammers received affiliate referral fees.

“The operators of this scam bombarded consumers for months with deceptive text messages offering ‘free’ items, but the costs to consumers were very real – including the misuse of their personal information to cram unwanted charges on  their phone bills,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “I am pleased that these scammers will be forced to turn over millions of the dollars they took from consumers and banned from repeating these actions in the future.”

The settlement resolves the FTC’s allegations against three groups of defendants:

The first set of defendants is required to pay the FTC $7.8 million. The FTC alleged that this group of defendants was responsible for millions of illegal text messages, made deceptive claims about “free” merchandise, was responsible for unauthorized charges on mobile phone bills, and assisted and facilitated the sending of illegal robocalls. Under the terms of the settlement, these defendants will be banned from sending consumers unwanted text messages, as well as from placing charges of any kind onto a consumer’s telephone bill, whether landline or mobile. The settlement also bans the defendants from misrepresenting whether a product is free through a text message or webpage, and also requires the defendants to ensure that any affiliates working for them abide by the same provisions. In addition, the settlement requires the defendants to obtain consumers’ express informed consent before billing them and bans them from participating in illegal telemarketing. The defendants in this settlement are Acquinity Interactive, LLC; 7657030 Canada Inc., Garry Jonas, Gregory Van Horn, Revenue Path E-Consulting Pvt, Ltd.; Revenuepath Ltd.; and Sarita Somani.

The second set of defendants is required to pay the FTC $1.4 million. The FTC alleged that this set of defendants was responsible for cramming unauthorized charges on consumers’ mobile phone bills. Under the terms of the settlement, the defendants will be banned from placing charges of any kind on consumers’ telephone bills, as well as being banned from making any misrepresentations to consumers about a product or service, including the cost or a consumer’s obligation to pay. In addition, the defendants will be required to obtain consumers’ express informed consent before billing them for any good or service. The defendants in this settlement are Burton Katz, individually and also doing business as Polling Associates Inc. and Boomerang International, LLC, and Jonathan Smyth, individually and also doing business as Polling Associates Inc.

In the third settlement, an $8 million judgment is being suspended due to the defendants’ inability to pay, after they turn over available assets. The FTC alleged that this set of defendants was responsible for making millions of illegal robocalls. Under the settlement, the defendants are required to pay the FTC $100,000, as well as the surrender value of a life insurance policy and proceeds from the sale of: a 2013 Cadillac Escalade, two motorcycles, and a real estate holding in Southern California. The settlement also bans the defendants from illegally telemarketing consumers through robocalling. The defendants in this settlement are Firebrand Group S.L., LLC, Worldwide Commerce Associates, LLC, and Matthew Beucler.

In addition to these settlements, the Commission dropped charges against two defendants in the cases, Joshua Greenberg and Scott Modist.

The Commission vote approving the proposed stipulated final orders was 5-0. Judge Robert N. Scola, Jr. of the U.S. District for the Southern District of Florida entered the stipulated final orders on Oct. 16, 2014

NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.