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Major prepaid calling card companies have agreed to pay $2.25 million as part of a settlement to resolve Federal Trade Commission charges that they made false claims to consumers about the number of minutes of talk time their prepaid calling cards would provide. The companies targeted their advertising at recent immigrants, who depend on the cards to stay in touch with friends and family in other countries.

The settlement resolves charges brought by the FTC last May against Alternatel, Inc., Voice Prepaid, Inc., G.F.G. Enterprises, LLC, also d/b/a Mystic Prepaid, Voice Distributors, Inc., Telecom Express, Inc., and their principals, Nickolas Gulakos, Moses Greenfield, Lucas Friedlander, and Frank Wendorff.

In its lawsuit, the FTC charged that the companies misled consumers about the number of minutes of talk time their prepaid calling cards provided. The FTC’s testing showed that consumers received only about half the advertised minutes. In addition, the FTC alleged that the defendants’ cards carried hidden fees. For example, while the defendants’ ads for their cards often prominently claimed “no connection fees;” they then failed to clearly disclose a host of random fees, such as “hang-up” and “maintenance” fees and “destination surcharges” that could wipe out the value of the cards. Such fees were, at best, “disclosed” in tiny font in confusing terms that were incomprehensible in any language. At the request of the FTC, shortly after the case was filed, the court issued an order temporarily halting these deceptive practices and appointed a monitor to ensure the defendants’ compliance with the law.

The companies are part of the prepaid calling card industry, which sells billions of cards a year, many of them to recent immigrants from Latin America, Africa, and elsewhere from around the globe. The defendants’ cards, which retail for $2 to $10, are sold through small retailers such as grocery and convenience stores, gas stations, and newsstands in Florida, Massachusetts, New Jersey, New Hampshire, and Rhode Island.

In addition to the payment of $2.25 million, as part of the settlement announced today the defendants have agreed to a court order barring them from misrepresenting the number of minutes of talk time consumers will receive from prepaid calling cards, and requiring them to disclose any applicable material limitations, such as any fees or charges.

The settlement is part of an ongoing FTC crackdown on fraud in the prepaid calling card industry. The FTC has brought similar charges against Clifton Telecard Alliance, another major prepaid calling card company. The FTC has also established a joint federal-state task force concerning deceptive marketing practices in the prepaid calling card industry and has other active prepaid calling card investigations.

The Commission vote to approve the settlement was 4-0. The proposed settlement was filed in the U.S. District Court for the Southern District of Florida in Miami.

The Commission wishes to thank for their invaluable assistance with this case the Offices of the Attorneys General for Florida, Illinois, Massachusetts, and New Hampshire, as well as 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: 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.

Copies of the complaint are available at http://www.ftc.gov. 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. X08-0041)
(Civ. No. 08-CV-21433-Jordan/McAliley (S.D. Fla.))