Markets Wired

The Federal Trade Commission today announced a complaint seeking civil penalties against a New Jersey-based telemarketer that allegedly made misrepresentations to consumers when fund-raising for police, firefighter, and other non-profit organizations, in violation of a 1998 stipulated order and the Commission’s Telemarketing Sales Rule (TSR).

According to the FTC, although the stipulated order and the TSR bar the defendants from making any misrepresentation that would be material to a consumers’ decision whether to make a charitable donation, the defendants mislead consumers by telling them that defendants’ telemarketers work directly for the charities for which they are calling, that consumers’ donations would be paid to the charities, and that “100%” of the consumers’ donations would go to the charity.

The complaint announced today, filed by the U.S. Department of Justice at the FTC’s request, names Civic Development Group, LLC (CDG) and its officers, Scott Pasch and David Keezer as defendants. Both of the individual defendants and CDG’s corporate predecessor were named in the Commission’s 1998 complaint and order. Additionally, as professional fund-raisers for non-profit organizations, defendants must also comply with the TSR, according to the complaint.

Case History

The FTC’s original complaint alleged that defendants David Keezer, Scott Pasch, and the corporate predecessor to CDG (along with other defendants) misrepresented to consumers nationwide that the contributions they were soliciting on behalf of a non-profit organization – the American Deputy Sheriff’s Association (ADSA) – would buy bullet-proof vests, provide death benefits for deceased officers’ surviving family members, or otherwise benefit local law enforcement organizations in the donors’ own communities. In fact, the FTC charged, virtually no money raised by CDG in the name of the ADSA ever benefitted state law enforcement officers or organizations in the consumer’s locality.

The 1998 stipulated order settling these charges barred the defendants from misrepresenting the purpose for which the charitable contributions would be used or making any misrepresentation that would be material to a consumer’s decision to make a charitable donation. The order also prohibited the defendants from assisting any organization in making such misrepresentations to consumers.

The Commission’s Complaint

According to the complaint announced today, CDG’s representations to consumers violate the order’s prohibitions against misrepresenting the purpose for which charitable contributions will be used or misrepresenting any facts material to a consumers’ decision to contribute. The complaint also alleges that CDG assists the organizations in making material misrepresentations to consumers. The complaint seeks civil penalties for violations of the order.

The complaint specifically alleges that, beginning in about 2004, the defendants began changing their contracts with the charities to identify CDG as the charities’ “professional management consultant” (PMC) – instead of their professional fund-raiser, in an attempt to evade the Commission order. Under these PMC contracts, although defendants continue to operate as professional fund-raisers for the charities, they misrepresent to consumers that: 1) no professional fund-raising company or middleman is involved in the fund-raising campaign that would reduce the value of a consumer’s donation to the charity; 2) the telephone solicitor calling for the donation works for the charity; 3) the donation goes directly to the charity; 4) the charity receives 100% of the donation; 5) the charity directs how the entire donation is spent; and 6) a substantial portion of the donation goes to fund the charity’s programs. In fact, according to the complaint, on average no more than 15 percent of the consumer’s donation goes to the charity.

Count I of the complaint charges that, in making these misrepresentations, defendants misrepresent the purpose of the donation, in violation of Part I of the order. Count II of the complaint charges that the misrepresentations are material to consumers deciding whether to make charitable donations, and therefore violate Part III of the order. Count III of the complaint charges that defendants assist the charities in making the misrepresentations, in violation of Part VIII of the order.

In addition to violating the Commission order, the complaint seeks civil penalties from defendants for violating the provisions of the TSR that prohibit them from misrepresenting the amount or percentage of donations going to the charity (Count IV), or from making false or misleading representations to induce consumers to make donations (Count V). Additionally, the complaint charges that defendants violated the TSR by failing to transmit caller-id information required by the TSR (Count VI), and by failing to honor consumers’ requests to discontinue calling (Count VII).

The Commission vote authorizing the filing of the complaint seeking civil penalties, injunctive, and other relief was 5-0. It was filed by the Department of Justice on the FTC’s behalf in the U.S. District Court for the District of New Jersey on September 25, 2007.

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 Commission complaint, filed on the agency’s behalf by the Department of Justice, can be found as a link to this press release on the FTC’s Web site. 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.