Markets Wired

The operators of a New Jersey-based telemarketing scheme will pay a record $18.8 million and leave the charitable donation business to settle charges that they violated a Federal Trade Commission order by misleading consumers to believe that they were donating directly to legitimate charities serving police, firefighters, and veterans, when in fact only a small slice of the donations actually went to these charities.

The civil penalty against Civic Development Group, LLC; CDG Management LLC; and owners Scott Pasch and David Keezer is the largest ever in an FTC consumer protection case.  The penalty should deter others from violating Commission orders and from deceiving consumers and harming legitimate charities.  The case was filed on the FTC’s behalf by the U.S. Department of Justice.

“This scheme packed a one-two punch:  it deceived the people who donated, and it siphoned much-needed funds from police, firefighters, and veterans groups,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection.  “The court’s final settlement order packs a one-two punch of its own:  a record-breaking financial penalty for violating an FTC order and a lifetime ban on soliciting charitable donations.” 

“Firms and individuals should not mislead the public when soliciting donations for charitable organizations,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice.  “The Justice Department will take action when a telemarketer violates an FTC order and takes unfair advantage of the generosity of donors by providing only a small fraction of donations for the charitable purposes for which they were intended.”

Under the settlements, the defendants are permanently banned from telemarketing and soliciting charitable donations, and prohibited from making false claims about anything they sell.
Defendants Pasch and Keezer are required to turn over numerous assets to a court-appointed liquidator.  Pasch will turn over a $2 million home; paintings by Picasso and Van Gogh valued collectively at $1.4 million; a guitar collection valued at $800,000; $270,000 in proceeds from a recently sold wine collection; jewelry valued at $117,000; three Mercedes, a Bentley, and various other assets.  Keezer will turn over a $2 million home, a Range Rover, a Cadillac Escalade, and a Bentley, among other assets.

According to the complaint, Civic Development Group’s telemarketers deceived consumers by telling them that they worked directly for the charities they called about, and that “100 percent” of the consumers’ donations would go to the charities.

The FTC first sued Civic Development Group in 1998, charging that telemarketers working for the company’s corporate predecessor misled consumers by falsely claiming that their donations would be used locally to buy bullet-proof vests and provide death benefits for deceased officers’ surviving family members.   In 2007, the Department of Justice filed a second complaint referred by the FTC, which alleged that the defendants had violated the prior FTC order.  The complaint charged that the defendants tried to circumvent state and federal telemarketing regulations by mischaracterizing themselves as “Professional Management Consultants” who were operating independently from Civic Development Group.  In fact, the defendants continued hiring, firing, managing, and paying the telemarketers.  The telemarketers, in turn, continued to falsely tell consumers they worked directly for the charities, which received “100 percent” of the donations collected.  In fact, the charities received only 10 to 15 percent of the donations, and the balance went to Civic Development Group, the complaint alleged.

In addition to the other settlement provisions, the defendants must take reasonable steps to ensure that their employees comply with the settlement, and comply with standard FTC record-keeping and reporting requirements.

The FTC vote authorizing the staff to approve the two settlement agreements – one with Civic Development Group, LLC; CDG Management, LLC; and Pasch, and a second with Keezer – was 4-0.  The agreements were filed in the U.S. District Court for the District of New Jersey and signed by the judge on March 29, 2010.

NOTE:  The stipulated final orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Stipulated orders have the full force of law when signed by the judge.

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 1,800 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. C3810) (Civil Action No. 2:07-cv-04593-FSH-PS)
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