New Jersey telemarketers have agreed to pay a record $18.8 million fine for violating a Federal Trade Commission order - the largest FTC penalty ever in a consumer protection case.
The defendants - Civic Development Group, CDG Management and owners Scott Pasch and David Keezer - misled 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," according to the FTC, which announced the settlement today.
The case was filed on the FTC’s behalf by the U.S. Department of Justice in the U.S. District Court for the District of New Jersey.
“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 in a statement. “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.”
The defendants did not admit to the allegations in the complaint. To pay the fine, they are ordered to turn over assets to a liquidator. These include a pair of $2 million homes, 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, two Bentleys, a Range Rover, and a Cadillac Escalade.
The FTC first sued Civic Development Group in 1998 for allegedly misleading consumers in solicitations by claiming donations would be used locally to buy bullet-proof vests and provide death benefits for deceased officers’ family members. The defendants were barred from misrepresenting the purpose for which charitable contributions would be used
In 2007, the Justice Department filed a second complaint referred by the FTC, which alleged that the defendants had violated the prior FTC order.
The telemarketers allegedly told consumers they worked directly for the charities, which received “100 percent” of the donations collected. But the charities received only 10% to 15% of the money, and the balance went to Civic Development Group, the complaint alleged.
Pasch and the companies were represented by Matthew Oliver of Lowenstein Sandler in Roseland, N.J. Oliver could not be immediately reached for comment.
Keezer was represented by Edward Dauber of Newark, N.J.’s Greenberg Dauber Epstein & Tucker. Dauber also could not be reached for comment.
FTC lawyers on the case included James Kohm, Robert Kaye, Matthew Wilshire and Willard Tom. Justice Department attorneys on the case included Office of Consumer Litigation lawyers Eugene Thirolf, Kenneth Jost, Mark Josephs, and Roger Gural, Civil Divison head Tony West, as well as Assistant U.S. Attorney Daniel Gibbons and U.S. Attorney Paul Fishman of New Jersey.