Cross Media Marketing Corp. and its subsidiary Media Outsourcing Inc. have agreed to a $1.1 million civil penalty to settle telemarketing misrepresentation charges with the Federal Trade Commission and the Department of Justice.
The settlement bars deceptive sales practices and requires the company to monitor claims made by their sales agents. The $1.1 million penalty is suspended on payments of $350,000, based on the financial status of the corporations.
In April 2002, the agencies charged the telemarketers, who also operate as Consolidated Media Services or CMS, with violating federal laws by misrepresenting and failing to adequately disclose the costs and conditions of magazine subscription agreements and club memberships.
The named defendants included Cross Media, a Delaware corporation based in New York; Media Outsourcing, Atlanta; Ronald S. Altbach, then-CEO and chairman of Cross Media and president of Media Outsourcing; Dennis Gougion, a vice president; and Richard Prochnow, who previously owned and operated the magazine telemarketing business under the names Direct Sales Inc. and Magazine Sweepstakes Ltd.
“The settlement was just but it was too late,” said Altbach. The company filed for Chapter 11 liquidation last week, and laid off about 250 people, he said. About 500 employees total were let go in the last four-five months.
The complaint, filed by the DOJ at the request of the FTC, also charged the defendants failed to cancel subscriptions and pay refunds, and failed to monitor their independent sales reps. The complaint further alleged that Media Outsourcing, Prochnow and Gougion were violating a previously issued FTC order prohibiting deceptive practices in selling magazines.
The complaint alleged that the defendants’ telemarketers either call consumers offering free prizes and sweepstakes or send mailings soliciting consumers to call. Near the end of the calls, the telemarketers pitch subscription packages with allegedly misleading suggestions that the consumers will get some magazines “free” and others at a small weekly cost. According to court documents, “Often consumers have not agreed to purchase anything, or agreed but attempt to cancel the order, yet are charged on their credit card. In addition, consumers often are billed for buying clubs after accepting what they are told is a free trial membership.”
The magazine subscription “bundles” allegedly cost consumers an average of $600. The complaint further alleged that the defendants tell consumers who try to cancel magazines either during verification calls, or later when they discover misrepresentations that they cannot not cancel. The complaint also alleged that the defendants contact consumers, purportedly to verify a subscription, but instead offer a trial service of a buying club membership without disclosing adequately that consumers must call to cancel before the trial period ends to avoid being charged. In addition, the complaint alleged that the defendants fail to disclose adequately that they would turn consumers’ credit card numbers over to a third party. A settlement with Gougion similarly bars deceptive sales practices and requires him to post a $1 million performance bond if he engages in telemarketing in any way other than “specified publisher-seller liaison responsibilities.” Gougion has agreed to a $100,000 civil penalty suspended upon payment of $10,000, based on his financial status. As part of the settlement, the agencies agreed to dismiss Altbach as a defendant. However, for as long he is in power with the companies, he must certify personally under oath the semiannual compliance reports the companies are required to file with the agencies. The settlements ended the litigation with all the defendants except Richard Prochnow.
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