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Sting Nabs 77 Work-at-Home & Franchise Promoters

The investigators posed as prospective investors and listened to sales pitches from operators who hyped the business opportunity and touted the earnings po...

WASHINGTON, June 20, 2002 -- In a coordinated attack on business opportunity and work-at-home fraud, the Federal Trade Commission, the Department of Justice (DOJ) and 17 state law enforcement agencies have launched a law enforcement sting and consumer education campaign targeting hucksters who use deceptive earnings claims and paid "shills" to promote their scams or otherwise violate consumer protection laws. Seventy-seven operations have been caught in the sting.

"Business opportunity scams and work-at-home schemes are frauds that can cost consumers their life savings, and destroy their dream of owning a successful small business," said J. Howard Beales, III, Director of the FTC's Bureau of Consumer Protection. "That's why we launched Project Busted Opportunity, a joint federal-state attack on business opportunity and work-at-home schemes."

Using undercover investigators and special computer tools, the FTC identified business opportunity advertisements that made earnings claims without including cautionary language required by the FTC's Franchise Rule.

The investigators posed as prospective investors and listened to sales pitches from operators who hyped the business opportunity and touted the earnings potential. Then the investigators were given "references" - supposedly successful owners and operators of the business opportunity who could verify the earnings claims. In the course of their investigations, the FTC staff uncovered evidence that some of the "references" didn't own or operate a business. They were shills - actors paid by the operations to pose as successful and prosperous owners. Indeed, one of the "references" was actually a shill for three of the defendants named today and another had been a shill in a previous FTC case where he testified, "I was paid to lie."

The operations ranged from envelope stuffing work-at-home schemes to snack and soda vending machine businesses. In some cases, like medical billing work-at-home schemes, the sellers overstate the demand for the services, according to the FTC. In others, like vending machine businesses, the operators allegedly misrepresent the amount of assistance they would provide to the franchisee. All of the operators targeted by the FTC were allegedly characterized by one key element: earnings claims that were unsubstantiated or deceptive.

In 11 cases, the FTC has filed complaints in U.S. District Court seeking a permanent halt to the deceptive claims and, where franchises are involved, court orders requiring the defendants to provide future investors the disclosures required by the Franchise Rule. The agency also will seek redress for consumers.

In four related cases, promoters of medical billing, paralegal and craft work-at-home schemes have settled FTC charges filed earlier. The settlement in two of the cases permanently bans the defendants from selling business ventures, employment opportunities or work-at-home opportunities and requires that they post a $1 million bond before engaging in telemarketing. In the other two cases, the settlements require the defendants to post $1 million bonds before engaging in the promotion of work-at-home opportunities.

In 11 cases coordinated with the DOJ Office of Consumer Litigation, the agencies will seek consumer redress, civil penalties, and a permanent halt to the deceptive claims. In a related matter, Robert Ferrara, a defendant in a previous case filed by the DOJ, has pled guilty to violating a court order relating to selling franchises and defrauding consumers.

In addition to the FTC and DOJ cases, 17 state law enforcement agencies have announced 48 actions against business opportunity sellers. Those actions include lawsuits, cease and desist orders, consent agreements, and fines.

Companies named in the action include:

  • Accent Marketing, Inc.
  • American Vending Ventures Group, Inc.
  • America's Shopping Network, Inc.
  • Associated Record Distributors, Inc.
  • Century Placements, Inc.
  • Espresso Italia Marketing, Inc.
  • Komaco International, Inc.
  • Leading Edge Processing, Inc.
  • Inspired Ventures, Inc.
  • Nationwide Premium Cigar Distributors Corp.
  • Perfumes Unlimited, Inc.
  • Universal Greeting Card Corporation

The states and federal agencies are also launching an extensive consumer education campaign, including a Spanish language component, to help consumers avoid fraudulent business opportunity and work-at-home schemes. The FTC has free consumer publications available at www.ftc.gov/bizopps.

State participants in the sweep include: Alaska Attorney General, Arkansas Attorney General, California Attorney General, Florida Attorney General, Florida Department of Agriculture and Consumer Services, Indiana Attorney General, Iowa Securities Bureau, Kentucky Attorney General, Louisiana Attorney General, Maryland Attorney General, Michigan Attorney General, North Carolina Department of Justice, North Dakota Attorney General, Ohio Attorney General, Texas Attorney General, Washington State Department of Financial Institutions, Securities Division and the Wyoming Attorney General.

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AOL Agrees to $15 Million Settlement of Class Action Suit

Version 5.0 Suit

AOL Agrees to $15 Million Settlement of Class Action Suit...

June 20, 2002
AOL has agreed to pay $15.5 million to settle a consumer class-action lawsuit that claimed the company's version 5.0 software made it impossible for customers to access other Internet service providers.

The settlement, which must be approved by a federal judge in Miami, ends a lengthy proceeding that began in 1999, when AOL released version 5.0. Users said that after installing the program they were unable to log on to other ISPs and some said the software made their systems unstable.

AOL noted that the settlement is not an admission of wrongdoing and a spokesman said the company agreed to it to avoid protracted litigation. Attorney A.J. De Bartolomeo, who represented the plaintiffs, called the settlement "reasonable and equitable."

Under the settlement, about $8.8 million will be paid to consumers, with the rest going to pay fees and court costs. Payouts to consumers will be graduated and will be based on how much evidence they can provide about their difficulties with the AOL software. Under terms of the settlement, the maximum payout to any individual will be $250.

Consumers who believe they should be included in the settlement should go to www.50softwaresettlement.com. The deadline for filing claims is Sept. 6, 2002.

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NEXT Ultra Shock Bicycles Recalled

NEXT Ultra Shock Bicycles Recalled...

WASHINGTON, June 20, 2002 -- BY US International Co. Ltd., of Taiwan, is voluntarily recalling about 132,000 Next Ultra Shock mountain bicycles with "Ballistic 105" front suspension forks.

NEXT Ultra ShockDynacraft Industries Inc. was the sole distributor of these bicycles. BY US International Co. Ltd. manufactured the forks on these bicycles that can break apart, causing riders to lose control, fall and suffer serious injury.

The recall is being conducted in cooperation with the U.S. Consumer Product Safety Commission (CPSC). CPSC previously announced the recall of about 103,000 of these forks sold on bicycles manufactured by Brunswick Corp.

There have been 20 reports of the suspension forks breaking on the Next Ultra Shock bicycles, resulting in 19 riders suffering injuries that include abrasions, concussions and chipped teeth.

The recall includes only Next Ultra Shock bicycles, which are blue, with model numbers 8524-14 and 8526-20. They were manufactured between April 1999 and November 9, 1999. A label affixed to the frame near the crank housing identifies the model and date of manufacture. The name "Ultra Shock" is written on the bicycle down tube in white lettering.

Wal-Mart stores nationwide sold these mountain bikes from May 1999 through December 2000 for about $150.

Consumers should stop using these bicycles immediately and call Dynacraft Industries toll free at (800) 288-1560 between 7 a.m. and 4 p.m. PT Monday through Friday or visit their web site at www.dynacraftbike.com for information on receiving a free replacement fork and free installation.

Next Ultra Shock bicycles manufactured after November 9, 1999, did not use BY US International-made Ballistic forks, and are not subject to this recall.

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Insurance Companies Scrutinizing Customers' Credit Reports

Insurance Companies Scrutinizing Customers' Credit Reports...

June 18, 2002
An unfavorable credit report can cost you big bucks in more ways than you might think. Auto and homeowners insurance companies are looking closely at their customers' credit ratings, claiming that their research indicates consumers with poor credit are more likely to file insurance claims.

The credit score has "predictive value," as one insurance executive put it recently. The insurers don't bother to speculate how or why credit would affect a driver's accident record or a homeowner's propensity to file damage claims. The name of the game for insurers is identifying risk factors, not explaining them.

"I can't understand how they can do this. It seems so wrong and there needs to be a law against them doing this to anyone," said Theresa of Killeen, Ala. in a recent complaint to ConsumerAffairs.com. Her family is unable to pay the steep new rates Alfa Insurance Co. is charging them for homeowners insurance. The company raised their rates after Theresa suffered a back injury and could no longer work, leading the couple to file for bankruptcy.

"This is an outrage and I feel that this issue needs to come to the Legislature's attention!" Theresa said. In fact, the issue did come before legislatures in about 30 states over the last few years but most either took no action or enacted measures that allow the practice to continue, as long as credit ratings are not the only factor considered.

The insurance companies argue that their actions are pro-consumer. By being better able to identify customers who are likely to file big claims, the companies are able to hold down their rates to other, better customers, they claim.

Many consumer activists bitterly oppose the practice and note that it can penalize consumers who may not be aware that their credit reports contain errors.

A few states have taken action to force insurance companies to eliminate or reduce their reliance on credit ratings, according to a recent Washington Post survey.

Maryland has enacted a complete ban on the use of credit scores in homeowners insurance and sharply restricted its use for car insurance. Texas is investigating and Florida has convened a task force to study the issue.

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Citibank Blocks Gambling Charges

Citibank Blocks Gambling Charges...

Under threat of criminal prosecution, Citibank has agreed to block the use of its credit cards for Internet gambling, joining Providian and a handful of other credit card issuers. With more than 33 million Visa and MasterCard accounts, Citibank is the nation's largest credit card issuer.

Citibank acted after the New York Attorney General warned that it could face criminal prosecution for aiding in the promotion of online gambling, which is illegal in New York and many other states.

"It's a shot across the bow to financial institutions that are supporting gambling," said Ken Dreifach, chief of the New York attorney general's Internet bureau. He said Citibank and other financial instituions were "making profits off of the financial hardships of compulsive gamblers."

Citibank also agreed to pay $400,000 to nonprofit agencies that provide gambling counseling.

Some banks had earlier blocked online gambling transactions, citing not only their hazy legality but also the stark reality that many customers dispute gambling charges, claiming that someone else used their card to run up gambling debts.

Visa and Master Card require online casinos to use a specific code when processing gambling charges. Citibank said it would block all transactions including that code.

The New York Times reported that Internet gambling operations were already suffering because of the crackdown by credit card companies. It said as many as 8 out of 10 transactions were being denied by banks. Many online casinos have gone out of business or are suffering heavy losses as a result.

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GM Will Sell Rebadged Daewoos

GM Will Sell Rebadged Daewoos...

June 15, 2002
General Motors now says it will sell rebadged Daewoo vehicles in the United States. GM, facing a court challenge from Daewoo dealers, had previously said it did not expect to sell the Korean cars in the U.S. market.

GM bought the assets of bankrupt Daewoo Motor Co. earlier this year, giving it control of Daewoo's three factories in Korea and Vietnam. But it did not buy Daewoo Motor America, thus leaving U.S. dealers high and dry and casting doubt on the value of the warranties held by U.S. consumers.

Daewoo owners are having problems getting parts and service on their cars and some have been told that their warranties are no longer valid. GM has said it will honor warranties but has not said how it plans to do so.

The disclosure that GM now plans to sell rebadged Daewoos in the U.S. was made in a written response to a letter from the Florida Department of Highway Safety and Motor Vehicles, which had questioned the company about its intentions.

Twenty-three Daewoo dealers in Florida have filed suit against GM, claiming it has violated dealer franchise laws in Florida and other states by refusing to honor Daewoo Motor America's contracts with dealers. GM has argued that since it bought only the assets of the parent company, it has no obligation to the dealers or, presumably, consumers.

In its response to Florida officials, GM said it was not violating franchise laws which prohibit selling the same products through different sales channels. It said the rebadged Daewoos would not be identical to those previously sold through Daewoo dealers.

GM is also using legal maneuvers to try to move the case out of Florida. It has petitioned a U.S. District Court to hear the case, arguing that since Daewoo's U.S. sales arm has filed for bankruptcy, the federal courts have jurisdiction.

GM warned that a lengthy legal fight would prevent the dealers from honoring customers' warranties, which will be funded by a GM-Daewoo coalition once an agreement is reached. Meanwhile, the dealers "are just strangling to death," said Dan Myers, a Florida lawyer representing the dealers.

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Questionable Doctors Database Debuts on Web

Questionable Doctors Database Debuts on Web...

WASHINGTON, June 6, 2002 -- The consumer advocacy group Public Citizen is making its Questionable Doctors database available on the Internet. The first installment covers 6,700 physicians in 12 states who have been disciplined from 1992 through 2001.

Consumers can find out from their state medical board whether their physician has had his or her license revoked or has been disciplined by that state. However, state records don't normally include disciplinary actions taken by a federal agency or by states where a doctor may have practiced previously.

Offenses covered in Public Citizen's database include incompetence, misprescribing drugs, sexual misconduct, criminal convictions, ethical lapses and other offenses. Most of the doctors were not required to stop practicing, even temporarily.

The www.questionabledoctors.org site now has records from California, Connecticut, Hawaii, Illinois, Indiana, Maine, Massachusetts, Michigan, New Hampshire, Ohio, Rhode Island and Vermont. Public Citizen said more states would be added throughout the year.

Public Citizen has been publishing national and regional editions of the Questionable Doctors database in book form for more than a decade but the information has not been available on the Web until now. Consumers will be able to search the list of disciplined doctors for free. For $10, they can view and print detailed disciplinary reports on up to 10 physicians within a three-month period in any of the states listed.

Examples of doctors who were disciplined but are currently allowed to continue practicing include:

  • A California doctor who was convicted of battery after attacking his billing clerk and office partner;
  • A New Hampshire doctor who delayed a Caesarean section, causing a baby to be born in a vegetative state and eventually die;
  • A Massachusetts doctor who allowed a drug company representative to be present at a patient examination, telling the patient the observer was a "preceptor";
  • An Indiana doctor who engaged in sexual misconduct with students ranging in age from 14 to 17; and,
  • An Illinois doctor who twice perforated a uterus during two separate elective abortions.

"For many of the most serious offenses by doctors, the disciplinary actions imposed by state medical boards have been dangerously lenient," said Sidney Wolfe, M.D., director of Public Citizens Health Research Group. "Choosing a doctor is one of the most critical decisions a consumer will make, but unfortunately, finding good, reliable information about physicians has been exceedingly difficult. We believe that to make the right choices about health care, consumers need to know whether their doctor has been disciplined for any offense and the details of the offense."

The majority of doctors disciplined for the five most serious offenses sexual abuse or sexual misconduct; substandard care, incompetence or negligence; criminal conviction; misprescribing or overprescribing drugs; and substance abuse were not required to stop practicing even temporarily. Therefore it is likely they are still practicing and that their patients are unaware of their offenses.

"All too often, state medical boards are more concerned about protecting the reputations of doctors than doing their job, which is to protect unsuspecting patients from doctors who may be incompetent or negligent," Wolfe said.

Public Citizen also has published a ranking of state medical boards, based on the number of serious disciplinary actions (license revocations, surrenders, suspensions and probation/restrictions) per 1,000 doctors in each state. In 2001, nationally there were 3.36 serious actions taken for every 1,000 physicians. Click here to view the state rankings on the web.

"Nationwide, an extremely tiny fraction of doctors face disciplinary action," Wolfe said. "States need to start doing a better job of protecting the public."

Public Citizen recommends that states promptly make public all of their board disciplinary actions, malpractice payouts and hospital disciplinary actions; strengthen medical practice statutes; restructure their medical boards to sever any links with state medical societies; and increase funding and staffing for medical boards.

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Ford Focus Setting Recall Record

Ford Focus Setting Recall Record...

Ford's attempt to focus on safety and reliability isn't getting much help from its recall-plagued subcompact, the Focus. With nine safety recalls and five defect investigations so far, the Focus is turning into a major black eye for Ford.

The latest investigation announced by the National Highway Traffic and Safety Administration (NHTSA) has to do with wheels falling off the 2000 models, the right and left rear wheels to be precise. There's already been a recall for a similar problem involving only the left rear wheels in some 203,000 2000 models.

Some 350,000 2000 models were recalled because their roof pillars could cause head injuries in crashes. Other problems include airbags that deploy inadvertently, engine compartment fires and engine stalling.

It's the most recalls for a single manufacturer since General Motors' notorious X-cars (the Buick Skylark, Chevrolet Citation, Oldsmobile Omage and Pontiac Phoenix) racked up 13 recalls in the their first two years, according to the Center for Auto Safety.

The non-profit Center for Auto Safety wrote Ford's then-chairman, William Clay Ford, in November 1999, warning up about the damage being done to Ford's reputation by quality problems and the cover-ups that often accompanied them.

Ford is now the company's CEO and the problems continue. "The Focus fiasco shows Mr. Ford has a long road to hoe before he can restore some of the luster to his great grandfather's company," the center's executive director, Clarence M. Ditlow, said.

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