Current Events in November 2004

Kmart Holding Corp. is buying Sears, Roebuck & Co., for $11 billion, a deal that will create the third-largest retailer in the U.S.

Kmart emerged from bankruptcy just 18 months ago and not long ago looked like a candidate for the dust bin, but Kmart has been generating strong profits in recent months while Sears continues to languish.

The startling acquisition was engineered by Kmart Chairman Edward Lampert, the largest single shareholder in Sears. He holds about 15% of Sears stock through his ESL Investments Inc.

The merger isn't the end of problems for Kmart and Sears, both struggling to combat Wal-Mart, Home Depot and other powerhouse retailers. But the combined company will have greater buying power and more outlets -- 2,350 Sears and Kmart locations and another 1,100 specialty stores.

"The merger will enable us to manage the businesses of Sears and Kmart to produce a higher return than either company could achieve on its own," Lampert said in a statement. 

The combined company will be called Sears Holdings Corp. and will be based in Hoffman Estates, Ill., where Searnow s has its headquarters.

It's expected that several hundred Kmart stores will be converted to Sears stores and Kmart stores will begin carrying private-label Sears products like Kenmore appliances and Craftsman tools.

Lampert will be the chairman of Sears Holdings, while Sears CEO Alan Lacy will be vice chairman and CEO.

An operation billing itself as a debt negotiation company that promised to reduce consumers debt, negotiate with creditors, and stop harassment from debt collectors in exchange for various fees instead pocketed the fees and plunged consumers deeper into debt, according to the Federal Trade Commission.

The FTC charges that Better Budget Financial Services (BBFS) and its principals, John Colon, Jr. and Julie Fabrizio-Colon, have defrauded consumers out of hundreds or thousands of dollars each, causing many to be sued by their creditors and forcing others into bankruptcy.

The FTC has asked the court to award consumer redress to the victims. On November 3, 2004, the court entered a temporary restraining order halting the defendants allegedly illegal business practices, freezing their assets, and appointing a temporary receiver pending a preliminary injunction hearing.

This scam has had devastating consequences for consumers who thought they were taking the right steps to get out of debt, said Lydia Parnes, Acting Director of the FTCs Bureau of Consumer Protection.

They signed up for the defendants services in good faith and expected the company to act accordingly. Now the defendants have learned that reneging on a promise to help people settle their debt has serious consequences, too.

The FTC received substantial assistance in bringing this case from Massachusetts Attorney General Tom Reillys Consumer Protection and Antitrust Division.

According to the FTC, Massachusetts-based BBFS has advertised its services through Internet advertising and on its Web sites since at least August 2000. The defendants Web sites, www.betterbudget.net and www.termidebt.net, claim that BBFS can negotiate with consumers creditors to reduce their debt by 50 percent.

Consumers who contact the defendants are promised that the defendants will negotiate with consumers creditors for a non-refundable retainer fee, monthly administrative fees of $29.95 to $39.95, and 25 percent of any savings realized by a debt settlement. According to the FTC, consumers typically paid the defendants hundreds or even thousands of dollars in fees.

The FTCs complaint states that consumers who sign up with BBFS provide the defendants with a list of all their creditors and the total amount of their debt. The defendants then tell consumers to set up a special bank account and deposit a calculated sum into the account, which will be used to pay creditors and pay BBFS its monthly fee.

The defendants allegedly tell consumers to stop paying their creditors directly, claiming that consumers failure to pay their creditors will demonstrate a hardship condition that will enable BBFS to negotiate on their behalf. The defendants claim they will settle each creditors account once the consumer saves half the amount they owe on each debt.

According to the FTC, BBFS also tells consumers to sign power of attorney forms, claiming that the forms will enable BBFS to contact creditors on the consumers behalf and instruct debt collectors to stop calling consumers directly. The consumers are instructed not to talk to any creditors who contact them directly. Further, the defendants allegedly tell consumers that negative information may appear on their credit reports while they are working with BBFS, but that the information is temporary and that BBFS will direct consumers to a company to get assistance repairing their credit.

The FTC charges that, rather than negotiating with consumers creditors as promised, the defendants in numerous instances fail to contact creditors and debt collectors. Instead, consumers continue to be contacted by their creditors, receive repeated phone calls from debt collection agencies, and incur late fees and penalties on their credit accounts, increasing their debt and worsening their financial situation.

The FTCs complaint states that the defendants in numerous instances fail to negotiate with creditors even after consumers call to let them know they have sufficient funds set aside to pay a settlement. In many cases, consumers have been sued by their creditors, resulting in them paying substantial legal fees. According to the FTC, as a result of the defendants scam, many consumers have been forced to file for bankruptcy.

Petco, a national seller of pet food, supplies, and services, has agreed to settle Federal Trade Commission charges that security flaws in its www.PETCO.com Web site violated privacy promises it made to its customers and violated federal law.

The agency alleges that, contrary to Petcos claims, it did not take reasonable or appropriate measures to prevent commonly known attacks by hackers. The flaws allowed a hacker to access consumer records, including credit card numbers. The settlement requires that Petco implement a comprehensive information security program for its Web site.

This is the fifth FTC case challenging deceptive claims by businesses about the security they provided for consumers personal information.

Consumers have the right to expect companies to keep their promises about the security of the confidential consumer information they collect, said Lydia Parnes, Acting Director of the FTCs Bureau of Consumer Protection. The FTC will hold companies to their word.

Petco has sold pet food and supplies to consumers through its online store at www.PETCO.com since February 2001. According to the FTC, Petco made security claims on the Web site, such as:

At PETCO.com, protecting your information is our number one priority, and your personal information is strictly shielded from unauthorized access.

Entering your credit card number via our secure server is completely safe. The server encrypts all of your information; no one except you can access it.

But according to the complaint, the Web site was vulnerable to commonly known Web-based application attacks, such as Structured Query Language (SQL) injection attacks. The FTC alleges that Petco created these vulnerabilities in its Web site by failing to implement reasonable and appropriate security measures to secure and protect sensitive consumer information, including simple, readily available defenses that would have blocked such attacks.

The agency also charged that the sensitive information Petco obtained through its Web site was not maintained in an encrypted format, as it claimed. As a result, a hacker was able to penetrate the Petco Web site and access credit card numbers stored in unencrypted clear text. The FTC charged that Petcos claims were deceptive and violated the FTC Act.

The settlement prohibits Petco from misrepresenting the extent to which it maintains and protects sensitive consumer information. It also requires Petco to establish and maintain a comprehensive information security program designed to protect the security, confidentiality, and integrity of personal information collected from or about consumers.

It also requires that Petco arrange biennial audits of its security program by an independent third party certifying that Petcos security program is sufficiently effective to provide reasonable assurance that the security, confidentiality, and integrity of consumers personal information has been protected. The settlement also contains record keeping provisions to allow the FTC to monitor compliance.

The founders of PBHG, a leading mutual fund family, have agreed to personally pay more than $120 million in restitution to investors and accept a lifetime ban from the securities industry, New York Attorney General Eliot Spitzer announced. The individuals will also pay a total of $40 million in civil penalties.

The agreement with PBHG founders Gary L. Pilgrim and Harold J. Baxter resolves allegations that the two men secretly facilitated market timing arrangements with favored clients while PBHG prospectuses sharply limited shareholders' abilities to trade in and out of the funds.

"As founders of a company that bore their names, Mr. Pilgrim and Mr. Baxter should have set an example of integrity and fair play," Spitzer said. "Instead, they were at the center of improper conduct that deceived and harmed their clients."

Coordinated investigations by state and federal regulators revealed that the defendants permitted certain hedge funds and others to market time in the PBHG family of mutual funds, in contravention of the express restrictions of the applicable prospectuses.

Entities permitted to "time" the PBHG funds included a hedge fund in which Pilgrim had a substantial interest and clients of a New York-based brokerage firm owned by a close friend of Baxter. The investigation also revealed that Pilgrim Baxter & Associates (PBA) -- the investment adviser for PBHG funds, now known as Liberty Ridge Capital - - selectively disclosed the portfolio holdings of certain PBHG funds to facilitate hedge fund market timing strategies in PBHG funds.

In June 2004, Spitzer announced a settlement with PBA under which PBA paid $40 million in disgorgement and restitution and a $50 million civil penalty. PBA further agreed to a 5-year reduction of management fees valued at $10 million and significant corrective measures including new requirements for disclosure to investors of expenses and fees, new standards for board independence, greater board and adviser accountability and a commitment to hire a senior officer to ensure that fees charged by the funds are reasonable and are negotiated at arm's length.

Under the terms of this settlement, Pilgrim and Baxter will each pay $60 million in disgorgement and restitution to investors and $20 million each in civil penalties. The total value of the settlement is $160 million. In addition, pursuant to the settlement, both Pilgrim and Baxter are barred from the securities industry for life.

To date, the investigation into the mutual funds industry has resulted in $1.17 billion in restitution to investors, $821 million in civil penalties, and $925 million in anticipated reductions in mutual fund fees over five years. To date the settlements have generated over $2.9 billion in total value.

California Attorney General Bill Lockyer has reached an $18 million settlement with the distributor of Franklin Templeton Investments (FTI), resolving allegations that the distributor violated state securities laws by not adequately informing investors about agreements to pay broker-dealers to recommend and sell FTI mutual funds.

"Most mutual fund investors are families with modest incomes," said Lockyer. "They work hard for their money, and when they invest it they deserve to be told the whole truth so they can make informed decisions. That is what our laws against securities fraud require. Franklin Templeton violated those laws and the trust of small investors."

Along with the complaint itself, Lockyer today filed the settlement with Franklin/Templeton Distributors, Inc. (FTDI) in Sacramento County Superior Court. The court approved the settlement, which takes effect immediately. FTDI is the front-line distributor of FTI Funds, which include the Franklin, Templeton and Mutual Series mutual funds. FTDI is a wholly-owned subsidiary of Franklin Resources, Inc. (FRI), the parent company of San Mateo-based FTI. In 2003, FTI managed more than $300 billion in assets worldwide.

The settlement requires FTDI to pay $18 million. Of that total, $14 million will be disgorged back to the FTI Funds. An independent consultant, agreed to by Lockyer, will develop and implement a plan to allocate the $14 million to the various FTI funds. FTDI also will pay the state $2 million in civil penalties for violating the state Corporate Securities Law (CSL), and another $2 million to cover costs.

Aside from monetary terms, the state's settlement memorializes FTDI's agreement to implement voluntary reforms in response to Lockyer's investigation. FTDI will more fully inform investors about the "shelf space" arrangements it enters with broker-dealers to secure either sales of FTI funds or spots on lists of recommended buys.

These procedures will require FTDI to disclose both shelf space payments and the services those payments buy from broker-dealers. Additionally, FTDI will take steps to enter written shelf space agreements that detail the terms. Pursuant to a ban approved in August 2004 by the U.S. Securities and Exchange Commission, FTDI has ended its practice of directing commission payments for its portfolio transactions to broker-dealers in return for sales of FTI funds. Employees of mutual funds or broker-dealers who have knowledge of securities law violations by their companies should contact the Attorney General's Whistleblower Hotline at 800-952-5225 (for California residents) or 916-322-3360 (for out-of-state residents). -30-

Pfizer's latest TV ad campaign for Viagra is coming to an abrupt halt after sharp criticism from the Food and Drug Administration. In a letter to the drug company, FDA Regulatory Review Officer Christine Hemler Smith said the ads are misleading.

The advertisement features a man and woman on a shopping trip. As they pass a sexy lingerie shop, the man grows horns as the voice over asks "Remember when you used to be called Wild Thing?"

"The TV ads claim that Viagra will provide a return to a previous level of sexual desire and activity," Smith wrote, adding that claim has not been proved.

"The TV ads make clear that Viagra is intended for sex. The TV ads omit the indication for the drug, (namely erectile dysfunction) and fail to provide information about major side effects."

Those side effects include headache, flushing and abnormal vision, according to the FDA.

A Pfizer spokesman said the ads are being pulled immediately, but didn't say how much it had spent on the ad campaign, which has saturated the airwaves over the past few weeks. The company said it would formally respond to the FDA next week.

Meanwhile, acting FDA Commissioner Lester Crawford said the agency is taking a closer look at all drug advertisements aimed at consumers.

Cross Country Bank and its Pennsylvania-based collection company will pay restitution to consumers with impaired credit who complained of illegal sales tactics related to the marketing of the bank's pre-approved credit cards.

Pennsylvania Attorney General Jerry Pappert said the defendants must also issue refunds or credits to other qualified consumers who come forward before January 7, 2005. Along with restitution, the defendants are also required to pay a total of $450,000 in fines and costs.

Pappert encouraged consumers who suspect they are entitled to restitution to contact his Bureau of Consumer Protection at 1-800-441-2555 to obtain a complaint form. Complaint forms can also be filed electronically by visiting the Attorney General's website at http://www.attorneygeneral.gov.

Pappert said a consent petition was filed in Commonwealth Court, resolving a June 2004 lawsuit that was brought by his Bureau of Consumer Protection against Cross Country Bank Inc. of Wilmington, Delaware, and Applied Card Systems Inc. of Glen Mills, Pennsylvania.

The lawsuit accused the defendants of violating Pennsylvania's Consumer Protection Law and Fair Credit Extension Uniformity Act.

According to the lawsuit, the defendants promoted and marketed pre-approved credit cards and services to consumers with impaired credit or no credit history. The ads claimed that the credit cards carried thousands of dollars in credit.

In reality, the credit limit was much lower than promised and the credit cards were issued with application, maintenance, membership, overdue, over-the-limit, customer assistance and other fees that were inadequately explained and often times automatically deducted from the starting credit card balance.

For many, once the fees were taken out, the cards had less than $400 in available credit. Some said the extra expenses actually pushed them further into debt instead of improving their credit standing.

Pappert said those who defaulted on their accounts complained that they were subjected to abusive and illegal debt collection practices including improper legal and physical threats to coerce payments.

Others said they were exposed to multiple harassing calls to their home or workplace that included obscene, derogatory, rude and hostile language directed toward them or family members, including children.

Under the terms of the consent decree, the defendants are required to:

• Pay restitution to consumers who filed complaints about inadequately disclosed fees and charges that were deducted from their accounts after December 31, 2001. Pay restitution to those who file complaints by January 7, 2005 with proof of similar harm.
• Take steps to remove any negative entries on consumers' credit reports.
• Pay $250,000 in civil penalties.
• Cease making false, deceptive or misleading representations regarding the identity of collection employees.
• Cease making false, deceptive or misleading representations regarding its legal authority to collect on consumers' accounts.
• Cease making false, deceptive or misleading representations that consumers have consented to withdrawing funds from their bank accounts to make payments on credit cards.
• Cease providing false or deceptive quotes to consumers requesting the amount payable to bring an account current and avoid late fees.
• Cease making numerous calls on a single day to consumers in an attempt to collect on accounts.
• Cease using tactics or language considered harassing, abusive, profane and annoying.
• Cease the use of false, deceptive or misleading language in written advertisements, promotions or communications with consumers.
• Clearly and conspicuously disclose any fees, terms and conditions associated with the credit cards or services.
• Fully comply with applicable state and federal laws.
• Provide the Commonwealth with records of complaints made by consumers.
• Pay $50,000 for the Commonwealth's investigation costs and $150,000 for future public protection purposes.

Florida Attorney General Charlie Crist has filed a civil complaint against Consumer Grants USA, Inc., and two of its corporate directors for violations of Florida's Unfair and Deceptive Trade Practices Act.

The lawsuit alleges that the company used misleading solicitations to entice consumers to pay hundreds of dollars for information that was actually available to the public for free.

Consumer Grants USA, a St. Petersburg company established less than one year ago, claims to conduct a legitimate telemarketing business designed to offer governmental grant guidebooks to consumers.

In June 2004, an investigation conducted by the Attorney General's Office and the Tampa Better Business Bureau showed that telephone solicitors for Consumer Grants USA allegedly informed consumers that they had been selected for, or "won," a guaranteed federal government grant worth between $5,000 and $25,000.

After paying a fee that ranges from $239 to $299, consumers actually received a guidebook listing government grants. Most of the information in the guidebook, available to consumers for free from public sources, listed grants that the consumers did not qualify to receive.

"Public information means that it is available to the public free of charge - not to be sold by unscrupulous telemarketers," said Crist. "These citizens were victimized and deserve to be reimbursed."

In one example, Consumer Grants USA informed consumers that they had won a grant from the Government Grant Information Guide because they had been prompt and reliable in paying their taxes to the IRS.

Consumer Grants USA allegedly instructed consumers to pay a "one-time processing fee" in order to receive a grant. Consumers were asked to give their personal banking account information so that Consumer Grants USA could withdraw the fee and then deposit the grant funds into the same bank account. After receiving the book that lists possible government grants, some of the consumers attempted to contact the company for refunds but were informed that they would have to receive three grant denials before any refunds.

This undisclosed refund policy is in violation of Florida telemarketing laws, including 501.615 and 501.059 that prohibit telemarketing companies from practicing business without a license obtained from the Department of Agriculture and Consumer Services, and that prohibit telemarketing companies from accepting funds from customers without a signed agreement. The Attorney General's complaint also alleges that the company violated the law by offering "free" gifts without disclosing financial requirements and by resisting consumer requests to cancel transactions or to obtain refunds.

The complaint was filed in Pinellas County Circuit Court and included charges against Consumer Grants USA and against James T. Lovern, President/Director, and Leo J. Corrigan, Vice President/Director. The Attorney General's complaint seeks civil penalties of $10,000 per transaction, or $15,000 per transaction involving elderly consumers, as well as injunctive relief under at least six different sections of Florida law.

November 12, 2004
America Online was slow to get into the arena of broadband services. It's getting out a lot faster. Meanwhile, AOL is planning a plunge into the crowded waters of online travel.

The once-dominant Internet Service Provider stopped marketing its high-speed service earlier this year. Now, it's telling its existing customers they have to find another service provider if they want to continue receiving high speed internet services.

The first AOL broadband customers to feel the impact are those in nine southern states, who will lose their service January 17, 2005. An AOL spokeswoman says affected customers who take no action will find their service has reverted to dial up speed on that date.

The affected states are Florida, Kentucky, Georgia, Louisiana, Alabama, Mississippi, Tennessee, North Carolina and South Carolina. The company has not disclosed how many broadband subscribers it still has in those states. Service to the rest of the country will be phased out, region by region, over the next year.

Travel Plans

While abandoning broadband, AOL is planning a new travel search-engine that it says will search dozens of Web sites to find the best deals on travel.

This is hardly a new idea. Yahoo, SideStep and numerous other sites do essentially the same thing but AOL says its alliance with Kayak Software, a small Connecticut company, will give it the advantage.

Kayak, like many other best-price sites, doesn't sell tickets or make reservations -- it merely identifies what it thinks are the best deals and directs travelers to them. This could cause trouble for AOL's longtime partnership with Travelocity, which last month asked Kayak to stop listing its fares.

The established travel agencies are opposed to having their fares displayed by Kayak and similar companies. Expedia has also asked Kayak and similar sites to stop listings its offerings, calling the practice "almost parasitic."

Kayak is thought to be hoping to form direct relationships with airlines, hotels, car rental companies and other travel suppliers, which would generally prefer to deal directly with customers, rather than going through a travel agent.

The lawsuit charges Diet Patch, Inc., and Guadalupe Bejar, its president, with multiple violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.

Madigan alleges Bejar conducted business out of her suburban Chicago home, using a Tinley Park post office box address and the Web site www.mydietpatches.com,/to run her business.

According to the lawsuit, the company used false advertising to promote and sell its products. The complaint charges that the Diet Patch Web site made numerous unsubstantiated weight loss claims including, "An easy to use product that magically melts off ugly fat, gets rid of flab and cellulite without 'dieting,' calorie counting, or strenuous exercise" and "With The Amazing Diet Patch you don't even have to think about losing weight, the patch does all the work for you!"

"The Diet Patch advertisements, such as those posted on the Diet Patch Web site, are riddled with deceptive claims," Madigan said. "These defendants are clearly trying to take advantage of their clients' eagerness to lose weight. However, the only losses these consumers saw were to their wallets, not their waistlines."

Bejar's pop-up ads that lured consumers to her Web site found their way across the country. Consumers who complained to Madigan's office were from Illinois as well as California, Texas, Pennsylvania and other states.

Madigan's Consumer Fraud and Healthcare Bureaus have received 19 consumer complaints against Diet Patch, Inc., alleging that when consumers respond to the company's free trial offer, they unexpectedly receive and are billed for shipments of the costly weight loss product.

Specifically, the Web site offered a free seven-day supply of the Amazing Diet Patch and required consumers to pay a shipping and handling fee of $2.95. Consumers were required to provide a credit or debit card number for shipping and handling charges.

However, consumers allegedly received not only the free patches, but also an additional supply of the patches without their authorization and were charged approximately $165 to $170 for the extra shipment. According to the lawsuit, even after the unwanted supplies of patches were returned, the majority of the consumers did not receive their money back.

The lawsuit asks the court to stop the defendants from running an internet site that sells diet products in violation of Illinois' consumer protection laws by making unsubstantiated weight loss claims. In addition, it calls on the court to assess a civil penalty of $50,000 and additional penalties of $50,000 per violation found to be committed with the intent to defraud, and to order the defendants to pay restitution to the consumers.

Consumers often get telephone solicitations from groups representing themselves as law enforcement charities. Some even offer to send contributors a decal for their car, with the not-too-subtle implication that a contribution might help avoid a ticket in the future.

Iowa Attorney General Tom Miller has filed a lawsuit against one of these groups, the American Deputy Sheriffs' Association, charging the a not-for-profit corporation headquartered in Louisiana with using deceptive fund-raising practices.

"We allege they use deceptive phone solicitations to make Iowans believe that the caller actually is a local law enforcement person, and that donations are put to good use in the community of the Iowan being called," Miller said.

Nationwide, the suit says, filings with the IRS show ADSA raised $5,104,326 in 2003. Of that amount, ADSA paid $4,754,610 to its professional fund-raisers - 88% of the donations raised - and spent only $108,377, or two percent of total donations, on "program services" to support law enforcement.

Nationwide, for the period from 1998 through 2003, reports showed ADSA collected $28,023,607 in donations, and paid $25,052,918 to its professional fund-raisers - 89%. ADSA spent $1,144,181 on the worthy-cause "program services," or about four percent of total donations.

"The truth, we allege, is that the callers are paid professional fund-raisers, most likely in Wisconsin, making thousands of calls to Iowans who contribute hundreds of thousands of dollars believing their gifts will support law enforcement. And the truth is, less than one-half of one percent of Iowa donations have been used to support Iowa law enforcement," Miller said.

"Our suit says essentially that the American Deputy Sheriffs' Association and its professional fund-raisers mislead Iowa donors, exploit the public's desire to assist local law enforcement, and then divert almost all of the charitable donations to the defendants' own benefit," he added.

The consumer fraud lawsuit was filed in Polk County District Court in Des Moines. District Court Judge D.F. Staskal issued an immediate temporary injunction prohibiting the defendants from violating the Iowa Consumer Fraud Act - including making any misrepresentations in phone solicitations about the location of the caller, whether the caller is in law enforcement, whether donations will be used by local law enforcement, and so on.

Defendants named in the suit are ADSA, Inc., doing business as the American Deputy Sheriffs' Association, headquartered in Monroe, Louisiana; Michael Croft, past president of ADSA; Ashley Isaac, president of ADSA; Thomas Buchman, internal auditor of ADSA; EulaLee Warner, secretary-treasurer of ADSA; Public Awareness, Inc., a professional fund-raiser business that contracts with ADSA and is based in Eau Claire, Wisconsin; and Duane Kolve, president of Public Awareness, Inc.

The suit asked the Court to issue the immediate temporary injunction ordered by Judge Staskal, to issue a permanent injunction, and to order the defendants to pay up to $40,000 for each violation of the Consumer Fraud Act and $5,000 for each violation against older Iowans.

Miller said: "This suit ultimately alleges that the American Deputy Sheriffs' Association exists primarily to rent its worthy-sounding name to telemarketing operations such as Public Awareness, Inc., which use carefully-crafted deceptions to exploit the public's desire to assist local law enforcement. We are asking the court to prohibit the violations we allege."

When Miller announced the lawsuit in Des Moines, he was joined by several Iowa county sheriff officers and leaders of the Iowa State Sheriffs' & Deputies' Association. The suit notes that numerous Iowa sheriff departments have disassociated themselves from ADSA appeals and warned the public that donations to ADSA do not benefit their counties.

The suit alleges that the American Deputy Sheriffs' Association is known to have collected at least $987,586 from Iowans from 2001 through Sept. 2004 - but it alleges that only about $3,900 has been committed to assist local law enforcement in Iowa, or under four-tenths of one percent.

"Telemarketers calling for ADSA stress several worthy purposes, but the money isn't delivered for them in Iowa," Miller said. "Contrary to the representations made to potential donors, we allege that no Iowa family has received a death benefit for an officer killed on duty, no Iowa students have received an ADSA scholarship, and no training events have been held in Iowa."

Miller said phone solicitations stress that ADSA distributes bullet-proof vests and other equipment to officers who need it. "We allege ADSA in reality has committed only $3,900 to provide 15 bullet-proof vests in Iowa."

The Attorney General's Office has filed charitable-solicitation lawsuits previously, including against Xentel, Inc., alleging the company deceived Iowans into believing that the callers are fire fighters and that donations will support local fire fighters.

November 11, 2004
A University of Pennsylvania researcher says patients taking Pfizer's Bextra may double their risk of suffering a heart attack or stroke. The company called the claim "unsubstantiated" and said a recent analysis found no cardiovascular problems among arthritis patients taking Bextra.

Bextra is one of the few alternative COX-2 pain killers for patients who had been using Merck's Vioxx, withdrawn from the market in September following studies which found the drug increased the risk of heart attack and stroke in patients who took it for more than 18 months.

Last month, Pfizer conceded that Bextra was linked to increased risk of heart attack and stroke in a study of coronary bypass patients but said the risk did not extend to other users.

The latest finding comes from Garret A. FitzGerald, of the Center for Experimental Therapeutics at the University of Pennsylvania, a prominent COX-2 researcher. He presented his findings at a meeting of the American Heart Association.

FitzGerald, who has not yet published his findings in a peer-reviewed journal, says the patients in his analysis are "the canary in the coal mine" -- an early-warning sign for the millions of patients who have not yet been harmed.

FitzGerald said his findings strongly suggest that patients at risk of heart attack and strokes should avoid COX-2 medications while lower-risk patients should take them only with great caution.

FitzGerald acknowledges limitations in his study but says the Vioxx withdrawal has put the burden of proof on the drug companies to show conclusively that the COX-2 drugs are safe.

FitzGerald's study did not include Pfizer's other COX-2 drug, Celebrex, a much bigger seller than Bextra.

FitzGerald's analysis was based on 7,771 patients; 5,930 took Bextra while 1,841 took a placebo. There were 45 heart attacks and strokes among patients taking Bextra, seven in the placebo group. That translates into an approximately 2.2 times higher risk of a heart attack or stroke for those taking Bextra.

With an estimated seven million patients having taken Bextra since its introduction in 2001, more than 150,000 patients could have experienced ill effects if FitzGerald's analysis is accurate.

November 10, 2004
CFM Corporation is rcalling about 12,500 five-burner Vermont Castings barbeque grills because of a gas leak and fire hazard.

The burner tubes may not fit fully into the gas valves. If a consumer pulls on the console, the metal may flex and the gas valves may disconnect from the burners, releasing gas and creating a fire risk that could cause injury and property damage.

CFM Corporation has received 38 reports involving gas leaks. No injuries or property damage have been reported.

The recalled grills have five burners and a label on the back of the cabinet with the model number on the left side. Models CF9086 and VCS5000 are equipped with a side burner. Model CF9085 is not equipped with a side burner. Grills that do not have five burners and grills sold before 2004 are not affected by this recall. All of the affected grills were listed by Canadian Standards Association.

Model VCS5000 barbeque grills were sold at Vermont Castings dealers and distributors in Canada and the U.S. from January 2004 through September 2004 for between $899 and $1249. Models CF9085 and CF9086 were sold at The Home Depot in Canada and the U.S. from January 2004 through September 2004 for between $899 and $1249.

Remedy: Home repair. Stop using the grill and immediately contact CFM Corporation toll-free at (866) 333-4833 Monday through Friday between 9 a.m. and 5 p.m. ET or visit the firms Web site at www.cfmcorp.com to schedule a free, in-home repair or to make arrangements to receive a consumer-installed safety retrofit kit. CFM Corporation has already notified known purchasers about this recall.

The recall is being conducted in cooperation with the U.S. Consumer Product Safety Commission (CPSC).

The Federal Trade Commission has launched a major crackdown on weight loss products heavily advertised on radio and television. Calling its effort "Operation Big Fat Lie," the agency initially targeted six companies it said were making false weight-loss claims in national advertisements.

The FTC said it intends to stop deceptive advertising and provide refunds to consumers harmed by unscrupulous weight-loss advertisers. At the same time it warned media outlets not to carry advertisements containing bogus weight-loss claims and to educate consumers to be on their guard against companies promising miraculous weight loss without diet or exercise.

Companies named in the latest actions are:

• Selfworx.com
• Femina
• CHK Trading Co.
• Natural Products
• New England Diet Center
• AVS Marketing

Complaints in each of the six cases allege that defendants used at least one of the seven bogus weight-loss claims that are part of the FTC's "Red Flag" education campaign announced in December 2003. That ongoing Red Flag campaign provides guidance to assist media outlets in voluntarily screening out weight-loss ads that contain claims that are too good to be true.

"False and misleading advertisements are about as credible as a note from the Tooth Fairy," said Federal Trade Commission Chairman Deborah Platt Majoras. "As part of our 'no tolerance' policy, we are announcing six new cases against advertisers using bogus weight loss claims. By also working with media outlets to reject false ads and educating consumers to make informed choices, the FTC hopes to keep this national obesity epidemic from getting worse."

The cases challenge ads containing false Red Flag claims for a variety of products, including pills, powders, green tea, topical gels, and diet patches. The FTC alleges in each case that the weight-loss claims are false and that the defendants did not have adequate substantiation for the claims they made.

The challenged ads ran in nationally-known publications such as: Cosmopolitan; Woman's Own; Complete Woman; USA Weekend; Dallas Morning News; San Francisco Chronicle; Cleveland Plain Dealer; Albuquerque Journal; and in Spanish-language publications, such as TeleRevista Magazine. In each of these cases, the Commission is seeking to stop the bogus ads and to secure redress for consumers.

In addition to the cases announced today, the Commission has filed lawsuits against seven other companies since April 2004 for making similarly false Red Flag weight-loss claims.

Selfworx.com LLC

On November 4, 2004, the Commission filed a complaint in the U.S. District Court, District of Maine, against Selfworx.com LLC, Iworx LLC, and Jeffrey V. Kral. The Scarborough, Maine-based defendants advertised two weight-loss products: geloothin - a topical gel, and Ultra LipoLean - a dietary supplement tablet described as a "fat blocker."

The complaint alleges that the defendants make false and unsubstantiated claims that geloothin, when rubbed into the skin: (1) causes substantial weight loss, including as much as 21 pounds in six weeks; (2) dissolves fat deposits in days; and (3) dissolves and removes cellulite from the body. The complaint further alleges that defendants falsely claim that clinical studies demonstrate that geloothin will reduce fat and cellulite deposits on contact.

Femina, Inc.

On November 8, 2004, the FTC filed a complaint in the U.S. District Court, Southern District of Florida, against Femina, Inc., based in Pembroke Pines, Florida, and its owner, Husnain Mirza, challenging ads for three products - "1-2-3 Reduce Fat" (a three-part kit), "Siluette Patch" (a transdermal patch made from pure seaweed), and "Fat Seltzer Reduce" (a dietary supplement). The 1-2-3 Reduce Fat kit includes Xena RX, a diet pill; Reduce Gel Magic, a gel to put on the body; and a plaster corset to wrap around the body. The Xena RX pill purportedly contains green tea extract, and the Magic gel purportedly contains aloe vera and sea algae. The defendants primarily use Spanish-language ads.

The complaint alleges that the defendants make false and unsubstantiated claims: (1) that 1-2-3 Reduce Fat causes weight loss by blocking and eliminating fat; (2) that the green tea extract blocks up to 40 percent of the absorption of fat; and (3) that the aloe vera and seaweed gel eliminates inches of fat.

CHK Trading Co., Inc.

On November 4, 2004, the FTC filed a complaint in the U.S. District Court, Southern District of New York, against two companies - CHK Trading Co., Inc., based in New Jersey, and CHK Trading Corp., based in New York City. The Commission alleged that the corporate defendants and their principal, Chong Kim, market and sell "Hanmeilin Cellulite Cream," a topical cream which contains Chinese herbs and other all-natural ingredients. Users are told to apply the cream on the buttocks, stomach, and thighs and massage until the cream is completely absorbed. The defendants advertise their product to Spanish-speaking consumers via national advertisements in TeleRevista magazine, as well as to English-speaking and Korean-speaking consumers via their Web sites.

The complaint alleges that the defendants make false and unsubstantiated claims that rubbing Hanmeilin Cellulite Cream into the body: (1) causes permanent weight loss; (2) causes substantial weight loss, including as much as 10 to 95 pounds; and (3) eliminates fat and cellulite.

Natural Products

On November 3, 2004, the FTC filed a complaint in the U.S. District Court, Central District of California, against Natural Products, LLC; All Natural 4 U, LLC; and Ana M. Solkamans. The Tustin, California-based defendants sell a dietary supplement called "Bio Trim," "Body-Trim/Bio-Trim" or "Body-Trim" in capsule and powder form. Users are told to take two capsules with eight ounces of water one half-hour before their two biggest meals, or, if using the powder, users are told to take one half-teaspoon of the powder mix in eight ounces of cold juice 15 minutes before two meals.

The complaint alleges that the defendants make false and unsubstantiated claims that Bio Trim: (1) causes users to lose substantial weight, while eating unlimited amounts of food; (2) causes substantial weight loss by blocking the absorption of fat or calories; (3) works for all overweight users; and (4) is clinically proven to cause rapid and substantial weight loss without reducing calories.

New England Diet Center

On November 4, 2004, the Commission filed a complaint in the U.S. District Court, District of Connecticut, against Bronson Partners, LLC, (doing business as New England Diet Center and Bronson Day Spa), and Martin Howard. The defendants, based in Westport, Connecticut, sold Chinese Diet Tea and the Bio-Slim Patch - purported weight loss products. Users of the Chinese Diet Tea are told to drink one cup of tea after each meal to neutralize the absorption of fattening foods.

The complaint alleges that the defendants make false and unsubstantiated claims that Chinese Diet Tea: (1) causes rapid and substantial weight loss without the need to diet or exercise; (2) enables users to lose as much as six pounds per week over multiple weeks and months without the need to diet or exercise; (3) enables users to lose substantial weight while enjoying their favorite foods; (4) blocks the absorption of fat and calories; and (5) causes substantial weight loss for all users. The complaint further alleges that defendants falsely claim that Chinese Diet Tea is clinically proven to cause rapid and substantial weight loss without exercising or dieting.

AVS Marketing, Inc.

On October 27, 2004, the FTC filed a complaint in U.S. District Court for the Northern District of Illinois, Eastern Division, against AVS Marketing, Inc., and William R. Heid. The defendants, based in Thomson, Illinois, sell "Himalayan Diet Breakthrough," a dietary supplement containing Nepalese Mineral Pitch - "a paste-like material" that "oozes out of the cliff face cracks in the summer season" in the Himalayas. Users are directed to take one tablet with water before lunch, dinner and bedtime.

The complaint alleges that the defendants make false and unsubstantiated claims that Himalayan Diet Breakthrough: (1) causes rapid and substantial weight loss, including as much as 37 pounds in 8 weeks, without the need to reduce caloric intake or increase exercise; (2) causes users to lose substantial weight, including as much as 37 pounds in 8 weeks, while still consuming unlimited amounts of food; (3) causes substantial weight loss, including as much as 37 pounds in 8 weeks, by preventing the formation of body fat; (4) causes substantial weight loss for all users; and (5) enables users to lose safely as much as 37 pounds in 8 weeks.

Staples is the latest retailer to offer electronic rebate redemption, enabling customers to file their rebates without filling out long forms, locating receipts and making a trip to the post office.

While several chains offer electronic filing and tracking of rebates, Staples says its system is simpler and more complete and will get checks to customers faster and more reliably.

Staples says that about 90 percent of its vendors have agreed to participate in the new system, which may cost them money by increasing the number of rebates they actually pay out.

It's an open secret in business circles that companies count on a relatively low rate of rebate redemption. Most manufacturers farm the processing out to companies that some consumers have complained are less than eager to pay up. (See Special Report: Rebate Madness)

To keep customers on the straight and narrow, the system will be tied into Staples' returns database.

Staples says the new program is part of its overall strategy to set itself apart with the promise of being an easier place to shop, summarized in its new slogan: "Staples, that was easy."

Costco, BJ's Wholesale Club, MicroCenter and Rite Aid are among other major retailers offering some form of electronic rebate processing.

A Massachusetts law firm will pay $100,000 and revamp its business practices to resolve allegations that it violated state and federal debt collection laws.

The settlement, filed in Suffolk Superior Court, stems from allegations that Schreiber & Associates of Danvers, Massachusetts used a variety of unfair and deceptive practices - including harassing and embarrassing consumers, exceeding the number of permissible calls, and making unsubstantiated threats - to collect debts.

"Consumer debt is a growing problem in today's difficult economy," said Attorney General Tom Reilly. "Debt collectors too often ignore a consumer's rights. It's not okay to harass, threaten or mislead someone because they owe a debt."

Reilly said he pursued Schreiber & Associates after an investigation revealed that the company's collection practices violated state and federal debt collection laws, including the Massachusetts Consumer Protection Act, the Massachusetts Debt Collection Regulations, and the Federal Debt Collection Practices Act.

In the filing, Reilly alleges that debt collectors for the law firm used obscene language, harassed and embarrassed consumers, exceeded the number of permissible calls, disclosed debts to persons other than the debtor, made unsubstantiated threats against consumers, provided false or misleading information to consumers and failed to provide proof of the validity of debts.

Reilly said his office has received close to 250 complaints against Schreiber & Associates since 1999.

Under the terms of the settlement, Schreiber will implement new policies and procedures that go beyond the requirements of state and federal law. Among other things, Schreiber must: • designate a debt collection supervisor to ensure compliance with state and federal law;
• maintain records of all debt collection activities;
• record all telephone conversations with consumers;
• designate a mediation supervisor and implement procedures to mediate disputes with consumers with the assistance of AG Reilly's Consumer Complaint and Information Section;
• provide enhanced training to its debt collectors;
• record and confirm in writing oral payment authorizations from consumers; and
• immediately notify consumers if Schreiber learns that a debt has been paid, is not the consumer's obligation, or is otherwise illegitimate.

"This agreement raises the bar for the entire debt collection industry in Massachusetts," Reilly said. "I am pleased that Schreiber is adopting these best practices and urge other debt collection companies to follow suit."

The settlement requires Schreiber to pay $20,000 in restitution to consumers, $70,000 in penalties, and $10,000 in attorney's fees and costs for the Commonwealth's investigation. Reilly's Office will determine and distribute restitution to injured consumers and contribute any remaining funds to the Local Consumer Aid Fund.

The president and owner of Schreiber & Associates, P.C., Attorney Jeffrey A. Schreiber, is also bound individually by the provisions of the Assurance.

This investigation is part of a larger initiative aimed at protecting consumers from unfair debt collecting practices. Debt collection consistently makes Reilly's annual top-ten list for consumer complaints. It ranked seventh on last year's list.

Guilty pleas and civil settlements have concluded a New York investigation of phony bids in E-Bay auctions, Attorney General Eliot Spitzer announced.

In the first case, three people pleaded guilty to criminal charges stemming from actions they took to inflate the prices of artwork and other merchandise that was sold in E-Bay auctions. In two other cases, defendants entered into civil settlements with the Attorney General's office for illegally bidding up sports memorabilia and automobiles sold in on-line auctions.

"The use of shill bids in on-line auctions illegally drives up prices and defrauds consumers," Spitzer said. "These cases and continuing efforts to monitor transactions should help maintain the integrity of on-line auctions."

In the criminal case, Jerrold Schuster, the former owner of the New Windsor Auction Gallery, pleaded guilty to Combination in Restraint of Trade, a violation of the New York antitrust law, a felony punishable by a maximum of four years in prison.

Schuster's former employees, Darek Szydlowski and Francis Komsisky, Jr., pleaded guilty to Attempted Combination in Restraint of Trade, a misdemeanor antitrust violation, which is punishable by up to one year in prison. As part of the disposition, Schuster is expected to pay $50,000 in restitution and fines.

According to the criminal charges, Schuster, Szydlowski and Komsisky cast bids in over 1,100 of each others' eBay auctions for the sole purpose of driving up the price of the merchandise that they offered for sale over a five-year period. The defendants were known by various e-Bay User IDs including "sambuca914," "gutek914," "zugnicht," and "fourlizards."

In a separate civil case, Robert Baranovich and his son, Steven Baranovich, of West Babylon, agreed to pay $10,000 in penalties and restitution to consumers harmed by their shill bidding. In a complaint filed with the Consent Order settling the case, the Attorney General alleged that the Baranoviches placed 170 phony bids in 165 of their own E-Bay auctions of sports memorabilia.

In another civil case, Richard Eggleston, Darryl Lien, and David Printy, together with a related corporation, Daryl Lien, Inc., agreed to pay more than $28,000 in penalties and restitution for their shill bidding practices. In a complaint filed with the Consent Order, the Attorney General alleged that they placed 610 bids in 106 of their own auto auctions under the user ID "Mother's Custom Automotive NY Dealer."

The Attorney General's office has identified more than 120 consumers who paid more for items as a result of shill bidding activities in the three cases. Settlements will provide compensation to these individuals. The damages are as high as several thousand dollars for some consumers.

For example, in one auction, Schuster's New Windsor Gallery "shilled up" by more than $7,300 an oil painting attributed to Hudson River School artist Ralph Blakelock (1847-1919). The high bidder paid $7,500 for the painting.

Another purported Blakelock fetched $3,000 - shilled up by more than $2,800. The Gallery shilled up its auction of an antique cloisonne vase by more than $2,500 - ultimately selling for $3,250. Yet another bidder was overcharged $2,372, for artwork he purchased in over thirty separate auctions.

In one of Daryl Lien Inc.'s online auctions, the high bidder for a 1999 Jeep Grand Cherokee overpaid by more than $3,000. In one of the Baranoviches' auctions, the purchaser of a bat signed by the 2000 New York Yankees paid $999 - a sum shilled up $175 from its previous high bid of $824.

Beer bottles have them. So do tubs of margarine and cans of applesauce. But tires have neither an expiration date nor a manufacturing date. Yet old tires are dangerous too and federal safety regulators are being asked to require a date that tells consumers a tire's true age.

SRS Inc., an auto safety research firm, has petitioned the National Highway Traffic Safety Administration (NHTSA) to require easily readable creation dates on car and truck tires.

SRS President Sean Kane says that as of November of 2004, his group has documented 37 fatalities and 35 serious injuries associated with age-related tire tread separations. In many of these cases, the tires were unused spares and showed no signs of degradation.

Aged tires are often unsuspectingly put into service after having served as a spare, being stored in garages or warehouses, or simply used on a vehicle that is infrequently driven. In many instances these tires show no visible sign of deterioration, and absent any visible indicators, tires with adequate tread depth are likely to be put into service regardless of age.

The SRS petition cites a crash in San Bernardino, Calif., in July of 2003 involving a 1997 Toyota 4Runner. Three weeks after a Toyota dealer performed service on the vehicle, rotating an original spare tire onto the right rear wheel, the tread separated at highway speed, resulting in a rollover. A young mother died from head injuries in that incident.

Kane noted in a filing with NHTSA in 2003 that the British Rubber Manufacturers "strongly recommended" that used tires should not be put into service if they are over six years old and that all tires should be replaced 10 years from their date of their manufacture. It also notes that environmental conditions like exposure to sunlight and coastal climates, as well as poor storage and infrequent use accelerate the aging process.

The SRS petition asks that the agency take three interim steps to address the tire age problem:

• a Consumer Advisory alerting the public to the hazards,

• that NHTSA seek specific information from the tire and vehicle manufacturers that will help with further evaluation of the problem, and

• that NHTSA require a date of manufacture molded in both sides of the tire in a non-coded fashion.

NHTSA has 120 days to reject or accept the petition.