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Court Awards Record $30M Judgment in Latest FTC Robocall Case

3 Apr, 2012 By: Linda A. Goldstein


Violations of the FTC’s Telemarketing Sales Rule (TSR) remain a high enforcement priority, and a recent federal court order stands as a stark reminder that such violations can result in civil penalties of monumental proportions.

A recent decision issued by the U.S. District Court for the Western District of New York against two individual defendants, Paul Navestad and Christine Maspakorn – operating primarily as the “Cash Grant Institute” –ordered a $20 million judgment against Navestad and a $10 million judgment against Maspakorn. This is, by far, the largest penalty ever imposed for placing unlawful calls to consumers on the Do-Not-Call list.

According the FTC’s complaint, and the court’s order, the defendants in this case placed more than 8 million robocalls to consumers, including more than 2.7 million calls to consumers on the National Do-Not-Call Registry. Adding insult to injury, the calls allegedly claimed that the consumers who were called had qualified to receive cash grants from federal, state and local governments and directed the consumers to the defendants’ websites at which similar claims were allegedly made.

Consumers who visited defendant’s website were then referred to other websites that charged money for information on how to receive grants. Interestingly, these websites did not make the same claims contained on defendants’ calls or websites, but the defendants were forced to disgorge the referral fees earned from directing consumers to these sites in addition to the civil penalties.

The FTC originally filed this case in 2009 as part of its crackdown on schemes that supposedly prey on consumers in financial distress. This case clearly had the makings of the perfect storm from an FTC standpoint – allegedly false promises of easy money directed to financially strapped individuals, through outbound robocalls to persons on the Do-Not-Call list.

Although the defendants refused to testify, asserting their Fifth Amendment rights, the court determined that the FTC had produced sufficient evidence to demonstrate multiple violations of the TSR. It is important to note that in addition to alleging violations of the Do-Not-Call Registry requirements, which only impacted 2.7 million calls, the FTC alleged that all of the calls placed by defendants violated the TSR because: they did not comply with the FTC’s requirements for robocalls, which require that consumers be afforded an opt-out mechanism and that, upon request, consumers be connected to a live operator within two seconds; and the telemarketing scripts contained numerous misrepresentations about the availability of the cash grants.

By alleging that all of the calls violated the TSR – not just those placed to persons on the Do-Not-Call Registry – the FTC was able to substantially increase the civil penalty claims. In addition to the substantial monetary relief ordered, the court also banned the defendants from engaging in any marketing of grant or credit-related products in the future.

In light of the FCC’s recent revisions of its rules governing robocalls to create more harmony with the FTC, it is likely that robocall campaigns of any nature will continue to invite heavy scrutiny. Any marketers conducting telemarketing campaigns subject to the TSR should be mindful, however, of the FTC’s ability to seek civil penalties in an enforcement action based solely on the representations in the scripts. Marketers would be well advised to review all of their scripts carefully to ensure that any and all claims about their products and services and the terms of the offer are truthful and accurate.

Linda Goldstein is chair of the Advertising, Marketing and Media division of Manatt, Phelps & Phillips LLP, based in the firm’s New York office. She can be reached at (212) 790-4544 or lgoldstein@manatt.com.


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