Telemarketers beware: The Federal Trade Commission has waged war on deceptive robocalling operations, and it is not backing down.

Just five days after shutting down a California-based telemarketing company responsible for making 2.6 billion robocalls over a 20-month period, the FTC has knocked out another group of deceptive dialers. Only this time, a federal judge in Rochester, New York, ordered the individuals behind the robocall scheme to pay $30 million in civil penalties—the largest amount ever imposed for violating the guidelines of the Do Not Call Registry.

According to a Decision and Order issued March 23, 2012, by the U.S. District Court for the Western District of New York, Paul Navestad and Christine Madpakorn, under the guise of the “Cash Grant Institute,” made over eight million robocalls to consumers. The calls falsely claimed that consumer “cash grants” were readily available from the government, private foundations, and wealthy individuals. The robocaller told consumers that since they already qualified for these grants, they could receive up to $25,000. Of the eight million calls defendants made, more than 2.7 million were made to numbers on the national Do Not Call Registry.

After enticing consumers with promises of big money payouts, the robocall directed interested parties to requestagrant.com, a Web site which, because of its ties to Navestad and Madpakorn, contained the same deceptive claims previously made by the robocaller. Cashgrantsearch.com, another Web site operated by defendants, was also referred to consumers. Unlike requestagrant.com, however, it contained images of President Obama and the Capitol Building, and asked interested parties if they were aware that “grant money exists for almost any purpose and does not need to be repaid?”

Of course, as the FTC pointed out to the court, government “cash grants” for any purpose are pretty much nonexistent right now. And as for the Web sites to which consumers were referred, none of them actually provided grants. Instead, they referred consumers to other grant sites that provided general information about how to obtain cash grants from public or private sources for a fee. Unfortunately, consumers did not discover the truth about the grants until they paid the requisite fee to the defendants.

The FTC filed the case against Navestad and Madpakorn in July 2009, alleging violations of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce,” and the Telemarketing Sales Rule, which, among other provisions, prohibits calls to consumers on the “Do Not Call List.” Shortly after the filing, the court halted the defendants’ operation, froze their assets, and appointed a receiver to oversee the business pending litigation. The court subsequently held that the FTC had more than enough evidence “supporting each and every element” of the complaint. In addition to imposing the $30 million penalty against defendants, the court permanently banned them from marketing grants, grant-procurement goods or services, and credit-related products, from misrepresenting any good or service, and from violating the Telemarketing Sales Rule in any fashion in the future. In addition, the court orders bar the defendants from selling or otherwise benefitting from customers’ personal information, and require them to properly dispose of customers’ personal information within 30 days.

The court order against Navestad and Madpakorn came down just five days after the FTC shut down California-based SBN Peripherals, a robocall company accused of placing over 2 billion illegal prerecorded phone calls pitching a variety of services, including inferior extended auto service contracts and worthless debt-reduction programs. In accordance with its settlement with the FTC, SBN Peripherals was ordered to cease telemarketing operations and hand over $3 million in assets.

According to the FTC, SBN Peripherals, operating as off-shore company Asia Pacific Telecom, scammed consumers by falsely claiming to have urgent information regarding an individual’s credit card or auto warranty in a prerecorded phone call. Upon hearing this information, consumers were prompted by the robocall to press “1” for more information. Those who did were transferred to a live telemarketer who allegedly used deceptive practices to sell worthless services. Of the 2.6 billion such robocalls SBN Peripherals made between January 2008 and August 2009, 1.6 billion consumers answered the phone, and 12.8 million were connected with a sales agent.  

As alleged in the FTC’s May 24, 2010, complaint, defendants’ actions, like those of Navestad and Madpakorn, violated the FTC Telemarketing Rules by:  

  • Using robocalls to contact consumers without first obtaining the consumer’s written permission as required under the FTC’s Telemarketing Sales Rule (effective September 1, 2009, nearly all prerecorded calls are illegal absent written consent of the consumer).
  • Calling consumers whose telephone numbers appear on the National Do Not Call Registry.
  • Failing to connect to a live person when a consumer answers at a higher rate than permitted under law (three percent of all calls made).
  • Continually calling consumers who have asked to be placed on the company-specific do-not-call list.

In addition, the FTC accused SBN Peripherals of making it extremely difficult for consumers to identify and track down the robocaller by transmitting vague caller ID information and displaying telephone numbers registered to its shell company, Asia Pacific Telecom.

Under the proposed settlement order, SBN Peripherals Inc., as well as Repo B.V., Johan Hendrik Smit Duyzentkunst, and Janneke Bakker-Smit Duyzentkunst, are prohibited from telemarketing, misrepresenting any good or service, and selling (or benefitting from) customers’ personal information. In addition, as with Navestad and Madpkorn, defendants have 30 days to dispose of all personal information currently in their possession.  

The proposed consent order was approved by the Commission in a 4-0 vote, and subsequently filed in the U.S. District Court for the Northern District of Illinois, Eastern Division, as the order is subject to court approval.  

To read the Asia Pacific complaint, click here.

To read the Asia Pacific judgment and order, click here.  

To read the Cash Grant complaint, click here.  

To read the Cash Grant decision and order, click here.

Why it matters: In a statement, FTC Midwest Region Director C. Steven Baker said, “Telemarketers need to understand that blasting consumers with ‘robocall’ pitches is no longer legal.… Unless you have someone’s consent up-front and in writing to receive a robocall, just don’t do it. The rules could not be simpler than that, and we will go after telemarketers who ignore them.” This statement emphasizes the need for businesses to routinely review their telemarketing practices with counsel and telemarketing vendors to ensure that they comply with changes in the law.  

Both of these cases underscore federal regulators’ ever-increasing focus on consumer privacy and their interest in affording consumers greater control over how marketing messages are delivered to them. The FTC is cracking down on schemes that target consumers who are financially strapped. Likewise, the federal government has no tolerance for individuals and companies—like Navestad and Madpakorn and SBN Peripheral—who use robocalls and other deceptive measures to defraud consumers.