In an effort to crack down on schemes that prey on financially strapped consumers, the Federal Trade Commission shut down a network of companies that allegedly duped hundreds of thousands of consumers into paying money to collect a fictitious sweepstakes prize.

The settlement orders impose over $35 million in judgments on the defendants, bar them from the prize promotion business, and permanently ban them from making misrepresentations about any product or service. In addition, the defendants are prohibited from selling or otherwise benefitting from customers’ personal information, and must properly dispose of all customers’ personal information within 30 days of its receipt.

The FTC’s amended complaint alleges that defendants Tully Lovisa, Steven McClenahan, Geovanni Sorino, and Jorge A. Castro, along with their independently owned companies, sent personalized letters to consumers which led them to believe they had won a sweepstakes prize that could only be claimed upon receipt of a $20 processing fee. The mailings contained statements such as “WINNERS AMOUNT CONFIRMED AS DOCUMENTED IN REPORT $677,519.00” and “This is not an eligibility letter or preliminary qualification announcement. YOU HAVE WON A CASH PRIZE.” The defendants allegedly added a sense of authenticity to some letters by incorporating official-looking artwork and seals and claiming to be affiliated with a fictitious government agency, such as the “State of Illinois Commissioners of Regulation” and “OFFICE OF THE PRESIDENT OFFICIAL NOTIFICATION.”

According to the FTC, recipients were told their prize would be delivered once they paid a $20 “processing fee” by a certain deadline. However, instead of a prize, many consumers merely received information on how to enter other sweepstakes. Although the mailers did include fine-print language which vaguely claimed the operation was a reporting service that provided information on various sweepstakes, the FTC alleged that consumers were not clearly informed they had not won any prizes.

The settlement order imposes a judgment of almost $15.5 million against Tully Lovisa and his two companies, the International Award Advisors Inc. and Spectrum Caging Service Inc. In addition, Lovisa’s wife, who also allegedly profited from the sweepstakes scheme, must pay a $170,000 judgment. The $15.5 million judgment against Tully Lovisa and his companies will be suspended when they have relinquished control to nearly $196,000 held by third parties and when they have turned over more than $6,000 in cash, and the proceeds from the sale of their Las Vegas home and personal property to the FTC.

In addition, a judgment of almost $15.5 million was imposed against Steven McClenahan and his four companies: Prize Registry Bureau Inc., Consolidated Data Bureau Inc., Registered Data Analytics Inc., and Lloyd Brannigan Exchange Inc. As with Lovisa’s judgment, McClenahan’s will also be suspended once he has surrendered more than $97,000 in corporate bank accounts and paid $7,800.

The court also imposed a suspended judgment of more than $5.5 million on Geovanni Sorino, Jorge A. Castro, and two companies they control, the National Awards Service Advisory LLC and Central Processing of Nevada LLC. Under this and all orders rendered in this case, the full judgments will become due immediately if the defendants are found to have misrepresented their financial condition.

To read the FTC’s news release on its settlement with defendants, click here.

To read the FTC’s news release on its complaint against the defendants, click here.

For more information about prize offers, click here.

Why it matters: Organizations that target financially strapped consumers and/or other vulnerable individuals must be particularly careful in how they market goods and services. As the FTC stated on its Web site, “When economic times are tough and large numbers of consumers are struggling with unemployment, debt, and even foreclosure, some con artists see an opportunity to take advantage of financially distressed consumers and try to take their last dollar.” In response, “The FTC has redoubled its efforts to stop these scams through law enforcement actions, and by educating consumers about how to avoid being victimized.”