The Federal Trade Commission has put an alleged business directory scammer out of business by obtaining a default judgment against Construct Data Publishers and a stipulated final judgment and permanent injunction against two of its executives.
Filed in 2013, the agency's complaint alleged that the defendants used direct mail to target small businesses including retailers, home-based businesses, local associations, nonprofits, and others into believing that they had a preexisting relationship with the defendants. The mailing would reference a trade show or exhibition and was designed to appear as if it were simply requesting that the recipient update and verify the accuracy of its contact information.
However, "buried in fine print at the bottom of the form" was a statement obligating the recipient to pay $1,717 on an annual basis to be listed on the defendant's business-to-business directory website. Only long after the 10-day cancellation period had expired would the defendants send an invoice demanding payment, the FTC said. Businesses that did not pay would receive late payment notices, sometimes with late fees added.
The defendants took in millions of dollars with the scam, the FTC alleged, which prompted the FTC to file a criminal indictment against one of the executives for mail fraud. After the Slovakia-based defendants filed for bankruptcy protection in their home country, they reached a deal with the Commission.
Pursuant to the final orders, the defendants are banned from the business directory business. In addition, they are prohibited from misrepresenting any product or service, from attempting to collect payment for their business directory listings, from profiting from consumers' personal information, or from maintaining any consumers' personal information.
The Illinois federal court order against Construct Data Publishers includes a $7 million default judgment (with a transfer of $344,000 from the court's registry), while the order against the executives has a total judgment of $6.6 million, suspended upon payment of $200,000.
To read the stipulated order and the default judgment in FTC v. Construct Data Publishers, click here.
Why it matters: It took three years of litigation, a related criminal case against one of the executive defendants, and a bankruptcy filing in Slovakia, but the FTC finally obtained a court order banning the defendants from the industry and recovering some of the money obtained as part of the scam.