Priority Payout Corp. accused of repeatedly ignoring fraudulent behavior

Past Imperfect

The vast majority of the Federal Trade Commission (FTC) cases that we cover at [email protected] are over very quickly, with settlements lickety-split. The FTC starts an investigation, and where errors or wrongdoing is found, the target typically works out a settlement and the complaint and consent order are then filed the same day. Litigation, and even enforcement of consent decrees, is unusual. The credit for this efficiency obviously has everything to do with strenuous behind-the-scenes negotiation and lawyering.

So, it’s a rare treat to cover an FTC complaint that has a long history – 10 years, in the case of Thomas Wells.

Original Sin

Wells is the brains behind Priority Payout Corp. (PPC), a payment processing company. Back in 2009, Wells and PPC – known at that time as Interbill – lost big when the FTC filed for summary judgment in a case against it before the U.S. District Court for the District of Nevada.

Wells and company were accused of violations of the FTC Act for processing payments on behalf of Pharmacycards, an allegedly “fraudulent enterprise.” The original complaint, filed in 2007, claimed that Pharmacycards posed as “a bona fide telemarketing business that sold medical discount cards to consumers.” But there was no product on offer; instead, there was a debit to the consumer account made by PPC, and then a negative-option mailer sent after the fact informing the alleged victims that they could cancel the offer within five days of receiving the letter. Many consumers received no notice at all.

The Takeaway

The final order, issued in 2009, hit PPC with a $1.7 million fine, the amount of alleged consumer loss that the company enabled. The standard settlement requirements were also included – namely, that Wells and PPC perform the due diligence necessary to determine whether future clients were operating on terms prohibited under the FTC Act.

According to the FTC, Wells and PPC didn’t follow through.

On April 11, 2019, the FTC released a statement claiming that PPC and its owner “repeatedly violated” the 2009 order by failing to follow through on proper investigations into some of its clients’ iffy business practices (at least two of Wells’ clients, Stark Law and Advertising Strategies, were previously sued by the FTC). Wells and PPC agreed through the settlement that the FTC could prove the charges and submitted to a permanent ban from working in the payment processing service industry. Wells also suffered a $1.8 million contempt charge, which sits on top of the original fine, making his and his company’s total monetary loss to date $2.5 million.

Although this case is another example of the FTC’s enforcement power with regard to companies that violate the FTC Act and conduct fraudulent consumer business practices, this case also serves as a reminder of the broad reach of the FTC’s oversight into fraudulent practices and strict review of companies’ adherence to settlement terms agreed upon much earlier.