LAS VEGAS (CN) – A subscription service must fork over more than $23 million dollars for duping consumers into signing up for magazine subscriptions costing hundreds of dollars annually, a federal judge ruled.
U.S. District Judge Andrew Gordon ordered Publishers Business Services and six other defendants on Feb. 1 to pay the Federal Trade Commission $23,773,147.78 for unfair and deceptive trade practices while selling magazine subscriptions.
The penalty arises from Publishers Business Services’ practice of calling consumers at their places of business and telling them they’d get a “surprise” for participating in a survey, Gordon wrote.
“The surprise was that the defendants were selling the consumer magazine subscriptions,” Gordon wrote in his 13-page ruling.
Gordon said there were three stages to the scam.
A sales representative made the initial call, then transferred it to a supervisor. A follow-up call would conclude the third stage.
“The transaction was presented in a confusing and misleading manner by fast-talking sales representatives, resulting in a net impression that the consumer was receiving free magazines while having to pay only a nominal shipping and handling fee,” he wrote.
“In fact, the consumer was agreeing to pay hundreds of dollars in magazine subscription fees,” he added.
The FTC filed its initial lawsuit in 2008, and a federal court found in the FTC’s favor in 2011.
Gordon said the FTC sought its $23-million judgment “based on the presumption that all first-time orders were made in reliance on the deceptive practices.”
Publishers argued the federal court does not possess the authority to award financial damages, and that the “FTC has not shown the defendants’ revenues were the result of widespread deception,” Gordon said.
But the FTC held that defendants’ “deceptive practices were material and widespread” and “evidence showed consumers were confused about the transaction,” according to Gordon.
Gordon said the FTC proved Publishers made widely disseminated material misrepresentations, and people bought the products.
The judgment also applies to co-defendants Ed Dantuma Enterprises Inc., Edward Dantuma, Dries Dantuma, Brenda Dantuma Schang, Dirk Dantuma and Jeffery Dantuma. The Dantuma defendants are in the business of telephone and door-to-door merchandise sales, according to Bloomberg.
The summary judgment order against the defendants shows 25 million calls made during the relevant time period in which “sales representatives, shift supervisors and verifiers were directed to follow scripts for these calls … [that] comprise the misleading sales pitch.”
“The FTC thus is entitled to a presumption that all consumers who purchased magazine subscriptions did so in reliance on the misleading sales practices,” Gordon concluded.
Gordon was unimpressed by Publishers’ argument that some of its customers were happy despite the sketchy sales practices, countering that even the satisfied customers were confused about the terms of the magazine-subscription transaction.
“The fact some customers were ultimately satisfied with the magazine they purchase does not necessarily mean their original decision to purchase was free from the taint of the defendants’ deceptive sales practices,” Gordon wrote.