Telemarketers Under Fire Can’t Get at Assets

(CN) - A federal judge refused to unfreeze more than $2.8 million in assets belonging to telemarketers accused of selling phony health insurance to the unemployed and uninsured.

In a September 2012 complaint, the Federal Trade Commission charged IAB Marketing Associates and Health Service Providers, as well as their various affiliates and individual officers, with deceptive marketing and violations of the law governing telemarketers.

The agency said consumers paid up to $1,000 per month for promised health insurance coverage that would even supposedly cover pre-existing conditions.

"Rather than providing consumers with the promised health insurance, however, defendants enroll them in an obscure 'trade association' that provides certain limited healthcare related benefits," according to the complaint. "Defendants' scheme has left thousands of consumers without health insurance, while bilking millions of dollars from such consumers."

The Miami court quickly froze the IAB defendants' assets with a temporary restraining order, concluding that the agency had established a likelihood of success in showing they made "serious misrepresentations leading consumers to believe, among other things, that an association membership is health insurance or the equivalent of such insurance."

U.S. District Judge Robert Scola refused Tuesday to lift the asset freeze so that IAB can its attorneys, noting that such refusal is authorized when frozen assets are less than the amount needed to compensate consumers for their losses.

"Funds should not be released from the asset freeze to pay for the IAB defendants' attorney fees because the IAB defendants' monetary liability greatly exceeds the frozen funds," Scola wrote. "The proper measure of ill-gotten gains is revenue, not profit. From January 1, 2007 through approximately September 2012, the IAB defendants' own records show that their revenue (sales less chargebacks and refunds) is not less than $125 million. The value of the frozen assets is a mere pittance compared to this enormous sum." (Parentheses in original.)

Scola highlighted that the court had already unfrozen a reasonable amount of $75,000 in October for the defendants to put toward attorneys' fees.

"Even though the IAB defendants' monetary liability greatly exceeds the frozen funds, the court believed that fairness dictated granting the IAB defendants a reasonable amount to pay attorney fees through the preliminary-injunction hearing," he wrote. "The court believed it was fair to provide this money because in deciding whether to enter a preliminary injunction, the court must evaluate the likelihood that the FTC will prevail on the action's merits and balance the equities."

In its complaint, the FTC alleged the defendants' telemarketers would tell customers that there would be no waiting times for pre-existing conditions or medical exams. They also often allegedly pressured consumers to purchase the plan immediately by falsely stating that the coverage was available for only a limited time and that "only a few slots" were still available in a particular state.

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