127.  FTC v. The Kohl Group, L.L.C., et al., Civil No. 00-06507 RSWL (Manx) (C.D. Cal. filed June 19, 2000)

Defendants: The Kohl Group, LLC d/b/a Federal Information Services, Gregory Stewart Hall, Benjamin H. Kim, Douglas Lee, and Mark Arron Osborne.

Type:  Investment Scam, Telemarketing Sales Rule

Defendants used the Internet, among other mediums to advertise their lists of foreclosed homes and lists of auction locations where, according to defendants, impounded and repossessed vehicles were sold. The defendants’ classified advertisements, which invited consumers to call the company, appeared in the Internet versions of The Thrifty Nickel and The Pennysaver, in addition to the print versions of those papers.

Consumers were induced into purchasing FIS’s lists based on misrepresentations that characterized them as no-risk bargains. FIS also misrepresented that consumers could buy the foreclosed homes on its lists at prices substantially below their fair market values. The Los Angeles based defendants led consumers to believe that purchasing their lists was risk-free because of FIS’s purported satisfaction-guaranteed refund policy. To the contrary, after paying for the lists, consumers learned from FIS’s written materials that they had to meet certain previously undisclosed conditions in order to qualify for a refund. The refund conditions were onerous, and sometimes impossible to meet, effectively dissuading dissatisfied consumers from pursuing and obtaining refunds. In addition, FIS also improperly charged consumers’ checking accounts and credit accounts without authorization.

On June 19, 2000, the FTC filed a § 13(b) complaint, charging the defendants with: (1) falsely representing to consumers the availability of foreclosed homes substantially below their fair market price; (2) failing to disclose material conditions of their refund policy; and (3) assessing charges to credit cards and withdrawing money from bank accounts without authorization. The court issued a Temporary Restraining Order freezing the defendant’s assets, appointing a receiver, and expediting discovery. On July 19, 2000, the court entered a stipulated preliminary injunction.

On November 30, 2000, the court entered a stipulated Final Order. The settlement required defendant to pay $1,138,428 for consumer redress, which is now being distributed among the victims. Defendants must post a $100,000 bond if they continue to sell their foreclosed homes or auction lists, and they must disclose particular facts about the homes that appear on their lists. Defendants are also prohibited from violating the Telemarketing Sales Rule or making any material false representations. Additionally, within 15 business days after a request for a refund, defendants must provide a refund to consumers who have purchased any product or service subsequent to June 19, 2000.

http://www.ftc.gov/opa/2000/06/auction.htm (press release - complaint / order)