FTC CID Lawyer Alert: Contempt Judgments, Bankruptcy and Refunds

In 2016, the Federal Trade Commission and a federal court found various defendants in contempt of court for operating a legal imagedeceptive computer financing scheme in violation of a federal court order that the defendants agreed to in 2008. The court also entered judgment against the company’s CEO, for $13.4 million, the harm consumers allegedly suffered as a result of the scheme.

The FTC charged the defendants with contempt in 2009 alleging that they disregarded the 2008 order by contracting with thousands of consumers to finance new computers. According to the FTC, in most instances the defendants failed to provide the computers and failing to disclose key aspects of their refund policy.

After a hearing, the court awarded consumer redress of $609,000. The FTC appealed and in 2016 the U.S. District Court for the Southern District of New York entered a $13,400,627.60 judgment.

Court Rejects Attempt to Use Bankruptcy to Avoid Contempt Order

On February 1, 2019, the FTC announced that a federal bankruptcy court ruled that the operator of the alleged computer-financing scheme could not use a bankruptcy filing to shield himself from complying with the $13.4 million contempt order.

“In this case, the fraudster tried to avoid justice by declaring bankruptcy,” said Andrew Smith, FTC CID lawyer and Director of the FTC’s Bureau of Consumer Protection. “When the FTC gets a judgment against a proven wrongdoer, we will not stop until our work is complete, no matter how many legalistic tricks and loopholes the scammer tries to employ.”

According to the Commission, the company’s CEO refused to pay the $13.4 million contempt judgment and the FTC in sought to have him jailed until he paid the amount he owed. Instead, the FTC states that he attempted to evade paying any of the judgment by filing for bankruptcy.

A federal bankruptcy court for the Southern District of Florida, West Palm Beach Division sided with the FTC, saying the 2016 contempt judgment could not be discharged because it was the result of the individual’s fraudulent conduct.

The FTC will now proceed to attempt to recover funds to return to consumers.

Refunds to Consumers for Unlawful Rebills and Unsubstantiated Health Claims

In separate news…

In 2017, the Federal Trade Commission announced the settlement of charges that various defendants sold weight-loss, muscle-building and wrinkle-reduction products to consumers using unsubstantiated health claims, fake magazine and news sites, bogus celebrity endorsements and phony consumer testimonials. According to the FTC, the defendants used deceptive offers of “free” and “risk-free” trials, and automatically enrolled consumers without their consent in negative option auto-ship programs with additional monthly charges.

According to the FTC’s complaint, the defendants used fake media websites with domain names that appeared to be legitimate news or magazine sites, such as goodhousekeepingtoday.com. Based on this alleged conduct, the complaint charged the defendants with violating the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), and the Electronic Funds Transfer Act (EFTA). Ultimately, the court order imposed, without limitation, a $179 million judgment, which was suspended after defendants paid roughly $6.4 million to the FTC.

Earlier this month, the FTC announced that more than $6 million is being returned to consumers that bought the allegedly deceptively marketed health products. According to reports, the FTC is mailing 227,995 checks. Affected consumers will receive refund checks averaging $26.57.

You can follow the author on Twitter, and read recent articles on government litigation developments published by FTC investigation attorney Richard B. Newman at National Law Review. Contact him at rnewman@hinchnewman.com if you have been targeted by the Federal Trade Commission in order to achieve optimal and most efficient outcome possible.

Richard B. Newman is a digital marketing attorney at Hinch Newman LLP.

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