The National Attorneys General Training & Research Institute
Center for Consumer Protection Monthly November 2018
Consumer Chief of the Month: Christian Wright, Delaware
I like to say that the seeds of my interest in protecting consumers from frauds and deceptions were planted 28 years ago, when I was caught up in one of the great consumer frauds of the late 20th century. My mother waited in line for hours in the spring of 1990 to buy front row seats so that her older son (me) could take her younger son to see pop superstars, and Best New Artist Grammy winners, Milli Vanilli, at the Delaware State Fair. Just a few months later, they were exposed as lip-syncing frauds. What is less well-remembered are the lawsuits that were filed in the wake of that scandal, which was my first exposure to the use of consumer fraud laws to protect large groups of injured consumers.
Article of the Month:
Tips for Cautioning Charitable Donors During the Holiday Season
Kelley Hubbard, Assistant Attorney General, Office of the Montana Attorney General
With the holiday season in full swing and in the wake of several natural disasters and tragedies, which seem all too frequent these days, it is a good time to think about the critical role attorneys general can play in making sure dollars donated to charity end up doing the most good for our communities. The recipe for our offices’ success with charitable giving, no matter the season or the occasion, is one part donor education, one part proactive planning, and one part enforcement action.
Federal Consumer Protection News
Bureau of Consumer Financial Protection:
- The Bureau offered tips to enjoy the holidays without going into debt.
- The Bureau updated its youth financial education content to provide K-12 educators with free resources to help students develop financial knowledge, skills, and habits.
- The Bureau and the Federal Housing Finance Agency released for public use a new loan-level dataset collected through the National Survey of Mortgage Originations that provides insights into borrowers’ experiences in getting a residential mortgage.
Commodity Futures Trading Commission:
- The CFTC and the Utah Department of Commerce, Division of Securities, through Utah’s Attorney General, jointly filed a civil enforcement action in the U.S. District Court for the District of Utah, Central Division, against Defendants Gaylen Dean Rust (Rust) and Rust Rare Coin, Inc. (RRC) of Layton, Utah and Salt Lake City, Utah, respectively. The complaint charges Rust and his company RRC with defrauding at least 200 individuals — from Utah and at least 16 other states — and fraudulently obtaining more than $170 million from investors since May 2013 in a precious metals Ponzi scheme.
- The CFTC announced that a federal court ordered a hedge fund and its principals to pay more than $1 million for fraud and registration violations.
- The CFTC issued an Order filing and simultaneously settling charges against Commerzbank AG for numerous violations of the Commodity Exchange Act (CEA) and CFTC Regulations, including failing to supervise its Swap Dealer’s activities for more than 5 years and making misleading statements and material omissions to the CFTC concerning its Swap Dealer’s operations and compliance with the CEA and CFTC Regulations. Commerzbank AG is a global banking and financial services company based in Frankfurt, Germany, that has been provisionally registered with the CFTC as a Swap Dealer since December 31, 2012.
Federal Trade Commission:
- The FTC announced the agenda for the ninth session of its Hearings Initiative, which will focus on data security and take place on December 11-12, 2018.
- The FTC is mailing 16,596 checks totaling more than $750,000 to consumers who bought two deceptively marketed dietary supplements, NeuroPlus and BioTherapex, from Health Research Laboratories, LLC. Affected consumers will receive their checks by the end of December, with the average refund amount totaling $44.34.
- In response to the FTC’s motion, a U.S. district court in California issued an order temporarily halting an alleged Internet marketing scam. The Commission alleges the defendants marketed supposedly “free trial” offers for personal care products and dietary supplements online, but then charged consumers the full price of the products and enrolled them in negative option continuity plans without their consent.
- The FTC is mailing 1,251 checks totaling more than $647,000 to non-profit organizations, churches, schools, small businesses, and volunteers that were tricked by Liberty Supply Company into buying office supply products at higher prices or in larger quantities than they had agreed upon.
- The FTC alleged that a California-based student debt relief scheme bilked consumers out of millions of dollars using false promises that they could reduce their monthly payments, or eliminate or reduce their student loan debt. A federal court temporarily halted the scheme and froze its assets at the request of the FTC, which seeks to end the deceptive practices.
- The operators of a Los Angeles-based student loan and mortgage debt relief operation have agreed to settle FTC charges that they bilked millions of dollars out of consumers by falsely claiming to be affiliated with the federal government.
- The FTC has given final approval to settlements with four companies over allegations that they falsely claimed certification under the EU-U.S. Privacy Shield framework.
- Two Georgia-based companies and their principals have agreed to settle FTC allegations that, in connection with promoting a new insect repellent during the 2016 Zika virus outbreak, they misrepresented that paid endorsements were independent consumer opinions and commercial advertising was independent journalistic content.
- At the FTC’s request, a federal district court in Maryland issued an order temporarily shutting down the largest overseas real estate investment scam the FTC has ever targeted.
- MoneyGram International, Inc. has agreed to pay $125 million to settle allegations that the company failed to take steps required under a 2009 Federal Trade Commission order to crack down on fraudulent money transfers that cost U.S. consumers millions of dollars.
- At the request of the FTC, a federal judge temporarily shut down a Florida-based operation that allegedly collected more than $100 million by preying on Americans in search of health insurance, selling these consumers worthless plans that left tens of thousands of people uninsured. Many of these consumers have incurred substantial medical expenses and have been stuck with thousands of dollars in unpaid medical bills.
Securities and Exchange Commission:
- The SEC announced it settled charges against two companies that sold digital tokens in initial coin offerings (ICOs). These are the SEC’s first cases imposing civil penalties solely for ICO securities offering registration violations. Both companies have agreed to return funds to harmed investors, register the tokens as securities, file periodic reports with the Commission, and pay penalties.
- The SEC brought additional charges against a Long Island, New York-based boiler room previously sued for defrauding elderly and unsophisticated investors. The latest charges allege that First Choice Healthcare Solutions Inc. CEO Christian Romandetti, the boiler room, and four others, manipulated the company’s shares generating more than $3.3 million of illegal profits and more than $560,000 in kickbacks for Romandetti.
- The SEC announced that it has agreed to resolve its insider trading claims against James V. Mazzo, the former Chairman and Chief Executive Officer of Advanced Medical Optics, Inc. (AMO) for allegedly tipping information about his company's acquisition to his close personal friend, former professional baseball player Douglas V. DeCinces.
- The SEC announced settled charges against Zachary Coburn, the founder of EtherDelta, a digital "token" trading platform. This is the SEC's first enforcement action based on findings that such a platform operated as an unregistered national securities exchange.
- The SEC’s Enforcement Division issued the annual report of its ongoing efforts to protect investors and market integrity. The report also highlights several significant actions and initiatives that took place in FY 2018. The report presents the activities of the Division from both a qualitative and quantitative perspective.
- The Securities and Exchange Commission announced that Citibank N.A. has agreed to pay $38.7 million to settle charges of improper handling of “pre-released” American Depositary Receipts.
In other federal news:
- A United States Postal Service security flaw may have exposed the personal data of millions of customers.
- The Federal Communications Commission Chairman proposed measures to reduce unwanted robocalls and support blocking of spam robotexts.
- The Federal Communications Commission Chairman called on the phone industry to adopt anti-spoofing protocols to help consumers combat scam robocalls.
- The United States Department of Justice announced that a federal court in New York entered a temporary injunction against individuals and corporations allegedly responsible for operating three international mail fraud schemes that primarily victimized the elderly or vulnerable. The schemes purportedly involved personalized notices informing recipients that they had won a large cash prize but needed to urgently pay a fee to claim their winnings.
- The United States Department of Justice announced that a federal court in Las Vegas, Nevada permanently enjoined six individuals and fourteen corporate entities from activities related to an alleged multi-million dollar mail fraud, cash prize scheme.
- The Food and Drug Administration is advancing development of a new consumer survey as part of a process to assess allergens in cosmetics.
Attorney General Consumer Protection News and Other Items of Interest
Arizona Attorney General Mark Brnovich announced a $451,000 judgement against a Texas-based travel company, ED Worldwide, LLC, and its CEO, George Barragan. The Arizona Attorney General’s Office filed a consumer fraud lawsuit back in July after receiving complaints EB Worldwide, operating under the name “Senior Grad Trips,” had accepted thousands of dollars in payments from Arizona consumers for a group vacation that was canceled without notice or refund. In other Arizona news, General Brnovich issued a warning about deceptive flyers appearing on residences that promote a solar energy effort.
Arkansas Attorney General Leslie Rutledge warned consumers of Secret Santa scams.
Best Buy, Walmart, and Target have agreed to make major changes to their gift card policies, which are intended to prevent gift cards sold in their stores from being used for payment by victims of scams. Walmart, Target, and Best Buy made these changes voluntarily thanks to the joint initiative of the Attorneys General of Pennsylvania and New York.
Florida Attorney General Pam Bondi released the 2018 Holiday Consumer Protection Guide to assist shoppers this holiday season.
Georgia Attorney General Chris Carr warned Georgians of ticket scams ahead of big sporting events in Atlanta. Additionally, General Carr encouraged consumers to spend wisely and protect themselves this holiday season.
Hawaii Attorney General Russell Suzuki announced the establishment of the Electronic Smoking Device Retailer Registration Unit within the Department of the Attorney General, pursuant to Act 206, Session Laws of Hawaii 2018. The Act requires an entity engaged in the retail sale of electronic smoking devices to register with the Unit, provide identifying information, and allow for inspections of the retailer’s facilities. Failure to timely register may subject a violator to a civil penalty of $100 for each day the retailer is in violation, plus the costs of the investigation conducted by the Unit to determine the violation.
Juul Labs Inc. announced that it has suspended the sale of its “flavored” pods in retail stores and shut down its U.S. based social media accounts on Facebook and Instagram.
A Kentucky wedding venue owner is facing legal action from Kentucky Attorney General Andy Beshear for allegedly conning at least seven couples weeks before their weddings by canceling the events or by not providing contracted services.
Louisiana Attorney General Jeff Landry advised Louisiana consumers to be mindful of various child products that have been recently recalled.
On the heels of her lawsuit against another competitive electricity supplier, Massachusetts Attorney General Maura Healey announced that customers of the competitive electricity supplier, Viridian Energy, LLC, are beginning to receive restitution payments as part of a $5 million settlement reached with the AG’s Office over allegations of deceptive marketing and sales tactics that lured residents into costly contracts with high electricity rates. In other Massachusetts news, General Healey announced that Comcast will pay refunds and cancel debts for more than 20,000 Massachusetts customers as part of a settlement resolving allegations that the company violated state consumer protection laws by using deceptive advertisements to promote its long-term cable contracts. Additionally, General Healey announced that a Shrewsbury man has been sued for allegedly operating an unlicensed and unsanitary pet shop in his home and misrepresenting the health and condition of bulldog puppies he sold to Massachusetts consumers for thousands of dollars.
Maryland Attorney General Brian Frosh announced holiday shopping tips.
New Jersey Attorney General Gurbir S. Grewal announced that the state has submitted for filing a five-count lawsuit against Janssen Pharmaceuticals Inc., a subsidiary of Johnson & Johnson, for allegedly deceiving consumers about the dangers of two of the company’s opioid products with high potential for abuse – Nucynta and Nucynta ER. In other New Jersey news, General Grewal announced that the Division of Consumer Affairs has issued Notices of Violation against 28 businesses that allegedly defrauded consumers by offering immigration services that they are not legally permitted to provide.
New York Attorney General Barbara D. Underwood announced a lawsuit jointly filed with the Federal Trade Commission against a Buffalo debt collection operation run by Robert Heidenreich for allegedly engaging in deceptive and abusive debt collection practices. A federal court granted a temporary restraining order freezing the operations’ assets, ordered the defendants to comply with the law, and appointed a receiver to take over the corporate entities at the request of the attorney general’s office and the FTC. In other New York news, General Underwood announced a settlement resolving an investigation into Illinois-based Abbott Laboratories, maker of Similac infant formula, over misleading marketing surveys the company sent to new parents about their infant-feeding habits. Additionally, General Underwood announced a judgment obtained against Finger Lakes Estate and Auction, Inc. and its owner, Charles Dorsey, for fraudulently inducing consumers into giving up their personal property for auction sales and failing to return the proceeds as promised.
Ohio Attorney General Mike DeWine announced a consumer protection lawsuit against a Martins Ferry used car seller accused of failing to deliver vehicle titles to consumers. In other Ohio news, General DeWine filed a consumer protection lawsuit against Energy Wise Home Improvements, a Mahoning County company that has generated more than 180 complaints since mid-October.
Pennsylvania Attorney General Josh Shapiro announced 20 legal actions have been filed against auto dealers and salespeople in eleven counties in Pennsylvania for violating consumer protection laws and deceptively advertising motor vehicles. In other Pennsylvania news, General Shapiro warned of holiday shopping scams.
South Dakota Attorney General Marty Jackley warned consumers to be aware of a fictitious shipping company by the name Sioux Falls Vehicle Carriers that claims to be physically located in Sioux Falls, South Dakota. In other South Dakota news, General Jackley offered holiday shopping tips.
Texas Attorney General Ken Paxton warned Texans that fraudulent emails are being sent from people impersonating the Internal Revenue Service targeting users with fake tax documents.
Vermont Attorney General T.J. Donovan joined Vermont Student Assistance Corporation to warn Vermonters about scams involving student loans. Scammers pose as student loan servicers, debt relief companies, document preparation companies or say that you may be eligible for a student loan forgiveness program.
Virginia Attorney General Mark R. Herring is warning Virginia consumers who could be affected by Marriott’s massive data breach to remain vigilant.
Washington Attorney General Bob Ferguson’s third annual Data Breach Report finds that data breaches affected nearly 3.4 million Washingtonians between July of 2017 and July of 2018 — an increase of 700,000, or 26 percent, over the previous year, and an increase of nearly 3 million, or more than 700 percent, compared to two years ago.
West Virginia Attorney General Patrick Morrisey filed suit alleging a Northern Panhandle home improvement contractor defrauded at least five consumers of more than $11,000 in down payments for fencing projects the defendant would never begin. In other West Virginia news, General Morrisey offered tips for safe holiday shopping.
Florida Attorney General Pam Bondi released charitable giving tips to protect citizens from scams.
New York Attorney General Barbara D. Underwood offered charitable giving tips to New Yorkers.
North Dakota Attorney General Wayne Stenehjem warned consumers to be aware of phony “look alike” charities.
Ohio Attorney General Mike Dewine offered charitable giving tips to Ohio donors.
The United States Department of Justice announced that the former CEO of a charity headquartered in Springfield, Missouri has pleaded guilty to her role in a multi-million-dollar political corruption scheme that involved bribes and campaign contributions for elected public officials in Missouri and Arkansas. Marilyn Luann Nolan, pleaded guilty before federal judge on November 9, to one count of conspiracy to embezzle and misapply the funds of a charitable organization that received federal funds.
Senator Ron Wyden unveiled draft legislation that would allow hefty fines and as much as 20-year prison terms for executives who violate privacy and cybersecurity standards. The legislation would also grant the Federal Trade Commission authority to write privacy regulations and allow maximum fines of 4 percent of revenue - matching European rules adopted earlier this year.
Veterans and Military News
California Attorney General Xavier Becerra announced a jury verdict in favor of the state against individuals who fraudulently solicited charitable donations under the pretext of assisting wounded veterans and their families and instead illegally enriched themselves with the donated funds.
The BBB released an article on the riskiest scams for military families and veterans.
The FTC is seeking comment on a proposed rule to implement a 2018 law requiring the nationwide consumer reporting agencies to provide free electronic credit monitoring services for active duty military consumers.
Pennsylvania Attorney General Josh Shapiro announced his Bureau of Consumer Protection and Office of Military and Veterans Affairs have settled a case against a Pennsylvania man for lying about his military service and violating the Stolen Valor Act.
The United States Department of Justice announced that Hudson Valley Federal Credit Union has agreed to pay $95,000 to resolve allegations that it violated the Servicemembers Civil Relief Act (SCRA) by repossessing vehicles owned by SCRA-protected servicemembers without first obtaining the required court orders. Under the agreement, Hudson Valley has agreed to pay $65,000 to compensate seven servicemembers whose cars it unlawfully repossessed and will pay a civil penalty of $30,000 to the United States.
Virginia Attorney General Mark R. Herring announced that he has secured more than $50 million in debt relief and ordered civil penalties as a result of his lawsuit against Future Income Payments, LLC; FIP, LLC; and their owner, Scott Kohn for making illegal, high-interest loans to more than 1,000 Virginia veterans and retirees in violation of the Virginia Consumer Protection Act.
Washington Attorney General Bob Ferguson announced that a Washington state court judge granted his motion for a preliminary injunction against Spanaway-based Fallen Hero Bracelets, the Benjamin Foundation, and other organizations run by Michael Friedmann. The injunction forces the organizations to cease operations until they register with the Secretary of State and provide financial reports for each year of their existence. In other Washington news, General Ferguson announced new resources aimed at helping military servicemembers and veterans deal with legal issues.
Consumer Protection Trivia
- In what type of scam does a person pose as a suitor usually over the internet in order to lure the victim into a romance before requesting money from the victim?
A. Tech support scam
B. Utility scam
C. Romance scam
D. Identity theft scam
- What does "UDAP" stand for in many states' consumer protection laws?
A. Unsafe and discriminatory acts and practices
B. Unfair and deceptive acts and practices
C. Unreasonable and discriminatory acts and practices
D. Unsafe and deceptive acts and practices
*Trivia answers can be found below.
- C. Romance scam
- B. Unfair and deceptive acts and practices
Blake Bee, Program Counsel for the Center for Consumer Protection, is the editor of Center for Consumer Protection Monthly, a compendium of information that may be of interest to the attorney general community and others interested in consumer protection. Neither the National Association of Attorneys General (NAAG) nor the National Attorneys General Training & Research Institute expresses a view as to the accuracy of the matters, nor as to the position expounded by the authors of the hyperlinked materials. Any use and/or copies of this newsletter in whole or part must include the customary bibliographic citation. NAAG retains copyright and all other intellectual property rights in the material presented in this publication. For content submissions or to contact the editor directly, please email email@example.com or call (202) 326-6263.