Feds Sue Telemarketing Operation for Fraud

Telemarketing companies suedThree telemarketing firms and their owner are being sued by the U.S. Justice Department for running a fraudulent operation that deceived consumers, peddled movies, solicited donations and called more than 16 million numbers on the National Do Not Call Registry.

The Federal Trade Commission, which requested the Justice Department action, charged Forrest S. Baker III and his companies with multiple violations of the FTC Act and the Telemarketing Sales Rule. The agency also accused the defendants of lying to consumers about how the proceeds from their purchases and donations would be spent.Baker owns a number of companies in Utah that produce and market films and DVDs, including Feature Films for Families Inc., Corporations for Character LC and Family Films of Utah. The operation also solicits charitable contributions from consumers nationwide.

In 2008 and 2009, according to the complaint, the defendants conducted a nationwide telemarketing campaign known as "Kids First," offering consumers two complimentary DVDs in return for feedback on whether the movies warranted inclusion on a list of recommended movies. The defendants, however, failed to tell consumers who agreed to participate that they'd be subjected to telemarketing calls peddling their DVDs.

Baker's telemarketers then made follow-up calls to participating consumers, attempting to sell DVDs produced by the defendants. Moreover, the telemarketers promised consumers "all of the proceeds of this fundraiser will help us finish up creating this recommended viewing list to help parents and grandparents, like us, with a list we can trust."

But the organization behind the Kids First recommended viewing list, the Coalition for Quality Children's Media, received only a pittance of the profits from the DVD sales, while the defendants pocketed some 93% of the proceeds.

Between 2009 and 2010, the FTC said, the defendants conducted fundraising campaigns for organizations with names related to fraternal orders of police and firefighters. And as with the Kids First campaign, the defendants kept the lion's share of the donations, handing over only 15% to 33% of the money to the organizations themselves.

In order to convince donors to hand over their money, the lawsuit charges, Baker and his companies told consumers multiple lies about the nature and purpose of the organizations they solicited for, the use of the charitable contributions and the percentage of donations going to the organizations.

For instance, the defendants told donors that administrative costs were "minimal," with the bulk of donations going towards safety-related officer training, bulletproof vests or financial assistance to victims. But the organizations in question either funded no such activities or devoted only a small percentage of contributions towards them.

The defendant's telemarketers repeatedly pestered consumers on the National Do Not Call Registry, illegally calling five million of them for Kids First campaign and another nine million to peddle Feature Films for Families DVDs. During a two-week period in 2009, the defendant's telemarketers called another two-and-a-half million consumers on the list while trying to sell tickets to see a Baker production, "The Velveteen Rabbit."

The complaint, which seeks civil penalties and disgorgement of ill-gotten gains, names as defendants Feature Films for Families Inc., Corporations for Character LC, Family Films of Utah Inc. and Forrest Sandusky Baker III, individually and as an owner and principal of Feature Films for Families Inc., Corporations for Character LC and Family Films of Utah Inc.

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