Question: FTC v. GLOBAL MARKETING GROUP, INC., 594 F. SUPP. 2D 1281 (M.D. FLA. 2008)
FACTS This case arose out of the activities of eight Canadian advance-fee telemarketers, who would telephone consumers and induce them to purchase unsecured credit cards and credit card loss protection services. The consumers were charged fees, payable in advance, of up to $249. The consumers did not receive either the credit cards or the loss protection services they had paid for, however. Ira Rubin was an owner or corporate officer of 24 corporations that assisted these Canadian telemarketers. The 24 corporations shared officers, employees, and office space, commingled funds, and were under common control. Rubin was actively involved in the day-to-day operations of these 24 corporations, including soliciting new telemarketer clients and managing existing clients; serving as the primary contact with the bank that provided the telemarketers with access to the Automated Clearing House Network (the electronic funds transfer system that provides for interbank clearing of electronic funds); reviewing, editing, and approving sales scripts used by the telemarketers; and handling law enforcement inquiries regarding the telemarketers.
In the four-year period that Rubin and his corporations were involved with the eight telemarketers, he and his corporations netted over $8.6 million. The FTC filed a complaint against Rubin, alleging that he personally violated the Telemarketing Sales Rule. DECISION The court found that Rubin had violated the Telemarketing Sales Rule. The Rule provides, in relevant part: It is a deceptive telemarketing act or practice and a violation of this Rule for a person to provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates ... this Rule. The court determined first that the telemarketers had violated the Rule by making misleading statements to induce consumers to purchase goods or services. Although they promised consumers credit cards and loss prevention services in exchange for payment of advance fees, they never intended to follow through with providing such services, and in fact, never did.
The court further found that Rubin assisted the telemarketers in this scheme by processing the more than $26 million in payments made by consumers; by reviewing, editing, and approving the sales scripts; and by handling customer complaints and law enforcement inquiries. Rubin also received periodic reports of the telemarketers' returns, which were as high as 71.5 percent. The court concluded that "at a minimum, Rubin consciously avoided knowing the telemarketers were engaged in deceptive acts and practices given the extraordinary high return rate and Rubin's substantial involvement in the telemarketing scheme." Moreover, the corporate form did not shield Rubin from individual liability. The court stated: An individual may be held liable for corporate violations if the FTC can show "that the individual defendants participated directly in the practices or had authority to control them [and] that the individual had some knowledge of the practices." Authority is established by proof that the individual participated in corporate activities by performing the duties of a corporate officer. Knowledge may be proven by "evidence that the individual[] had an awareness of a high probability of fraud along with an intentional avoidance of the truth." Here, the telemarketer's sales scripts, which Rubin reviewed, clearly revealed an intent to engage in illegal conduct. Moreover, the periodic financial reports showing the unusually high returns, and Rubin's handling of law enforcement inquiries regarding the telemarketers' illegal activities, indicate that Rubin "either had actual knowledge of the illegal activity or that he was aware of a high probability of fraud and chose to avoid the truth." The court issued a permanent injunction "restraining Rubin from engaging, directly or indirectly, in any and all future involvement with telemarketing operations." The court also issued a monetary judgment of $8,615,185 against Rubin.