FTC Settlement Fails to Save Cross MediaCross Media Marketing Corp. settled a federal deception complaint, but the company's founder said yesterday that the resolution of the charges came too late to save Cross Media from bankruptcy and liquidation.
Ronald Altbach, formerly chairman and CEO of the New York-based multichannel direct marketing firm, said the Federal Trade Commission's lawsuit held up efforts to refinance Cross Media.
In April, Cross Media reported a loss of $34.5 million in 2002, which Altbach, in a statement accompanying the annual financial report, blamed on the FTC complaint and a cash shortage under its credit facility.
Banks would not discuss financing the company until the settlement of the FTC complaint, Altbach said in a telephone interview yesterday. He said he signed the settlement March 28, but FTC approval came two months later, and the judge didn't finalize the settlement until three weeks after that.
"It just bled the company dry," Altbach said.
On June 17, Cross Media announced it had filed for Chapter 11 bankruptcy. It is liquidating its assets and is under the control of a restructuring officer.
Altbach said that Cross Media was a viable company with 1,000 employees before the FTC complaint. He called the company's downfall "a shame."
"We believe much of this could have been avoided and many jobs could have been saved," he said.
The FTC complaint, filed in April 2002, charged Cross Media with misrepresenting and failing to properly disclose the costs and details of magazine subscriptions and buyers-club memberships.
According to the FTC, Cross Media solicited consumers with prize and sweepstakes opportunities via mail and telemarketing, then pitched magazine packages, including some free titles and others with a weekly cost.
Later, Cross Media called consumers again, ostensibly to verify their magazine subscriptions, and used the opportunity to offer free-trial buying club memberships, the FTC said. Some consumers who were charged did not agree to a purchase or accepted a free trial but were later told they could not cancel, according to the FTC.
The packages wound up costing consumers an average of $600, the FTC said. Cross Media also failed to notify consumers that their credit card numbers would be transferred to a third party, according to the FTC.
In addition, the FTC alleged that Cross Media's practices violated an agreement it made with Direct Sales International, which Cross Media acquired in January 2000 and created Media Outsourcing Inc., its magazine subscription unit.
Under the settlement, Cross Media made no admission of guilt.
The company agreed to a $1.1 million civil penalty, which will be suspended on the condition that it pays $350,000. Also, Dennis H. Gougion, a senior vice president with Cross Media who was involved in Media Outsourcing, agreed to a $100,000 civil penalty, suspended on the condition of his payment of $10,000, and to a requirement that he post a $1 million bond before engaging in telemarketing again.
Altbach called the cash payment by the company "modest" and said the case never produced evidence of "massive deception" by Cross Media. He said the company had tried to do business in compliance with marketing regulations.