Telebrands Hit With $800K Penalty
The penalty is a modification of a 1996 court ruling that found the company in violation of the FTC Mail Order Rule. The latest ruling supersedes the 1996 order which forced Telebrands to enhance its record keeping systems, and hire and pay the expenses of a monitor. The monitor is required to have expertise in mail-order and telephone-order fulfillment. It is also required to audit the company's records and procedures and report any violations of the Mail Order Rule to the court and the FTC.
Telebrands and its president and owner, A.J. Khubani, agreed to the modified order without admitting any wrongdoing. The FTC made public the settlement Sept. 2, but according to Telebrands' attorney Robert Altman, the settlement was reached in May or June.
"This is very old news," he said. "We don't want to rehash too much of it."
Khubani, declined to comment on the matter.
The FTC asked the court to stiffen the penalty for Telebrands after alleging the company violated the rule and the original court order in the processing and selling of its products, including the Static Duster, the Moving Train Watch, the Sky Glider indoor exerciser, the Fuji Pillow and Total Perfection, an electric depilatory device.
The Mail or Telephone Order Merchandise Rule requires a company that takes orders for merchandise by mail, telephone or computer to ship merchandise by the time stated in the ads. If no time is stated, the company must send the merchandise within 30 days of receiving the properly completed order.
The rule also has a provision that says if a company is unable to ship an order before the deadline, it must promptly send the consumer an option notice offering the choice of agreeing to a revised shipping date or canceling the order and receiving a prompt refund. The delay notice must give the consumer a cost-free method of responding.
If there is still another delay, the company is required to send a second option notice. If the consumer does not respond, it must cancel the order and issue a prompt refund.
Originally, the company and Khubani reached a $95,000 settlement, which included a promise by Telebrands to adhere to the Mail Order Rule. After the company allegedly continued to violate the rule, the FTC asked for a stiffer penalty.
In 1990, Khubani and the company he operated at the time, Direct Marketing of Virginia Inc., also known as the Direct Connection, Roanoke, VA, were charged with violating the mail order rule and paid a $30,000 civil penalty.
Telebrands has also been reprimanded by the FTC several times in the past. The company settled allegations with the FTC on Dec. 13, 1996, because of unsubstantiated claims in its print ads for the Whisper XL. The ads made claims that a hearing impaired person could hear a whisper 100 feet away. The ads also indicated the product was a major breakthrough in sound enhancement technology, and would amplify the sound of conversations, radio and television.
In addition to the complaint filed by the FTC, the attorneys general of 17 states filed lawsuits against the company for the same ad campaign. The states of Arizona, California, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Texas, Vermont and Wisconsin in their complaints added that the Food and Drug Administration did not approve the Whisper XL.
The company settled all of the suits without admitting to any wrongdoing.
In addition to monetary settlements with all of the states, Telebrands also paid refunds to people who purchased the Whisper XL. According to FTC documents, 400,000 units were sold between 1993 and 1995.
In the same complaint, the company was accused of making false and unsubstantiated claims about its television antenna, The Sweda Power Antenna, a device the company sold in DRTV spots. The ads claimed the product would improve television or radio reception without cable, a television aerial or satellite dish. The FTC complaint also charged the company with failing to honor its money-back guarantee in a timely manner. Telebrands paid the FTC a $95,000 civil penalty.