American Family Enterprises, Jersey City, NJ, the parent company of American Family Publishers whose sweepstakes business has been plagued by deceptive-advertising lawsuits over the past few years, filed for Chapter 11 protection late last month.
AFE, which is jointly owned by Time Warner’s New York-based Time Inc. and a group of additional investors, said the bankruptcy filing would enable it to resolve several dozen class-action suits pending against the company that have been consolidated into one federal court case in Newark, NJ. AFP expects to report shortly the terms of the settlement, which, by court order, are currently confidential.
The company has already agreed to pay $6.9 million to settle deceptive-advertising suits by 40 states and the District of Columbia, even though the company did not admit to any wrongdoing but promised to change its approach. Complaints by Iowa, Washington, and Connecticut are pending.
AFE would not offer details on the bankruptcy-related legislation, but did say that it had obtained funding to assist it through restructuring.
AFP’s main competitor, Publishers Clearing House, Port Washington, NY, which faces similar charges from states around the country, had no comment about AFP’s activities. Christopher Irving, a spokesman for PCH, said it “certainly has no plans to file for bankruptcy.”
Susan Caughman, president/CEO of AFE, said the bankruptcy-related financial restructuring would enable the company to compete successfully in the future.
Caughman added that with the expected resolution of all outstanding class action litigation, the company plans to diversify beyond sweepstakes to find new distribution channels for the sale of both magazines and merchandise.
She also said that the bankruptcy filing would have no impact on consumers and sweepstakes winners. The next big drawings — $1 million on Nov. 24 and $10 million on Jan. 31 — are on schedule. In addition, AFE will give away prizes ranging from $5,000 to $100,000 throughout next year, and million-dollar prizes will be awarded three times during the year. These prizes are not affected since the contest money has already been deposited in trust accounts.
Meanwhile, the House Government Reform Committee unanimously approved H.R. 170, the house version of the Deceptive Mail Prevention and Enforcement Act, Oct. 29.
The bill, sponsored by panel chairman John McHugh (R-NY), and Chaka Fattah (D-PA), is designed to curb deceptive practices of sweepstakes mailings while allowing states to impose their own regulations.
H.R. 170 is a less restrictive version of the Senate bill, S. 335, approved in August. Among other provisions, the house bill does not include the word “prominently” to describe where disclosures should be placed on sweeps mailings; requires sweepstakes markets to remove the names of people who do not want to receive their offers within 60 days; permits individuals to sue sweepstakes marketers for failing to remove their names from mailing lists in a timely fashion; and grants USPS administrative judges subpoena authority during the course of a relative hearing about deceptive mailings.
H.R. 170 is being examined by the full House today. If it is approved by the House, it will then move to the Senate, then to a House-Senate Conference Committee and through the House and Senate again before being sent to President Clinton.
Jerry Cerasale, senior vice president of government relations for the Direct Marketing Association, Washington, said a final version of the bill “may be signed into law by the President before Thanksgiving.”
