The Federal Trade Commission, Washington, announced last week that it filed suits in federal district courts against three companies involved in office supply fraud, in a continuing effort to combat this type of deceit.
Office supply fraud involves the deceptive sale of nondurable or consumable products to small businesses and nonprofit groups. According to the FTC, this type of fraud costs these businesses an estimated $250 million per year. Fraudulent sellers also cost legitimate office supply companies about $125 million in lost revenues annually.
The cases involve what is known as the “toner-phoner” scam, where the defendants called businesses or nonprofit organizations, misrepresented their identity and the cost of the office supplies, and then shipped and demanded payment for grossly overpriced merchandise. In perpetrating this scam, the FTC alleges that the defendants violated the FTC Act and the Telemarketing Sales Rule.
The FTC filed complaints against the following defendants:
• Pacific Office Systems Inc., Canoga Park, CA, and its owner, Suzette Oppenheim. Pacific sells toner cartridges for photocopiers. The FTC has obtained a temporary restraining order with asset freeze and the appointment of a receiver. It is seeking a preliminary injunction pending resolution of the case. The order was filed Sept. 25 in the U.S. District Court for the Central District of California, Los Angeles.
• Corporate Supplies Inc., Cumming, GA, and its president, Larry Sarchenko, and vice president, Robert Henkel. Corporate Supplies primarily sells toner cartridges for laser printers, fax machines and photocopiers to consumers throughout the United States. The FTC has obtained a temporary restraining order with asset freeze. It is seeking a preliminary injunction pending resolution of this case. The order was filed Sept. 20 in the U.S. District Court for the Northern District of Georgia, Atlanta.
• Allstate Business Distribution Center Inc., Southern California, doing business as Primary Distribution Center, and its owner, Robert Matz. Primary Distribution sells photocopier toner and dry ink cartridges to businesses nationwide. The FTC's complaint seeks a preliminary injunction pending resolution of the case. It was filed Sept. 26 in the U.S. District Court for the Central District of California, Los Angeles.
The FTC alleges that the defendants in each of the three cases deceptively induced businesses and nonprofit organizations to pay substantially higher prices for toner than they normally pay.
In many instances, consumers were deceived into paying higher prices for toner they never ordered, and in some cases, paid for toner they never received. If the consumers paid the first bill, the defendants often sent and billed them for additional, unauthorized shipments.
The complaints allege that the defendants violated the FTC Act by misrepresenting that they were the consumer's regular supplier or were associated with the manufacturer of the consumer's photocopier; by misrepresenting that they would charge the consumer the same price the consumer had been paying or a lower price; and by misrepresenting the ordered toner that defendants shipped or billed to the consumer.
The defendants also violated the TSR by making false and misleading statements to induce payment. Also, when making outbound telephone calls, they failed to disclose the identity of the seller. Pacific Office Systems and Corporate Supplies failed to disclose the sales purpose of their calls.
The FTC has battled office supply fraud and has undertaken substantial efforts to educate businesses on how to recognize and avoid such scams. In March of this year, FTC staff testified before the Senate Small Business Committee addressing the FTC's efforts and partnerships with state and government officials to combat office supply fraud.
The FTC's current sweep — Operation Copy Con — continues its law enforcement efforts to stop this fraud. To complement its enforcement efforts, the FTC is promoting Project Banish Office Supply Scams, a multipronged joint education campaign to alert small businesses and nonprofit organizations about office supply fraud.