A federal judge has ordered a magazine subscription seller to pay a civil penalty of more than $5.4 million and give up more than $1.6 million of his gains for violating a 1996 Federal Trade Commission consent order and the FTC’s Telemarketing Sales Rule.
Based on an FTC complaint filed by the U.S. Department of Justice, the court entered a judgment on July 31 against Richard L. Prochnow of Atlanta. The case was litigated in the U.S. District Court for the Northern District of Georgia, Atlanta Division.
This is the largest civil penalty the Federal Trade Commission has ever obtained for a violation of a consent order in a consumer protection matter.
The court entered the judgment.
The court found that Mr. Prochnow violated the consent order through his ownership and control of Direct Sales International, which either directly or through its dealers failed to disclose or misled consumers regarding the cost of magazine packages and individual magazines; and made weekly cost representations even though consumers could not make weekly payments for the magazine packages.
The court also held Mr. Prochnow liable for DSI’s failure to tell consumers that their credit cards would be billed for membership in a buying club unless they called within thirty days to cancel, and its failure to provide consumers with information that would enable them to cancel, in violation of the TSR. The court further found Mr. Prochnow liable for false statements to consumers that publishers were paid in advance for magazines, which the court found to be a violation of the TSR.
The court ordered that, with a few exceptions, Mr. Prochnow may not own, control, manage, advise, or assist others engaged in a telemarketing business for five years.
The court added that his ban does not apply to his ownership in Amerinet, a company that processes payments to telemarketers, and Hotdogger, an infomercial company, as long as he follows certain rules.
The violations of the consent order and the TSR occurred between April 1997 and January 2000, when Mr. Prochnow sold DSI. The consent order, which prohibited Mr. Prochnow from using deceptive practices to sell magazine subscriptions, had settled FTC charges against Mr. Prochnow, then doing business as DSI, and several other corporate and individual parties.