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September 17, 2004

Electronic Withdrawal Company Enlisted Deceptive Telemarketing Schemes

Miller: "They gave the telemarketers instant access to consumers' bank accounts and withdrew millions of dollars -- sometimes without consumers even knowing it. We are asking the court to put a stop to this practice in Iowa and nationwide."

DES MOINES.   Attorney General Tom Miller filed a lawsuit today alleging that an Arizona electronic withdrawal company "facilitated consumer fraud" by enabling deceptive telemarketers to automatically withdraw money from people's bank accounts without their permission or approval.

"We allege that Teledraft, Inc., plays a vital role in various predatory telemarketing schemes, with many operating out of Canada," Miller said.

"We allege that Teledraft gives the fraudulent telemarketers instantaneous electronic access to consumers' bank accounts, and withdrawals of hundreds of dollars at a time are made -- sometimes without the victim's authorization or even realization. Teledraft has caused millions of dollars to be electronically withdrawn from the bank accounts of U.S. customers," Miller said.

"We allege that Teledraft has ample notice of the role they play in these schemes, and that they have a legal duty under both U.S. and Iowa law to refrain from helping illegal telemarketers gain access to consumers' bank accounts," he said. "If we succeed in our lawsuit, the Federal District Court will prohibit Teledraft's illegal activity in Iowa and nationwide and order refunds to Iowans."

*UPDATE -- Oct. 7, 2004: U.S. District Court Judge Robert W. Pratt entered a preliminary injunction Oct. 7 ordering Teledraft to comply with federal and Iowa laws concerning telemarketing fraud and other abuses while the lawsuit is pending in court. [See end of release for details.]


The lawsuit was filed in Federal District Court for the Southern District of Iowa, in Des Moines. Teledraft, Inc., is a Delaware corporation with its principal place of business in Phoenix, AZ. Also named in the suit are Al Slaten, president and an owner of Teledraft, and Dan Wolfe, an owner of Teledaft and Arizona resident who owns a larger share than any other individual.

The suit asks the court to order preliminary and permanent injunctions prohibiting violations of the federal Telemarketing Sales Rule and Iowa's Consumer Fraud Act; redress of injury to Iowa consumers including damages and refund of monies; penalties up to $40,000 per defendant for each violation of the Iowa Consumer Fraud Act; and penalties up to $5,000 per defendant for each violation of the Consumer Fraud Act committed against Iowans age 65 or older.

When the federal law was enacted several years ago, Miller and other state attorneys general urged lawmakers to permit state officials to sue in federal court and seek injunctions that apply nationwide.

Iowa Attorney General Tom Miller explains lawsuit naming Teledraft, Inc.

Miller said the lawsuit marked a new approach. "We have battled illegal telemarketing scams for decades, especially since they tend to victimize older Iowans. The 'undercover telephone sting' pioneered right here in Iowa pretty much put the big telemarketing fraud operations out of business here in the U.S., but in recent years they seem to have sprung up in a big way in Canada," he said.

"This is one way for us to fight back -- by going after U.S. businesses that enable and assist and facilitate schemes that are fraudulent." Miller's office also has seized thousands of pieces of mail coming to Iowa "mail-drop" sites that the Attorney General alleged was used to identify potential victims for big-ticket telemarketing schemes and other scams.

Background: Teledraft, Inc. and the ACH System

Miller said Teledraft is a "third-party processor," which means they provide clients with access to the Automated Clearing House or "ACH" system through which funds may be withdrawn electronically from people's checking accounts. The nationwide ACH system is the network behind the huge volume of automated checking account withdrawals and deposits that now amount to billions of online banking transactions each year.

Teledraft was incorporated February 6, 2003. The suit says, "Teledraft has electronically debited consumers' bank accounts through the ACH Network on behalf of numerous deceptive or abusive telemarketing schemes, many of which have been based in Canada." It says that of 20 telemarketing businesses served by Teledraft between August 2003 and the present for which location information is available to the Attorney General, 14 were located in Canada.

Teledraft Processing for Abusive Sellers or Telemarketers:

The lawsuit spelled out examples of consumers harmed by Teledraft's making unauthorized withdrawals on behalf of at least six deceptive or abusive telemarketing schemes from Canada.

Examples alleged regarding Teledraft clients:

  • "Consumer Benefits Council" made "cold" calls, even though the sales script obtained by the Attorney General says the caller is calling "with regards to your request to be taken off all telemarketing lists forever" -- a promise they could never fulfill. "Nancy S." of Logan Iowa, age 64, twice had $489 withdrawn from her account by Teledraft on behalf Consumer Benefits Council. Nancy reported that a telephone caller said they had taken over security for her bank, and that she had to authorize a withdrawal or all of her accounts would have to be closed (a claim not even indicated in the prepared sales script.) She refused to authorize a withdrawal, but the $489 was taken nevertheless, causing checks to bounce, and overdraft charges. Teledraft later extracted another $469 without authorization.

    "Helen P." of Des Moines, age 84, also had $489 extracted from her bank account. She never authorized the withdrawal and never received any goods or services and never was reimbursed.

    Teledraft records indicate there were 26 Iowa ACH withdrawals attempted or performed by Teledraft for Consumer Benefits Council, and thousands nationwide.
  • "Client Care Solution" of Montreal, Quebec, Canada, engaged in "cold calling," deceptive marketing, and the illegal collection of advance fees for providing a "guaranteed" or highly-likely credit card. That solicitation is illegal in itself -- and should have been clear to Teledraft from Client Care's script, the suit alleges.

Although the sales script and verification script refer exclusively to a product price of $89, Teledraft made no ACH withdrawals in that amount for Client Care. The amount extracted was $189 in six instances and $239 in the seventh.

For example, "Ken S." of Ottumwa had $189 extracted. He had authorized the withdrawal after receiving a telemarketing call saying he had been pre-approved for a MasterCard which he could obtain for a total cost of $189. He never received a credit card or any other product or service, and his attempts to contact the company for a refund were unsuccessful.

Miller said: "In sum, our suit alleges that Teledraft had ample notice of its role in these schemes -- and has a legal duty to refrain from helping illicit telemarketers gain access to consumers' bank accounts. Teledraft failed to meet that duty and thus inflicted injury on many vulnerable consumers in Iowa and all across the U.S. We are asking the Court to put a halt to the illegal activity."


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*UPDATE -- Oct. 7, 2004:

U.S. District Court Judge Robert W. Pratt entered a preliminary injunction Oct. 7 that will be in effect as this matter moves forward. Pratt ordered Teledraft to comply with federal and Iowa laws concerning telemarketing fraud and other abuses while the lawsuit is pending in court. The suit alleges the defendants have facilitated telemarketing fraud by granting fraudulent telemarketers access to consumers' bank accounts for instantaneous electronic withdrawals from those accounts.

Judge Pratt's Stipulated Preliminary Injunction requires the defendants to investigate and actively monitor the telemarketers for which it withdraws funds from consumer bank accounts, and terminate services for telemarketers that appear to be violating the law. The defendants agreed to entry of the preliminary injunction, which provides that entry of the injunction is not an admission of wrongdoing by the defendants. The lawsuit will now proceed to trial, which has not yet been scheduled.


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