Miller: "We alleged that Teledraft, Inc., provided U.S. and Canadian telemarketing boiler-rooms the means to extract money directly from the bank accounts of fraud victims across the United States. Teledraft now is permanently prohibited from facilitating telemarketing fraud -- nationwide -- and must make over $43,000 in refunds to Iowans."
DES MOINES. Attorney General Tom Miller announced entry of a final judgment today in U.S. District Court against Teledraft, Inc., an Arizona electronic withdrawal company. Miller alleged that Teledraft had "facilitated consumer fraud" by enabling deceptive telemarketers to automatically withdraw money from people's bank accounts without their permission or approval.
"Today's strong federal court judgment orders Teledraft to change its practices everywhere it operates in the U.S.," Miller said. [Click here for Final Judgment entered 12-9-05.]
The court also ordered Teledraft to pay over $43,533 in refunds to 149 Iowa consumers.
"Teledraft had made its automatic withdrawal services readily available to predatory con-artists mostly based in Canada," Miller said. "It participated in the withdrawal of millions of dollars from the accounts of telemarketing fraud victims. Individual consumers had hundreds of dollars withdrawn -- sometimes without even realizing the money had been taken."
Miller sued the Arizona business in September 2004 under the "Telemarketing Sales Rule," a federal law that allows state attorneys general to seek nationwide relief against deceptive telemarketers, and operations that facilitate telemarketing fraud. [Click here for lawsuit filed 9-17-04.]
Federal District Court Judge Robert Pratt entered a "Stipulation for Settlement and Agreed Final Judgment" this morning that resolves Miller's lawsuit. The Judgment ordered Teledraft and two principals, Al Slaten and Dan Wolfe, to restructure operations to ensure that its bank account withdrawal services are not used by fraudulent telemarketers.
Pratt's injunction ordered Teledraft to:
- Carefully screen telemarketing clients in advance - particularly those operating out of Canada - to ensure that they are legitimate businesses.
- Collect data weekly that would show whether unauthorized withdrawals or other suspicious activity is occurring -- and then investigate and cut off services to deceptive operators.
- Actively monitor the Federal Trade Commission (FTC) website in order to keep abreast of the various ways consumers are being victimized by telemarketing fraud, to help in screening and investigating clients.
Judge Pratt's order also requires the defendants to pay $43,533.13 as restitution to Iowans who were victimized by unauthorized or fraudulent withdrawals from their bank accounts. The order also required a $35,000 payment to Iowa for enforcement of Iowa's consumer fraud laws.
Teledraft, Slaten and Wolfe agreed to entry of the Judgment. The judgment is not an admission by the defendants that they violated the law.
Miller added a warning: "Frankly, we are not confident that Teledraft will implement in good faith the reforms that the Court has ordered," he said. "These defendants have a history of providing repeated, sustained, active assistance to what we regard as transparently predatory telemarketers. Teledraft agreed to reform its operation, but only because we had the goods on them. If we don't see full compliance with Judge Pratt's order, Teledraft may find itself back in Court."
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Using the "Telemarketing Sales Rule" to thwart Canadian telemarketing scams:
Iowa's lawsuit was filed on September 17, 2004, in the U.S. 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, Arizona. Also named as defendants were Al Slaten, the president and an owner of the company, and co-owner Dan Wolfe.
The lawsuit was brought under both the federal "Telemarketing Sales Rule" and Iowa's Consumer Fraud Act. The federal law was enacted several years ago with the support of Miller and other state attorneys general, in an effort to "put more cops on the beat" by letting each state attorney general seek nationwide injunctive relief against fraudulent telemarketers by suing in federal court. "We are pleased that the injunctive relief we have obtained will help to protect would-be telemarketing fraud victims nationwide," Miller said. He noted that, although the federal law allows for nationwide injunctions, it permits restitution only for victims in the state of the attorney general bringing the suit.
"Attacking those who profit by lending support to predatory con-artists has become a crucial part of our battle against telemarketing fraud," Miller said. "Direct enforcement against boiler-rooms that operate across international boundaries is very difficult. But when those boiler-rooms rely on U.S.-based businesses for vital services, those businesses can be held responsible, and we can deprive the telemarketers of the infrastructure they need to work their frauds."
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. [See below for Chart showing ACH system.]
Teledraft was incorporated February 6, 2003. Iowa's lawsuit alleged that "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 said that of 20 telemarketing businesses served by Teledraft between August 2003 and Sept. 2004, for which location information was 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.
Examples alleged regarding Teledraft clients:
Helen Parker of Des Moines -- who appeared with Miller at a news conference announcing the Teledraft judgment -- 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.
- "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. Some consumers said they refused to authorize a withdrawal, but sums were taken nevertheless, sometimes more than once.
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.
- "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.