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  • 1. DMA 2006 The Lustigman Firm, P.C.October 16, 2006Avrick Direct, Inc. The Lustigman Firm, P.C.

2. Risk Management for Direct Marketer Suppliers Avoiding Legal TrapsAndy Lustigman, Esq.Adam Solomon, Esq.The Lustigman Firm, P.C.New York, NY(212) The Lustigman Firm, P.C. 3. Introductionn Regulatory and Enforcement Issues n Perspective of Outside Advertising/Regulatory Counsel to direct marketers and industry suppliersThe Lustigman Firm, P.C. 4. What we will discuss today n Governmental Framework n Supplier Liability Explored n Supplier Due DiligenceThe Lustigman Firm, P.C. 5. Governmental Framework Who is out there? n Federal Trade Commission n United State Department of Justice n United Stated Postal Service n Food & Drug Administration n Federal Communications Commission n Attorneys General (NAAG) n Local Law Enforcement (District Attorneys) n Class Action Attorneys The Lustigman Firm, P.C. 6. Who can be held liable?n Marketers n Advertising Agencies n Suppliers of Direct Marketers List Brokers / Managers Payment Processors Printers The Lustigman Firm, P.C. 7. Why are Suppliers being investigated/challenged? n Many unscrupulous marketers are based outside U.S. n Easy for marketers to reach U.S. consumers n D an d elon th eory u p root il altyi leg i n Enforcement consequencesThe Lustigman Firm, P.C. 8. How can you be Investigated? Informal Formal n Complaint Letter n Civil Investigativen Access LetterDemand (CID) n NAAG Request n Subpoena(individual state or n Lawsuit group)(Notice/Ex Parte) The Lustigman Firm, P.C. 9. USPS Investigation Powersn Postal Subpoena Administrative Subpoena for records w hich th e P ostm aster G eneral considers relevan t o r m aterial to an in vestigatio n The Lustigman Firm, P.C. 10. CIDs/Subpoena Marketers/Agencies n Provide All Advertising n All Substantiation for Claims n Ownership and Financial Data n Customer Lists The Lustigman Firm, P.C. 11. CID and Subpoena Suppliers n List Broker / List Manager Supply the direct mail piece was sent out using the list you provided Telemarketing Script Privacy Policy For Leads Generated Who approved the rental? Who rented? For what uses Revenues Received (paid to whom) The Lustigman Firm, P.C. 12. General Laws Federaln Key Federal Advertising Laws Section 5 of the FTC Act Enforced by the Federal Trade CommissionThe Lustigman Firm, P.C. 13. State Lawsn S tate L ittle F T C A cts Premised on Section 5 of the FTC Act n Enforcedby State AGs n New York GBL 349n Cal B&P 17500 The Lustigman Firm, P.C. 14. Postal Lawsn Section 3005 False Representations/Lottery n Enforced by the USPS n Prohibits false or deceptive representations made in an attempt to obtain money or property through the mail n Enhanced by the DMPEA The Lustigman Firm, P.C. 15. Summaryn Prohibit false and deceptive advertising / mailings Truth in Advertising Adequate Substantiation Unfair acts or practices The Lustigman Firm, P.C. 16. Supplier Liabilitykn ew or sh ou l h ave kn ow n d Aid and Abet W il l B ln d n ess lfu i Section 1345 Mail and Wire FraudThe Lustigman Firm, P.C. 17. Supplier Liabilityn Telemarketing Sales Rule kn ew or sh ou l h ave kn ow n d The List Broker Casesn Internet Marketingn Telemarketing The Lustigman Firm, P.C. 18. Governmental Challengesn Lawsuit Notice pleadings n Ex Parte application and asset freezes The Lustigman Firm, P.C. 19. FTC List Manager Casesn List Sellers Settle FTC Charges That They Aided in Illegal Marketing of Advance Fee Credit Products (2004) Guidestar (Carney) - $25,000 ListData - $100,000 NeWorld - $62,500 The Lustigman Firm, P.C. 20. List Manager Settlementsn Prohibition on Assisting & Facilitating: Deceptive telemarketing acts or practices Credit Card Laundering Deceptive acts or practices in the solicitation of charitable contributions Abusive ConductThe Lustigman Firm, P.C. 21. List Manager Settlementsn Deceptive telemarketing acts or practices Disclosure of all costs prior to payment information Misrepresenting or omitting any material aspect of the offer Negative option featuresn Express Verifiable authorization Dates, amount, name, customer service #, date The Lustigman Firm, P.C. 22. List Manager Settlementsn Credit Card Laundering n U si g an oth er m erch an t accou n t n s The Lustigman Firm, P.C. 23. List Manager Settlementsn Abusive Acts Advance Fee Credit or Credit Repair Transmitting unencrypted account info Preacquired Account Sales: identify account being charged, express agreement Free to Pay Conversions: recording of entire call, obtain last 4 digits The Lustigman Firm, P.C. 24. List Manager Settlementsn A b u si A cts (co n ve t) Do Not Call Compliance (registration & download) Call abandonment (3% per day per campaign) Calling time restrictions The Lustigman Firm, P.C. 25. AT&T Sues Data Brokersn AT&T filed suit to identify 25 data brokers who it claims fraudulently obtained phone records for about 25,000 customers n AT&T claims data brokers posed as customers to get confidential information that they then used to set up unauthorized online accounts n August 2006 The Lustigman Firm, P.C. 26. Assisting & Facilitatingn FTC v. Entrepreneurial Strategies (2006) First FTC case to result in civil penalties from parties that helped telemarketers avoid complying with the DNC Registry Received money from Debt Management Foundation Services which it helped evade compliance with the TSR by assisting it in organizing and operating as a sham non-profit Civil Penalty: $13,454 The Lustigman Firm, P.C. 27. Telemarketer Pays the Price for U si g U n scru b b ed Lead Li nst n FTC v. Executive Financial Home Loan Corp. (2006) A mortgage broker settled charges with the FTC for allegedly calling tens of thousands of consumer on the National DNC Defendants claimed they relied on service providers for their compliance with the DNC rules FT C p osi on i w as n ot en ou g h for th em to rels ti t y o n th e b rokers cl m sai Civil Penalty: $50,000The Lustigman Firm, P.C. 28. Privacy Policy Liability List Manager / Publisher n Datran Media: Gratis Internet ( represented that it would "never lend, sell or give out for any reason" the information provided by users. n Gratis sold 7 million files to Datran Media, n Datran sent millions of unsolicited e-mails to the listThe Lustigman Firm, P.C. 29. Datran Casen NY AG investigated Datran - Assurance of Discontinuance $1.1 million ($750K as penalty) Injunctive Provisions The Lustigman Firm, P.C. 30. Datran Case n Destruction of data from Gratis n Bar on acquiring personal consumer information without first independently confirming that such acquisition is permissible under relevant seller privacy policies; and n Appoint a Chief Privacy Officer or other employee to oversee privacy compliance efforts. The Lustigman Firm, P.C. 31. Datran Case Injunctive Provisions: n Independently review privacy policies in effect at time of data collection n Independently confirm that privacy policies represented sharing or if no representation, there is opt in to permit sharing n Retain copies for 5 years of privacy policiesn Written representation from list owner insufficientThe Lustigman Firm, P.C. 32. Datran Casen NY AG now after Gratis n Separate action brought against Gratis The Lustigman Firm, P.C. 33. Gambling/Lottery Illegal Conduct n Risk of Aiding Abetting; RICO n Direct Charge of Mail Fraud and Wire Fraud The Lustigman Firm, P.C. 34. Ad Agencies and Executives Caught in Internet Gambling Crackdownn BetOnSports CEO David Carruthers arrested n Included in the indictment were criminal charges against lesser-known companies -- Direct Mail Expertise Inc., DME Global Marketing and Fulfillment Inc. and Mobile Promotions Inc. n Government charged the advertising agencies and individuals who owned and operated themThe Lustigman Firm, P.C. 35. Payment Processorsn United States v. Payment Processing Center (ED Pa 2006) Ex Parte Asset Freeze and TRO Payment processing supplier to telemarketers and direct mail companies Marketers not sued by government Potential liability for facilitating transactionsThe Lustigman Firm, P.C. 36. Payment Processor Casesn W il l B ln d n ess lfu i n Knew or Should Have Known n Independent verification of lawful business transactionsThe Lustigman Firm, P.C. 37. W h y M e, I D i n V i l d t o ate The Law? n Government has taken a new, more expansive and aggressive role n Liability even though act is only to arrange the transaction n Could not occur without broker / manager n The Dandelion Theory The Lustigman Firm, P.C. 38. How Can I Protect My Business?What steps should a supplier reasonably take? Not a guarantor of non-illegality But, must take active responsibility for who you transact with The Lustigman Firm, P.C. 39. Supplier Due Diligencen Exposure NOT limited to telemarketing clients n Email and direct mail campaigns create exposure The Lustigman Firm, P.C. 40. Regulatory Exposuren FTC recognizes that list managers and other suppliers are not guarantors of marketers n B u t kn ew or sh ou l h ave kn ow n d standard The Lustigman Firm, P.C. 41. Supplier Due Diligence Undertake sufficient due diligence toreasonably assure that promotion is notfraudulent or promoting illegal conductn Review marketing/fulfillment materialsn Claim Substantiation n Legal Opinions? n Scripts and Fulfillment n SAN RegistrationThe Lustigman Firm, P.C. 42. DMA Guidancen DMA Guidelines October 2004 ascertai th e n atu re of th e lstn i s intended usage of each materially different marketing use prior to rental, sale, exchange, transfer or use of the lstiThe Lustigman Firm, P.C. 43. DMA Guidance to List Industry Higher exposure for liability if: - Not looking at marketing materials- Not knowing the client The Lustigman Firm, P.C. 44. DMA