November 19, 2013
The U.S. Federal Trade Commission (FTC) announced that it has obtained a federal court order to temporarily halt the operations and freeze the assets of an alleged fraudulent Montreal-based “Yellow Pages” business directory scheme. In making the announcement, the FTC said: “Hiding behind borders to scam churches and small businesses is a tactic that we’ve seen before. … Scammers need to know that we have great relationships with our law enforcement partners in Canada and, as this case shows, we can and will work together to protect our consumers.”
According to the FTC, this “Yellow Pages” business directory scheme called churches and small businesses pretending they were verifying or updating existing contact information and billed consumers $499.99 for directories never ordered. Some consumers paid thinking others in the organization had ordered a directory or based on pressure that they had entered into oral contracts. Consumers who ignored bills or refused to pay received collection calls, were charged interest or late fees and received threats of collection agency referral, credit card rating damage or legal action.
For other Canadian coverage of this case today, and arrests made in Montreal, see: Sun, Gazette.
Like the earlier Canadian 2012 Yellow Page Marketing case (for my posts on that case see: here and here), the operators in this case may have been using a fairly common and tried and tested directory scam strategy (see: here, here, here and here for some descriptions). Some common elements from past fraudulent business directory cases include targeting small and medium sized businesses just large enough to not be certain whether other personnel have ordered a directory, seeking a relatively small amount from each target (though relying on volume to achieve significant returns), and making false or misleading claims that directories had been ordered, a prior business relationship existed or being associated with the legitimate Yellow Pages Group.
Despite the astonishing simplicity of this type of phony invoice scheme, they persist and in past cases have been remarkably effective in achieving significant revenues (in the Yellow Pages Marketing case for example, revenues of at least $5-7 million according to testimony before the Ontario Superior Court).
As in the U.S., Canada’s Competition Bureau has taken enforcement steps against many business directory scams (see e.g.: here, here, here, here and here) and conducted online phony online business directory sweeps, with the largest such case to date resulting in fines of over Cdn $9 million in the recent Yellow Pages Marketing case in 2012 (see: here).
In Canada, advertising can in general violate the Competition Act where it is either literally false or misleading (including where the “general impression” is false or misleading), which in phony directory and invoice cases can be triggered by claims that merely suggest a non-existent affiliation (e.g., with the legitimate Yellow Pages Group), that a prior business relationship exists (when it does not) or that a product is free or discounted (when additional fees apply).
In addition to the “general misleading advertising” provisions of the Competition Act, the Act also includes stand-alone telemarketing provisions that, among other things, require telemarketers to disclose certain information at the beginning and during each call and prohibit materially false or misleading claims (tracking the general misleading advertising rules that apply for other media).
For more about Canada’s misleading advertising and telemarketing laws see: misleading advertising and telemarketing.
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I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.
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Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
