Case No. 08CVH 57234
STATE OF OHIO, ex rel.
30 East Broad Street, 14th Floor
CAPITAL PAYMENT SYSTEMS, LLC.
BANCTECH PROCESSORS, INC.
ELECTRONIC CHECK CORPORATION
1790 N. Lee Trevino Drive
BRUCE C. WOODS, Individually
12282 Eagle Heart Drive
ALI NAKHAI, Individually
11199 Av De Bois-De-Boulogne Montreal, Quebec H3M 2X2 CANADA
Processing by CPS, BTP and ECC
Many, if not all, of the Defendants' telemarketing clients are "telephone solicitors" as each client is a "person" that engages in "telephone solicitation" directly or through one or more "salespersons" either from a location in this state, or from a location outside this state to persons in this state, as those terms are defined in R.C. 4719.01.
At all times relevant to this lawsuit, Defendants acted as payment processors that took MICR Code and related data from its clients, in electronic file format and processed bank debits so that the clients' customers would have money debited from their bank accounts.
From approximately January of 2006 through April of 2007, Defendants CPS, Ali Nakhai and Bruce Woods processed over 3,000 payments from the bank accounts of Ohio consumers resulting transactions totaling over $1,034,229.00
From approximately November of 2006 through June of 2007, Defendants BTP and Bruce Woods processed over 190 payments from the bank accounts of Ohio consumers resulting in transactions totaling over $62,000.
Defendants CPS, Bruce Woods and Ali Nakhai directly or indirectly maintained,
Defendants BTP, ECC and Bruce Woods directly or indirectly maintained merchant accounts with financial institutions located in the United States through which they provided payment processing services to their telemarketing clients. Those financial institutions included Inter National Bank, City Bank of Texas, Bank of Kentucky, and Bank of Texas.
Defendants' clients obtained the MICR Code from consumers, sometimes legitimately, sometimes by deception or without authorization, and transmitted that data in batches to Defendants, for the purpose of initiating debits from the consumers' bank accounts.
Defendants provided their telemarketing clients payment processing services which grant the telemarketers instantaneous access to consumers' bank accounts, from which withdrawals of hundreds of dollars at a time are made, often without the consumer's authorization and sometimes without the consumer's realization. Even when the withdrawal is authorized by the consumer, the authorization is typically induced by a misleading sales pitch.
Defendants exercised limited due diligence in screening and selecting the companies on whose behalf it processed bank debits.
Many of the Defendants' clients were telemarketers whose methods of doing business raised serious questions of legality.
Defendants retain as payment for services a portion of the money it receives in connection with fraudulent telemarketing schemes.
Many of Defendants' client telemarketers were located in Montreal, a city known to be a particularly active area for telemarketing fraud perpetrators.
Typically, when a telemarketer applied to the Defendants for payment processing services, they provided copies of the telemarketers' sales script and/or verification scripts. In many cases, Defendants agreed to process payments for merchants who submitted sales and verification scripts that contained inconsistent or contradictory representations about the product or service marketed or illustrated deceptive sales techniques.
Defendants were in the possession of sales scripts purportedly used by some of their telemarketing clients that violated the Federal Telemarketing Sales Rule in that they failed to disclose truthfully, in a clear and conspicuous manner, the identity of the seller, nature of the goods or services, any material limitations or restrictions of use for the goods or services and the seller's refund policy.
Defendants were in the possession of sales scripts purportedly used by some of their telemarketing clients that contained violations the Federal Telemarketing Sales Rule in that they misrepresented material aspects of the performance, nature or characteristics of the goods or services they proposed to sell.
Defendant CPS, Ali Nakhai and Bruce Woods were in possession of sales scripts containing the following offers::
Woldram & Hart, LTD, doing business as Protect First USA:: This company purports to be selling a Privacy Program that "makes the process of stopping all unwanted telemarketing calls very simple...All you have to do is fill out and sign the forms you will be receiving and mail it back to the return address . This help will remove your name from the lists telemarketing companies use to contact you". The scripts also indicate that the company provides an Identity Theft Program which includes a "full year of protection against Identity Theft with a $25,000 insurance against losses". No company can stop all unwanted telemarketing calls nor is this company authorized to sell insurance products in the State of Ohio. The script provides little to no information about the actual product or service being offered before requesting the consumer's bank account information.
Platinum Key: This script contained a misleading offer related to assistance with obtaining private or government grants. The script provides little to no information about the actual product or service being offered before requesting the consumer's bank account information.
Tiger Systems dba Trinity Alliance: This script contained a misleading offer for a "free," "new complete computer system." After requesting payment information for a membership fee of $299.00, the sales script indicates that the consumer would receive the package in 13-14 working days"... and that..."information on our interne services and your free computer systems will be included in your package." The later verification script discloses that "Your computer will consist of information on obtaining a free computer." The script provides little to no information about the actual product or service being offered before requesting the consumer's bank account information.
IPPS Inc. doing business as National Grant: This sales script contained misleading offer informing consumers that they are being contacted because "their name has come up o a list of individuals who quality for a new Federal government grant of up to $25,000...and that [they] are eligible for a minimum of $8,000 in Federal grant money" for a "one-time service fee of $279 to cover costs because as you know, lawyers don't' work for free." The script provides little to no information about the actual product or service being offered before requesting the consumer's bank account information.
Defendant BTP, ECC and Bruce Woods were in possession of a sales script containing the following offers:
9107-4021 Quebec Inc., doing business as Debt Negate Solutions Group: This script contained a misleading offer that guarantees the healthy recovery of [consumers] financial situation and to negotiate down debt with creditors for a one-time registration fee of $459" but [the consumer shouldn't] worry as this cost will be absorbed by your future savings." No service can guarantee to restore a healthy financial situation or that the fee will be absorbed into future savings on current debts.
9107-4021 Quebec, Inc., doing business as Med Provisions: This sales script contains a misleading offer for a membership that indicates that consumers "will be saving on average between 30-50% on prescription medication costs as compared to retail prices in the U.S." The sales script provides no information as to how long the "membership" is valid or describe any limitations on the membership before requesting the consumer's checking account information to process a payment for $389.00.
Defendants also processed payment for clients while having little or no information from the telemarketing company regarding the goods or services they purportedly offered to consumers.
The debits that Defendants processed were authorized, if at all, verbally over the telephone to the telemarketer.
Some of the debits processed by Defendants on behalf of telemarketer-clients were not authorized by the consumers whose bank accounts were charged.
Return rates for some of the telemarketer-clients on whose behalf Defendants processed debits were extraordinarily high, reflecting the likelihood of lack of authorization in many cases.
Defendants CPS, Bruce Woods and Ali Nakhai processed for approximately seventy-three telemarketing clients whose total return rates ranged from 19.8 percent to 68.28 percent.
Defendants BTP, ECC and Bruce Woods processed for approximately nine telemarketing clients whose total return rates ranged from 44.58 percent to 81.01 percent.
Despite the high return rates and scripts containing misrepresentations and other violations of law, Defendants continued to provide processing services for the telemarketers in question. In fact, Defendants assessed additional fees to their telemarketing clients for every returned bank debit which resulted in additional profits for Defendants.
In some cases, Defendants processed multiple drafts to the same consumers' accounts on behalf of the same telemarketer despite the fact that previous drafts were returned as "unauthorized" or similar reasons.
Some of the bank debits processed by Defendants were based upon outbound telemarketing calls to consumers whose telephone numbers were listed on the "Do Not Call" registry maintained by the Federal Trade Commission and with whom the telemarketer did not have an established business relationship.
Defendants processed bank debits to Ohio consumers' bank accounts of behalf of telephone solicitors who were not properly registered with the Ohio Attorney General's Office pursuant to the requirements of the Ohio Telephone Solicitation Sales Act, R.C. 4719.02(A).
Defendants processed bank debits to Ohio consumers' bank accounts of behalf of telephone solicitors or businesses entities who were not properly registered with the Ohio Secretary of State's Office to do business in the State of Ohio.
Defendants BTP and Bruce Wood processed for client telemarketer, 9107-4021 Quebec , Inc., doing business as Med Provisions (see paragraph 57 herein for an excerpt from their sales script) which was sued by the Federal Trade Commission on April 21, 2008 for
violations of the Telemarketing Act, 15 US.C. Section 6101-6108 and the Telemarketing Sales Rule 16 C.F.R. Part 310. FTC v. 9107-4021 Quebec, Inc., et al. Case No. 1:08CV1051.
Defendants BTP and Bruce Wood processed for client telemarketer, 6554962 Canada Inc., doing business as Union Consumer Benefits which was sued by the Federal Trade Commission on April 23, 2008 for violations of the Telemarketing Act, 15 US.C. Section 6101- 6108 and the Telemarketing Sales Rule 16 C.F.R. Part 310. FTC v. 6554962 et al. Case No. 1 :08CV02309.