The Federal Trade Commission is seeking millions of dollars from 10 people behind a Jackson County-based subscription-renewal scheme that feds say deceived more than 40,000 people over the past five years.
The FTC wants those 10 individuals to be barred from working in the direct mail industry, saying they participated in sending out millions of deceptive mailers largely routed through White City.
Using mailers that looked newspaper subscription renewal notices, 40,885 overpriced newspaper subscriptions were deceptively sold across the country from 2010 to 2015, according to court documents filed by the FTC Aug. 17. The documents say the scheme enriched accused ringleaders Jeffrey Hoyal and Dennis Simpson — along with eight others who followed their lead — to the tune of $20.5 million. Now the feds want that money back from them.
The deception, the FTC says, basically involved the sale of subscription renewals at prices far higher than the publications themselves would charge. The subscriptions were for the most part filled, but the operators of the scheme pocketed the difference between the actual price and what they charged.
The FTC’s deceptive business practices lawsuit seeks $20,572,749 from Hoyal and Simpson, along with eight others who’ve already conceded default by failing to reply by a deadline set earlier this year. The figure is based on more than $22.2 million their business records show as received, less refunds and stop payments.
The checks were sent for newspaper subscriptions for publications across the country, including metropolitan dailies such as The Denver Post and the Milwaukee Journal Sentinel. The FTC says the fraudulent practice in many cases continued despite repeated cease-and-desist letters from publishers, such as the Wall Street Journal and New York Times, who sometimes resorted to calling law enforcement or warning of the scheme in their pages.
The FTC also states that they ignored settlements made with state attorneys general that prohibited mailers.
Those state settlements allowed Hoyal, Simpson, and 90-plus generically named companies the FTC describes as a “word salad of entity names” such as Reality Kats, Hoyal & Associates, Adept Management, Orbital Publishing Group and Liberty Publishers Service — to settle their complex cases without being required to admit to wrongdoing. In exchange, they agreed to multimillion dollar judgments and to cease operating in the states.
Kansas sued Orbital for violating the Kansas Consumer Protection Act in 2011, and obtained a permanent injunction and penalties that summer. The FTC says “the defendants have continued to mail into Kansas and have not paid the penalty.” The defendants incorporated Liberty within a month of the July 2011 Kansas judgment and reportedly moved Orbital assets to Liberty.
Hoyal and Simpson have each denied wrongdoing, with Hoyal saying in earlier news reports that he operated as a consultant for others involved. Hoyal’s lawyers say the figure overlooks costs the companies paid to publishers for subscription orders.
Individuals told the FTC they were deceived into paying the third parties and described extreme difficulty in getting refunds from any of the companies tied to Hoyal, Simpson and the other defendants. Some customers say they were placed on hold indefinitely for issues that included never receiving the subscription they’d ordered.
A customer with a first name of Bronson told the FTC he’d made a written request for a refund through his Attorney General’s Office for payment in response to an “invoice” sent by Associated Publishers Network, one of the dozens of companies feds say worked that together as one entity.
Bronson submitted his Wall Street Journal order April 10, 2013, and his order was fulfilled months later, despite repeated efforts to cancel in the interim, according to the FTC. Co-defendant Laura Lovrien reportedly used an alias of “Michelle Miller” in a reply letter to Bronson dated May 29, 2013, which instructed him to contact her if he didn’t receive his subscription within another 12 weeks, according to the FTC.
“By the date of Lovrien’s letter, The Wall Street Journal had already sent Defendants, including Lovrien directly, no fewer than three ‘cease and desist’ letters,” the FTC states.
Others reported receiving subscriptions for entirely different publications because of publications’ cease-and-desist orders.
“From 2010 to mid 2015, thousands of consumer orders were switched, including at least 6,300 orders for The Wall Street Journal and The New York Times in 2014,” the FTC states.
Former call center employees told the FTC the call center had a “stringent” refund policy, with managers typically denying refund requests.
“Consumers who contacted or threatened to contact an attorney, state agency or the Better Business Bureau had a greater chance of obtaining refunds,” according to the FTC, which cited two employees’ depositions in a footnote. “However, not even these consumers always received refunds.”
Customers who were able to secure a refund were still subject to a $20 service fee, or only received credit for another order, according to the FTC.
“To add insult to injury, some consumers who managed to receive refund checks from the Defendants had the checks bounce when they deposited them,” according to the FTC.
The complaints were frequent enough that their customer service representatives had a “hard questions” script, according to an FTC deposition with co-defendant Colleen Kaylor, who managed a call center after it moved from New York to White City in 2011. The script reportedly had prepared responses to questions that included, “Why did you send me this, I just renewed?” “Why did I receive this bill?”
In addition to Simpson, Hoyal, Lovrien and Kaylor, the feds say six others should be jointly on the hook for the $20.5 million: Shannon Bacon, Linda Babb, Noel Parducci, Lydia Pugsley, William Strickler and Hoyal’s wife, Lori Hoyal.
The feds say they worked together in a “common enterprise” — each handling separate stages of the process such as printing, mailing order-taking or submitting “mail drops” of handwritten subscription cards to publications to evade a White City postmark — all while sharing common company offices primarily in Southern Oregon.
The documents say Simpson, through his business Reality Kats, developed the “form and substance of the mailers,” kept a database of consumer information and provided mailer templates to Pugsley, who would then send out mailers as an agent of companies such as Liberty Publishers Service or one of its numerous “doing business as” names.
The FTC says Jeffrey Hoyal managed day-to-day operations for the different companies that handled mailers, order-taking and submitting the subscription orders. The commission says Hoyal recruited, trained, set compensation for and oversaw Babb, Pugsley, Lovrien, Parducci, Bacon, Kaylor and Strickler — who were actually listed as company officers in the Oregon Secretary of State business registries.
The FTC refers to both Simpson and Hoyal as a “primary financial beneficiary” in the subscription operation since 2010.