"We allege that Teledraft, Inc., plays a vital role in various predatory
telemarketing schemes, with many operating out of Canada," Miller said.
"We allege that Teledraft gives the fraudulent telemarketers instantaneous
electronic access to consumers' bank accounts, and withdrawals of hundreds
of dollars at a time are made -- sometimes without the victim's authorization
or even realization. Teledraft has caused millions of dollars to be electronically
withdrawn from the bank accounts of U.S. customers," Miller said.
"We allege that Teledraft has ample notice of the role they play in these
schemes, and that they have a legal duty under both U.S. and Iowa law
to refrain from helping illegal telemarketers gain access to consumers'
bank accounts," he said. "If we succeed in our lawsuit, the Federal District
Court will prohibit Teledraft's illegal activity in Iowa and nationwide
and order refunds to Iowans."
*UPDATE -- Oct. 7, 2004: U.S.
District Court Judge Robert W. Pratt entered a preliminary
injunction Oct. 7 ordering Teledraft to comply with federal and Iowa
laws concerning telemarketing fraud and other abuses while the lawsuit
is pending in court. [See end of release for details.]
The lawsuit was filed in Federal 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,
AZ. Also named in the suit are Al Slaten, president and an owner of Teledraft,
and Dan Wolfe, an owner of Teledaft and Arizona resident who owns a larger
share than any other individual.
The suit asks the court to order preliminary and permanent injunctions
prohibiting violations of the federal Telemarketing Sales Rule and Iowa's
Consumer Fraud Act; redress of injury to Iowa consumers including damages
and refund of monies; penalties up to $40,000 per defendant for each violation
of the Iowa Consumer Fraud Act; and penalties up to $5,000 per defendant
for each violation of the Consumer Fraud Act committed against Iowans
age 65 or older.
When the federal law was enacted several years ago, Miller and other
state attorneys general urged lawmakers to permit state officials to sue
in federal court and seek injunctions that apply nationwide.
Iowa Attorney General Tom Miller explains lawsuit
naming Teledraft, Inc.
Miller said the lawsuit marked a new approach. "We have battled illegal
telemarketing scams for decades, especially since they tend to victimize
older Iowans. The 'undercover telephone sting' pioneered right here in
Iowa pretty much put the big telemarketing fraud operations out of business
here in the U.S., but in recent years they seem to have sprung up in a
big way in Canada," he said.
"This is one way for us to fight back -- by going after U.S. businesses
that enable and assist and facilitate schemes that are fraudulent." Miller's
office also has seized thousands of pieces of mail coming to Iowa "mail-drop"
sites that the Attorney General alleged was used to identify potential
victims for big-ticket telemarketing schemes and other scams.
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.
Teledraft was incorporated February 6, 2003. The suit says, "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 says that of 20 telemarketing
businesses served by Teledraft between August 2003 and the present for
which location information is 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 from Canada.
Examples alleged regarding Teledraft clients:
- "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. "Nancy S." of
Logan Iowa, age 64, twice had $489 withdrawn from her account by Teledraft
on behalf Consumer Benefits Council. Nancy reported that a telephone
caller said they had taken over security for her bank, and that she
had to authorize a withdrawal or all of her accounts would have to be
closed (a claim not even indicated in the prepared sales script.) She
refused to authorize a withdrawal, but the $489 was taken nevertheless,
causing checks to bounce, and overdraft charges. Teledraft later extracted
another $469 without authorization.
"Helen P." of Des Moines, age 84, also 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
- "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.
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.
Miller said: "In sum, our suit alleges that Teledraft had ample notice
of its role in these schemes -- and has a legal duty to refrain from helping
illicit telemarketers gain access to consumers' bank accounts. Teledraft
failed to meet that duty and thus inflicted injury on many vulnerable
consumers in Iowa and all across the U.S. We are asking the Court to put
a halt to the illegal activity."
*UPDATE -- Oct. 7, 2004:
Court Judge Robert W. Pratt entered a preliminary
injunction Oct. 7 that will be in effect as this matter moves forward.
Pratt ordered Teledraft to comply with federal and Iowa laws concerning
telemarketing fraud and other abuses while the lawsuit is pending in court.
The suit alleges the defendants have facilitated telemarketing fraud by
granting fraudulent telemarketers access to consumers' bank accounts for
instantaneous electronic withdrawals from those accounts.
Stipulated Preliminary Injunction requires the defendants to investigate
and actively monitor the telemarketers for which it withdraws funds from
consumer bank accounts, and terminate services for telemarketers that
appear to be violating the law. The defendants agreed to entry of the
preliminary injunction, which provides that entry of the injunction is
not an admission of wrongdoing by the defendants. The lawsuit will now
proceed to trial, which has not yet been scheduled.
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