FOR RELEASE: JUNE 27, 1991 THREE TELEMARKETING SALES REPS AGREE TO SETTLE FTC CHARGES BY PAYING $427,500 Three telephone sales representatives, charged by the Federal Trade Commission last year with making false claims about the value and rarity of gemstones they were selling and about the risk of investing in the stones, have agreed to settle the char- ges under consent judgments that prohibit them from making future misrepresentations in telephone sales, and require them to pay a total of $427,500 for consumer redress. The settlements, approved by the court yesterday, stem from an April 1990 case in which the FTC charged two California companies and three individuals in connection with a telemarket- ing scheme to sell gemstones as investments. The FTC alleged that the defendants made unsolicited telephone calls to consumers and offered to sell them gemstones such as tourmalines, savor- ites, tanzanites and spinels, by claiming that the gemstones were excellent, low-risk investments. According to the FTC, consumers made purchases ranging from a few thousand dollars to many tens of thousands of dollars. The FTC's complaint named Newport Gems, which does business as Capital Assets International; RIME Inc., which does business as First Capital Trading Company; Richard Harmon, individually and doing business as Palm Gallery; Mark Zigner; and Paul R. Sherman. The FTC won an injunction halting the alleged deceptive sales practices after filing its complaint in U.S. District Court in April 1990. The court also froze the defendants' assets. - more - (Newport/Capital Assets--06/27/91) The complaint was amended in November to add eight indivi- duals, four of whom had been telephone sales representatives for the companies, and the court granted the FTC's request for injunctions and asset freezes against these defendants as well. The settlements announced today involve three of these defendants -- Donald R. Cook, Garry M. Schaeffer, and Teresa L. Bowman -- and require them to pay $185,000, $162,500, and $80,000, respec- tively, into a fund to be used for sending partial refunds to injured consumers. The complaint alleges that the defendants made false repre- sentations that their gemstones could be liquidated quickly and easily through a market sale at prices close to those at which they were being sold, that comparable gemstones had shown sub- stantial price appreciation in the time just prior to the sale, that the gemstones were a low-risk investment and that customers could reasonably expect to resell the stones quickly at a sub- stantial profit. The complaint alleges that consumers have suffered significant financial injury as a result of the false representations. The judgments prohibit Cook, Schaeffer and Bowman from making the alleged or other false representations about the price, profit, rarity, appreciation, or risk of investing in gemstones or any other investment offering in future telemarket- ing sales. In addition, the judgments require the defendants to disclose clearly and conspicuously in promotional materials and contracts that gemstones are a high-risk investment and are not as easy to sell as many other investments. The Commission vote to accept the judgments was 4 to 1, with Commissioner Andrew J. Strenio, Jr. dissenting. Strenio said he believes the amount of consumer redress is insufficient given the amount of consumer injury caused by the alleged misrepresenta- tions. The consent judgments were filed on June 24 in U.S. District Court for the Central District of California, in Los Angeles. NOTE: Consent judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge. Newport/Capital Assets--06/27/91) Copies of the settlements are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 202-326- 2502. # # # MEDIA CONTACT: Bonnie Jansen, Office of Public Affairs 202-326-2161 STAFF CONTACT: Michael McCarey, Bureau of Consumer Protection, 202-326-3303 (Civil Action No. CV 90 2001 R) (Newport)