Federal investigators think this Lolo telemarketing operation violated ethics code by failing to disclose to customers the full deal. The company’s lawyers call the allegations bogus.
Photo by Chad Harder
Court documents show one party on the plaintiff’s side—the Federal Trade Commission (FTC). The defense includes a list of corporate entities dubbed Your Magazine Provider, Inc., U.S. Magazine Service, Big Sky Periodicals and one real person that investigators believe controlled all of them—Hamilton resident Jason Ellsworth.
Ellsworth runs a telemarketing operation out of an office in Lolo that has changed monikers many times, neighbors say, but the alleged scam remains the same. The FTC, along with the Better Business Bureau office in Spokane, contends Ellsworth’s employees dial up magazine subscribers looking to verify credit card information with promises of gift promotions or entry into a $1 million sweepstakes.
“When people speak about telemarketing scams, they’re talking about prize promotion-type schemes or lottery-type schemes,” says FTC regional director Chuck Harwood. “The complaints typically allege that the defendants tell the consumers that they’re being contacted because they’re the preferred customer of a credit card company or something like that.”
But before customers can take advantage of the offer, Ellsworth’s employees tell them that they must subscribe to a few magazines at a cost of $3.83 per week for 48 months. The company allegedly fails to divulge that the agreement is based on a 16-month payment plan. When freaked-out customers start seeing monthly charges of $49.81 on their credit cards, company telemarketers reportedly refuse their cancellation requests.
“The FTC is alleging that the consumers aren’t told about the [higher charges] until after they provide their credit card numbers,” Harwood says.
Ellsworth’s outfit, currently operating as U.S. Magazine Service, calls the allegations bogus and unsupported by the evidence presented in the FTC civil complaint. Attorney Hank Waters criticizes the agency for failing to conduct its own independent investigation; instead relying on customer complaints submitted by the non-profit Better Business Bureau, which, he argues, carries secondary ethics standards for non-members.
“The FTC did no actual investigation whatsoever,” Waters says. “They delegated their investigative authority—given to them by the government—to the Better Business Bureau, which is not a government entity…In this case, the FTC just completely abrogated its duty.”
Waters goes on to reason that the federal agency, nevertheless, used its government position in the courtroom to secure a restraining order against the company. “Any private individual or entity would have had to put up a huge bond,” he argues.
Federal officials declined to comment on any legal maneuvering as long as the case remains open, stating that the customer complaints speak for themselves.
The bulk of evidence provided by the feds against U.S. Magazine Service comes from a batch of declarations from out-of-state consumers reportedly grifted by Ellsworth’s telemarketing operation. Though the FTC would not release customer complaints filed with the Better Business Bureau due to privacy concerns, one court motion contains affidavits from 20 reported victims of the alleged scam.
Several complainants state that when they tried to cancel their subscriptions after learning what the service would actually cost, U.S. Magazine Service employees told them they had already agreed to the deal verbally. At this point, customers say, Ellsworth’s employees extend a lower price.
“I felt that I had no choice and panicked,” says Meghan Donnelly, 24, of Philadelphia. “They asked me if I agreed, and I did because I thought I had no other option.”
Again, U.S. Magazine Service challenges the body of evidence. Waters says when the company checked its records after the FTC filed its lawsuit, it found nine of the reported 20 victims were never customers of Ellsworth’s—in other words, that the company never actually charged them for a subscription. The defense further challenges the accounts documented in 10 of the remaining 11 affidavits.
The FTC filed the lawsuit on May 12 as part of Operation Telephoney—the largest telemarketing sweep in agency history, according to national project coordinator Monica Vara. Government attorneys won a temporary restraining order against U.S. Magazine Service in U.S. District Court just days later. In his order, Judge Donald Molloy barred Ellsworth and his corporation from engaging in any action that could violate the Telemarketing Sales Rule, put a hold on the sale of personal and company assets and authorized the FTC to monitor business activities.
“That basically put us out of business immediately, without any actual hearing or opportunity for us to respond,” Waters says. “It put 100 Montanans out of work immediately.”
Molloy later repealed some of the restrictions in a subsequent injunction, allowing U.S. Magazine Service to reopen in June. As of July 25, the Lolo storefront remained in operation. Inside, roughly 20 callers were working the phones, but Ellsworth was not in the shop. A woman there says he rarely ever comes in.
Ellsworth was unavailable for comment. Citing firm policy, his personal attorney, Teresa Ashmore, also declined to go on the record.
Regardless of whether the new injunction eventually becomes permanent, sources in Lolo say they’ve seen Ellsworth get fined and shut down before only to reopen under a new front just days later. State and federal officials admit they’ve heard that claim before, but all declined to elaborate on the record.
“That’s 100 percent inaccurate,” replies Waters, who says Ellsworth sold a previous company to now-bankrupt Cross Media Marketing in 2003 and agreed to a no-compete clause. Ellsworth opened U.S. Magazine Service two years later, the lawyer explains, after the FTC helped shut down his former outfit along with the rest of its parent company.
According to Waters and the FTC, both sides are currently negotiating a settlement, but the issue could still advance to trial in November.
Montana Assistant Attorney General Jesse Laslovich says the state’s investigation into Ellsworth’s operations, which predates the FTC case by several years, remains open but on hold. Since U.S. Magazine Service only solicits out-of-state, the Dept. of Justice would have no standing in a civil lawsuit.