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AG Nessel and FTC Lead Bipartisan Coalition To Shut Down Massive Michigan Charity Fraud and Robocalling Operation
March 04, 2021
LANSING – Michigan Attorney General Dana Nessel, along with the Federal Trade Commission (FTC) and 46 agencies from 38 states and the District of Columbia, has stopped a massive telefunding operation that bombarded 67 million consumers with 1.3 billion deceptive charitable fundraising calls – most of them illegal robocalls. The defendants collected more than $110 million using their deceptive solicitations.
Associated Community Services (ACS) and several related defendants based in Madison Heights, Michigan, have agreed to settle charges brought by the Michigan Attorney General, FTC and other state agencies that they used illegal robocalls to dupe generous Americans into donating to charities that failed to provide the services promised. The complaint names ACS and its sister companies Central Processing Services and Community Services Appeal; their owners, Dick Cole, Bill Burland, Barbara Cole and Amy Burland; and ACS senior managers Nikole Gilstorf, Tony Lia, John Lucidi and Scot Stepek. In addition, the complaint names two fundraising companies operated by Gilstorf and Lia as successor spin-offs of ACS – Directele and The Dale Corp – that have allegedly continued to ramp up the deceptive and illegal practices.
Between Jan. 1, 2016 and Aug. 31, 2019, the defendant companies made a total of more than 35.49 million illegal calls to more than 2.22 million unique Michigan phone numbers. Of those phone numbers:
- About 10,400 were called more than 100 times in one year;
- More than 63,300 were called more than three times in one day;
- Nearly 203,000 were called two or more times in a one-hour period; and
- Around 6,400 were called three or more times in a one-hour period.
Additional numbers of allegedly illegal calls made by Directele after ACS stopped operating in September 2019 are not included above.
“Robocall technology such as soundboards allows users to reach a significant target population, and when utilized for deceptive or misleading practices – especially in charitable solicitations – it unfortunately means a significant number of potential victims,” Attorney General Nessel said. “We must take swift action to hold accountable those who are unlawfully using this technology to serve their own agendas and preying on unsuspecting, hardworking people. As these strong settlements show, Michigan remains an engaged leader in the national effort to combat illegal robocalls and fraudulent charitable solicitations, and we are grateful for the partnership and support from the FTC, the state attorneys general and others in addressing this increasingly important issue.”
The complaint also charges ACS with making harassing calls. On a national scale, ACS called more than 1.3 million phone numbers more than 10 times in a single week and 7.8 million numbers more than twice in an hour. More than 500 phone numbers were even called 5,000 times or more.
According to the complaint, the defendants allegedly knew that the organizations for which they were fundraising spent little or no money on the charitable causes they claimed to support—in some cases as little as one-tenth of 1 percent. The defendants kept as much as 90 cents of every dollar they solicited from generous donors on behalf of the charities.
“Deceptive charitable fundraising can be big business for scammers, especially when they use illegal robocalls,” said Daniel Kaufman, acting director of the FTC’s Bureau of Consumer Protection. “The FTC and our state partners are prepared to hold fraudsters accountable when they target generous consumers with lies.”
The complaint alleges that the defendants made their deceptive pitches beginning in at least 2008 on behalf of numerous organizations that claimed to support homeless veterans, victims of house fires, breast cancer patients, children with autism, and other causes that well-meaning Americans were enticed to support through the defendants’ high-pressure tactics. ACS was also the major fundraiser for the sham Cancer Fund charities that were shut down by the FTC and states in 2015.
In many instances, the complaint alleges, ACS and later Directele knowingly violated the Telemarketing Sales Rule (TSR) by sending robocalls. This was done using soundboard technology in their telemarketing calls. With that technology, an operator plays pre-recorded messages to consumers instead of speaking with them naturally. Use of such pre-recorded messages in calls to first-time donors violates the TSR. Use of the technology in calls to prior donors also violates the TSR unless call recipients are affirmatively told about their ability to opt out of all future calls and provided a mechanism to do so; the defendants did not make that disclosure. Most of Directele’s soundboard calls originated from call centers in the Philippines and India while claiming they were originated in Michigan.
The ACS defendants were the subject of 20 prior law enforcement actions for their fundraising practices. The ACS defendants stopped operating in September 2019. Gilstorf purchased Directele and The Dale Corp. in October 2019 and, with Lia, the Directele defendants allegedly continued the deceptive fundraising and illegal telemarketing practices. The complaint alleges the defendants violated the Michigan Charitable Organizations and Solicitations Act, the FTC Act, the TSR, and numerous other state laws.
The terms of the settlements with the defendants are as follows:
Associated Community Services Defendants
Each of these defendants will be permanently prohibited from conducting or consulting on any fundraising activities and from conducting telemarketing of any kind to sell goods or services. In addition, they will be prohibited from using any existing donor lists and from further violations of state charitable giving laws, as well as from making any misrepresentation about a product or service. The defendants will also be subject to the following monetary judgments:
- Associated Community Services Inc.; Community Services Inc.; Central Processing Services Inc.; and Richard “Dick” Cole are subject to a monetary judgment of $110,063,843, which is suspended due to an inability to pay.
- Community Services Appeal Inc. and Barbara Cole are subject to a monetary judgment of $110,063,843, which is partially suspended due to an inability to pay. Barbara Cole also will be required to turn over the proceeds of the sale of a vacation home in Michigan.
- Robert W. “Bill” Burland and Amy J. Burland are subject to a monetary judgment of $110,063,843, which is partially suspended due to an inability to pay. Amy Burland will be required to turn over $450,000.
Directele Defendants and ACS Senior Managers Scot Stepek and John Lucidi will be permanently prohibited from any fundraising work or consulting on behalf of any charitable organization or any nonprofit organization that claims to work on behalf of causes similar to those outlined in the complaint. They will also be prohibited from using robocalls for any form of telemarketing, using abusive calling practices, or making any misrepresentation about a product or service. In addition, the defendants will be required to clearly and conspicuously disclose when a donation they are requesting is not tax deductible.
In addition, the two corporate defendants — Directele Inc. and The Dale Corp. — have agreed to the corporate “death penalty” and will be required to cease operations and dissolve. The ACS entities ceased operations in September 2019.
The defendants will also be subject to the following monetary judgments:
- Scot Stepek will be subject to a monetary judgment of $110,063,843, which is partially suspended due to an inability to pay. Stepek will be required to sell a ski boat in his possession and turn over the net proceeds from the sale.
- Directele Inc., The Dale Corp., Nikole Gilstorf and Antonio Lia will be subject to a monetary judgment of $1.6 million. Gilstorf and Lia also will be subject to a judgment of $110,063,843. The judgments are partially suspended due to an inability to pay. Gilstorf and Lia will each be required to turn over $10,000.
- John Lucidi will be subject to a judgment of $110,063,843, which is partially suspended due to an inability to pay. He will be required to turn over $25,000.
Other state agencies joining in the case with Attorney General Nessel and the FTC include the attorneys general of Alabama, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming; the secretaries of state of Colorado, Georgia, Maryland, North Carolina, and Tennessee; and the Florida Department of Agriculture and Consumer Services and the Utah Division of Consumer Protection.
The funds being surrendered by the defendants will be paid to an escrow fund held by the State of Florida and, following a motion by the participating states and approval by the court, be contributed to one or more legitimate charities that support causes similar to those for which the defendants solicited.
The complaint and final orders were filed in the U.S. District Court for the Eastern District of Michigan.
Combatting nuisance illegal robocalls and other consumer protection efforts have been top priorities for Nessel during her term as Michigan's Attorney General.
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