On paper, it looks like just another court ruling. But the recent order upholding $7 million in penalties against subscription marketer Ronald L. Prochnow is the final chapter in a sad direct marketing melodrama.
The U.S. Court of Appeals for the Eleventh Circuit ruled on Oct. 22 that Prochnow must pay a $5.4 million civil penalty and hand back $1.6 million in “ill-gotten gains,” thus upholding a lower court’s 2006 decision, according to the Federal Trade Commission.
But the sum is only a fraction of the damage caused by the five year-old case.
Prochnow is the founder of Direct Sales International, a firm that sold subscriptions by phone. At one point, it had $53 million in annual revenue and profit of $8 million.
He sold the company for $28 million in 2000 to Symposium, later known as Cross Media. Founded by investment banker and former Beach Boys keyboardist Ron Altbach, Cross Media was supposed to be a multi-media empire — DSI was one of several acquisitions.
But on April 9, 2002, Altbach’s attorney called with bad news: the FTC had filed lawsuit against the firm, also naming Altbach and Prochnow as defendants. Altbach never knew what hit him.
The charges?
The FTC alleged for starters that DSI invited consumers to enter sweepstakes without telling them that the purpose was to sell magazine subscriptions. In addition, it charged that DSI failed to disclose the total cost of each title, the down payment required, the number of all subsequent payments and the right to cancel within three business days.
The FTC also accused the firm of billing consumers for magazines they did not order, or in amounts they did not agree to pay, and of failing to honor cancellation requests. Worse yet, it argued that all this violated a consent signed by DSI in 1996.
Cross Media’s stock price plummeted, and the empire unraveled. The company settled its part of the FTC case and liquidated in 2003. As Altbach ruefully noted shortly after the suit was filed, “Our sales structure, I would say, trembled.”
He has since found new areas of investment.
And Prochnow? The 2006 decision by the U.S. District Court for the Northern District of Georgia, Atlanta Decision bars him from working in the telemarketing business for five years. He is allowed to maintain his ownership interest in Amerinet Inc and Hotdogger LLC as long as he doesn’t manage the firms.
Network
