Irvine Telemarketer to Pay Fine, Shut Sweepstakes Unit

With its sweepstakes division crippled by federal and state fraud investigations, Direct American Marketers Inc. said Monday that it will shut down the operation to settle a federal investigation and a Florida lawsuit.

The Irvine telemarketer said it has agreed to pay the federal government $500,000, close its prize-promotions division and halt the related use of pay-per-call 900 services to avoid a formal lawsuit.

In addition, the company will pay $150,000 and halt sweepstakes activities in Florida to settle a deceptive-advertising and illegal-lottery lawsuit filed by the Florida attorney general.

The Federal Trade Commission refused to comment, but an assistant attorney general in Florida confirmed that a settlement has been reached with the state.

DAMI, as it calls itself, has been the target of investigations by the FTC and several states for allegedly misleading consumers with direct-mail advertising that promises sweepstakes prizes and urges them to use expensive 900 numbers to claim their prizes, which often amount to only $1.

The company said it has admitted no wrongdoing in settling the cases.

DAMI is among a plethora of telemarketers flooding U.S. homes with mailings and telephone calls soliciting business. The FTC is focusing on the burgeoning activities, especially targeting schemes that prey on the elderly.

The 11-year-old DAMI, with more than $100 million in annual revenue, sent tens of thousands of direct-mail fliers--often authentic-looking checks, marked “Not Valid” in small type. The fliers intimated that consumers had won cash or prizes and urged them to dial a pay-per-call number to claim it.

Victims have complained that the pseudo checks typically look like income tax refunds and lead consumers to believe that more money could be on the way with a simple 900 telephone call.