Diabetes Related Consumer Fraud - Compliance Mitigation

Purpose:

Explaining the conditions that led to legal consequences for Diabetes related Consumer Fraud.

Welcome Message:

My name is Peter Madoff. I am a graduate of Fordham Law School (1970). I have built an extensive career in the financial services industry as a senior executive; serving as a former Vice Chairman of the NASD, Executive board member of Nasdaq and several NYSE member firms. These industry leadership responsibilities provided me with comprehensive experiences with both self-regulatory and government agency compliance investigations. The consequences of such investigations may lead to violations, fines or even white-collar criminal actions. It is my intention to guide you in how to make appropriate and responsible compliance decisions that will protect you from such actions.

Objectives:

After participating in this case study the various members of the intended audience will:

1. Identify the concepts of consumer fraud, deceptive and unfair business practices.

2. Understand specific acts which may constitute consumer fraud, deceptive and unfair business practices.

3. Explain how certain states facilitate small claims fraud recovery through “Class Actions”.

4. Understand how the Federal Trade Commission’s (FTC) intervenes to protect consumers from deceptive and unfair practices.

5. Describe how companies and individuals can fall under investigation for involvement in consumer fraud.

Intended Audience:

Individuals and business entities reaching out to the public, seeking to engage in commerce with other individuals, public and private corporations, vendors, employers and their employees.

Common Terms:

Caveat Emptor, Common Law Fraud, Class Actions, Interstate Commerce, Federal Trade Commission

Current State:

The ease of access to the U.S. consumer through numerous media platforms has lifted the prevalence of Consumer Fraud to new heights. Fraudulent actors permeate the marketplace, putting regulators on higher alert as well. Regulators, in turn, become more prone to viewing all questionable acts through a jaundiced eye, assuming purposeful or improper intent, rather than giving people and companies the benefit of the doubt.

Future State:

The technological arms race works both ways. Public watchdog agencies have more tools in their disposal to uncover the massive growth of technology related fraud. That incredible arsenal, however, can cause a lot of damage. Regulators uncover damage to consumers and then reverse engineer criminal acts. When people get harmed, it just has to be someone’s fault. As a result of the growth of fraud and government knee-jerk reaction to combat it, we can expect investigators and prosecutors to bring ever more cases catching both the intentionally criminal and inadvertent actor, leaving considerable damage in their wake.

Situation:

The Chicago Attorney General filed a lawsuit in Cook County circuit court against Surplus Diabetic Supplies LLC, operating under the name “Cash Now Offer” and its owner, Jonathan Avila for convincing consumers to send in their unused diabetic testing supplies for a certain amount of cash within 24 hours, but then failed to pay consumers as promised. Oftentimes, not only delaying but never sending any payment at all. Thousands of consumers are owed over $1 million for diabetic testing supplies they sent in response to the Cash Now Offer.

Background:

Surplus Diabetic, Inc., a privately held company founded in 2015 and located in Chicago, Illinois, holds itself out as a diabetic supply distribution company that provides pharmacies and wholesalers with door-to-door delivery for large or small quantities of diabetic testing supplies at cost-saving prices.

The company, based on appearances, was seemingly profitable and doing well when it came up with the brainchild idea of purchasing unused excess diabetic supplies from patients and then re-selling those products to other diabetics in need. The company’s president Jonathan Avila advertised payment within 24 hours, through a website called CashNowOffer.com, leading thousands of people to send in their unused supplies. The problem was, the company failed to timely pay most of the diabetic patients sending in their materials and completely failed to pay others. That behavior resulted in a slew of complaints to the Better Business Bureau and Illinois state consumer protection agencies.

These complaints caught the attention of the Illinois State Attorney General who brought suit in 2018 alleging the following: (i) Cash Now Offer and Avila advertised through the website cashnowoffer.com and on social media platforms, (ii) Avila and his company incentivized consumers to send their diabetic testing supplies by offering cash bonuses, referral bonuses and price matching guarantees, (iii) Avila and Cash Now Offer promised to pay consumers a certain amount for their diabetic testing supplies who, in most cases, never received any payment and their diabetic testing supplies were never returned to them, (iv) in some instances consumers received checks that appeared to be from Avila and Cash Now Offer but were invalid and ended up bouncing.

Analysis:

The Chicago Attorney General requested full restitution to all consumer participant complaints, an amount in excess of $1 million, as well as civil penalties of $50,000 per deceptive act or practice; along with all costs incurred in securing relief as required. The defendants failed to appear and respond to the complaint, on several occasions, ultimately leading to a major default judgement entered against them in July of 2019. The monetary penalties were significant, substantial and the Judgement was final. The company and Avila are out of business for good. Avila lost everything, apparently tanking a perfectly good company pursuing a legitimate business purpose for the sake of a hairbrained get-rich-quick scheme, doomed to failure from the start.

There is little if any doubt or anything to say with regards to the actual intentions of the defendants or the subsequent allegations in the complaints. The defendants’ failures to not only provide the services offered, but their continuing failure to even respond in any meaningful manner to claims alleged in the complaint are indicative of their obvious fraudulent actions.

What is surprising, however, is that the company, Surplus Diabetic Supplies LLC, although banned in Illinois with its websites no longer operational; appears to possibly be operating in the state of Florida under very similar names, albeit with different ownership registration addresses. The potential for similar fraudulent activities appears to be ongoing and worthy of consumer and regulatory awareness and preventive actions. In fact, should it be determined that Avila is behind this Florida venture, he could now be looking at some serious federal criminal exposure for conducting business across state lines.

My efforts to uncover further, specific details have proven fruitless. From my experience, though, I can share that the federal government moves slowly and deliberately. Just because criminal legal action has yet to be taken does not mean none will be. In fact, most government investigations last years, while the target unwittingly goes about his or her business, unwary of the trap springing around them.

Recommendations:

Although the facts established here appear to be incontrovertible with the regulatory actions that ensued predictable, I would not disregard the significant potential for future criminal liability. No person or entity should reach out to consumers without fully understanding and appreciating the many state, and federal regulatory requirements applicable to their efforts to provide products and services to consumers, especially those using media platforms that extend across state lines; meeting the very broad definitions of Interstate Commerce. Criminal penalties are usually much more onerous when the fraudulent actions involve mail, wire and banking fraud.

It is also necessary to be very mindful of watchdog agencies and class actions, which are very often ripe for legal harvesting of numerous consumer victims, whose small claims may not individually warrant legal actions. The broad expanse of various technology driven media platforms, provides huge potential claimants subjected to alleged fraudulent activities. Some of the largest monetary awards in U.S. history have been as a result of class actions.

Finally, it’s actors like Avila and his Cash Now Offer which give rise to greater scrutiny of all businesses. Perhaps buying excess supplies and re-selling them could be an excellent business model. Avila’s actions have ensured that anyone attempting to do so in the future will have a very hard time. The same could be said for any unconventional or out of the box thinker attempting a new idea. That’s where compliance comes in handy, ensuring that all proper business practices are documented, ready to present in-hand to any skeptical investigator coming a company’s way.