Participants will learn the consequences that follow when companies aggressively pursue customer growth without adhering to the Federal Trade Commission’s Telemarketing Sales Rule (TSR).
Case Study: DISH Network’s Telemarketing Fraud
DISH Network, a large publicly-traded company, used aggressive sales tactics, including violating the Federal Trade Commission’s Telemarketing Sales Rule (TSR) when it failed to scrub consumer phone numbers through the Do Not Call registry. Further, the Company hired third-party marketing firms and did little to confirm that those firms followed FTC rules and regulations.
Every single state’s Attorney General and the Federal Trade Commission brought lawsuits against the company and bogged it down in endless litigation. The company did not reach an agreement with the government to settle the lawsuits (initially brought in 2009), until December 2020. These actions cost the company hundreds of millions of dollars in fines, tens of millions of dollars in legal fees, and required the company to operate under court supervision into the late 2020s.
By the end of this case study, readers should be able to:
- Understand and identify aspects of telemarketing fraud.
- Understand that the government is not deterred in pursuing lengthy investigations.
- Describe and understand and the legal concept of willful blindness.
- Understand and explain the implications of extensive investigations on a company.
- Identify the Federal Trade Commission and better understand how the agency interacts with actions taken by companies and employees.
Telemarketing Fraud, Do Not Call List, Federal Trade Commission (FTC), deceptive and unfair sales practices, Settlement
Many people who work in normal business settings feel secure in following directions given by their boss. Government investigators, however, expect people to act lawfully regardless of their position in a company. While government may sometimes limit penalties to fines and civil forfeiture, failure to act lawfully can lead to criminal charges. People do not generally appreciate how easily their behavior on the job can lead to civil and criminal consequences.
Prior to 2009, DISH Network engaged in high-pressure phone sales tactics in an effort to secure customers from their cable competition. They also retained offshore call centers to contact potential customers. The company’s internal culture was driven by a grow-at-all-costs strategy that also famously led to extreme burnout among internal employees. The company even had sleeping and bathing areas for call center employees, encouraging them to work double and even triple shifts. Pressure was driven from the top-down, at every level. Under that pressure, employees worked excessive overtime in order to meet overly aggressive sales goals. As a result, attention to compliance suffered greatly during this time.
The US government, joined four US states, bringing suit in 2009, claiming that the DISH Network was in violation of the FTC’s rules with respect to the Do Not Call List. The government claimed that the DISH Network repeatedly made calls to consumers on the Do Not Call list, made calls to people who had told DISH they did not want to receive calls, and knew its telemarketers were engaged in practices in violation of the Telemarketing Sales Rule.
The National Do Not Call Registry is maintained by the FTC. When a consumer signs up for the list, businesses are prohibiting from making sales calls to them. Political calls, charitable calls, debt collection calls, informational calls, and telephone survey calls, however, may be exempted.
The DISH Network, in turn, defended itself by claiming that it was logistically complicated to check all phone numbers against the Do Not Call List making it an unrealistic legal burden. They also claimed that they should not be held responsible for the actions of third-party marketers that represented themselves as acting within the law.
Further, at approximately this same time, Attorneys General in the 46 other US states reached a settlement of $6 million with the DISH Network to settle allegations that the company and its third-party retailers engaged in deceptive and unfair sales practices. That action claimed that DISH Network’s misleading marketing beamed bad deals to thousands of consumers, causing financial hardships for those on limited incomes.
Consumers didn’t realize that, in the fine print of its contract, DISH Network had given itself permission to make automatic debits or charges to their credit cards. Many customers complained about automatic deductions for charges they didn’t owe – such as equipment that had been returned. In fact, one elderly lady couldn’t buy groceries for a week because DISH Network drained her bank account, and she was hit with $100 in overdraft fees.
The DISH Network, in turn, appealed, with the case finally settling in December 2020, still costing DISH $210 million, plus tens of millions of dollars in legal fees. The lawsuit served as a massive distraction for corporate executives running the company. During this entire episode, the company’s growth faltered from 14 million customers in 2009 to under 12 million in 2019, even as several of its competitors grew, and despite the fact that the DISH Network expanded into other business areas such as cellular service.
Many people believe large US corporations enjoy a certain degree of immunity from government prosecution for various reasons. They hire high paid lobbyists, make large political contributions and hire teams of high-priced attorneys to protect their interests. Size and money, however, do not inoculate a company from ending up a target of a federal investigation.
The DISH Network is just such a large US corporation, with over 16,000 employees, providing access to television shows and movies, wireless broadband and cellular phone services to almost 12 million customers. It’s a well-known company, in business for almost 25 years, generating billions of dollars in revenue. They also serve as a cautionary tale that no company is immune from prosecution for violation of The Federal Trade Commission’s (FTC) Rules and Regulations, in a case that finally settled in December 2020, after more than a decade of litigation.
The U.S. Federal Trade Commission (FTC) launched the National Do Not Call Registry in June 2003 in an effort to combat a growing national nuisance of unwanted telemarketing phone calls. This new registry allowed consumers who wished to reduce the amount of telemarketing calls they received to place their telephone numbers on a list which is supposedly off–limits to telemarketing agencies. More than 50 million phone numbers were registered before its October 2003 effective date and the registry now has over 220 million numbers.
The lawsuit sent shockwaves throughout the entire company affecting all personnel, up to the CEO, Charles Ergen. Everyone from corporate executives to frontline workers were nervous about potential legal liability and even retaining their jobs. After all, the government was seeking up to $24 billion in damages, an amount that would bankrupt the company. Mr. Ergen’s hard-charging ways created DISH Network and grew it from its humble beginnings of 350,000 customers in 1996 to over 14,000,000 by 2009.
That same win-at-all-costs game plan, however, created a toxic corporate culture that induced employees to forego concerns of compliance in favor of corporate profits, and earned the company the ignominious designation of the “worst employer” in the US by the employment website Glassdoor.com.
Incredibly enough, the DISH Network became aware of the potential for such suits yet chose to do nothing about it. Two companies telemarketing Dish Network programming incurred combined judgments of $11.37 million in July 2008, and paid a total of $95,000 in fines, for calling consumers with telephone numbers listed on the National Do Not Call (DNC) Registry and for illegally abandoning calls. The orders, filed by the U.S. Department of Justice on the FTC’s behalf, bankrupted those companies and included a lengthy ban on their presidents keeping them from engaging in future telemarketing activities. The DISH Network, nonetheless, continued to engage in wrongful practices and hire unscrupulous marketers.
That lawsuit consumed an untold amount of corporate executive time and served as a huge distraction for the company as the case worked its way through the court system. In fact, the company’s CEO was forced to step down in 2011, in part due to the scandal, and the federal court did not reach a judgment until 2017. That judgment determined that DISH engaged in over 66 million marketing violations and awarded damages of $280 million to the federal government and $112 million to the four state governments.
The judge in that decision determined that “the injury to consumers, the disregard for the law, and the steadfast refusal to accept responsibility require a significant and substantial monetary award.” The Court expressed particular concern about the company’s attitude toward people who complained about unwanted calls: “DISH’s denial of responsibility and lack of regard for consumers are deeply disturbing and support the inference that it is reasonably likely that DISH will allow future illegal calls absent government pressure.”
While the company paid a heavy financial toll, corporate executives got very lucky in this case. Cases like this often additionally lead to personal legal liability for the executives involved in making and executing decisions that caused the civil action. Prosecutors frequently wield criminal charges to place pressure on people to turn upon each other as prosecutors build their case.
The government very easily could have, and often times does, accompany such lawsuits with complementary criminal charges against those specifically responsible. Even though that did not occur in this particular instance, it is a typical and expected part of the process that should be expected in any instances of abuse and violations of the law.
A company’s corporate culture tends to drive employee conduct. Most companies begin small without giving much thought to that culture. They concern themselves with how to survive and then grow within a challenging regulatory environment. At some point, however, companies must critically analyze and document the culture they aspire to in a measured Code of Conduct. Without one, they risk exposure to significant civil and criminal liability for failure to follow the rules.
Developing internal rules and designating someone in charge of ensuring compliance becomes critical for any company with over 20-30 employees and/or a couple of millions of dollars in revenue. Those rules, in turn, must be followed by everyone in the organization, including the founders and CEO. Employees quickly spot hypocrisy, undermining their determination to follow rules that do not equally apply to everyone.
Companies must also choose partners wisely. Hiring outside contractors to perform services will not shield a company from liability for actions conducted by the outside contractor. Companies must conduct their own due diligence into third-parties they hire, demonstrating responsibility as a good corporate citizen. Government agents and prosecutors quickly and easily determine that a company has acted willfully blind, whether such was the case or not. They use 20/20 hindsight, analyzing the facts from the perspective that best proves their case. Conducting and documenting due diligence helps guide them away from that perspective.
 While regulators can go after companies smaller than that, the government rarely deploys resources in which it will have little to no impact.
The communications industry has always been heavily regulated, and we can expect more of the same, especially as technology continues to quickly evolve. Telemarketing, as well, is constantly bombarded with new rules and regulations, as government typically uses a sledgehammer approach to cut down on abuse. It is critical for companies to maintain a robust compliance environment to keep on top of new laws and industry changes and exercise best practices in following them.