The U.S. Federal Trade Commission has apologized in a letter to Alyon Technologies Inc. and its chief executive officer, Stephane Touboul, for causing “any harm” to the New Jersey-based billing services facilitator by actions the FTC now admits were improper in handling a longstanding federal civil prosecution of the company. The formal apology, dated Sept. 9, 2004, and released today by Alyon, is part of the final agreed-upon settlement of the FTC’s case against Alyon.
“On April 20, the Federal Trade Commission (“FTC”) filed with the United States District Court for the Northern District of Georgia… the enclosed ‘Notice of Plaintiff’s Communications With Consumers,’” wrote FTC Staff Attorney David M. Torok. “In that pleading, then-counsel for the FTC notified the Court that an FTC employee distributed several dozen altered No-Call Affidavits to consumers, and set out the actions taken by the agency to rectify that unfortunate mistake. Among the actions taken, counsel for the FTC apologized to the Court and to your counsel that these altered affidavits were sent to consumers….
“By this letter, in an effort to reach an appropriate settlement of the law enforcement action filed by the FTC against Alyon and you, I wish to extend to your company and to you personally the same apology in the enclosed pleading. I sincerely regret if the actions cited in the enclosed pleading caused you or your company any harm, and with all due respect I request that you accept this apology.”
Touboul said he believes the letter represents the first time the FTC has been made to apologize to a company against which the agency has filed suit. “The suit was politically motivated,” he said unequivocally. “We contacted the FTC and tried to work this out before it ever got started, but they wouldn’t talk to us. Now they have apologized to the court, to our attorneys, and to us. This has never been heard of; it’s remarkable.”
The Stipulated Final Judgment and Agreed Order ending the nearly 20-month legal battle between the FTC and Alyon was recorded by the court on Nov. 16 and announced by the FTC today. The order is for “settlement purposes only and does not constitute and shall not be interpreted to constitute an admission by the Defendants that they have engaged in any wrongdoing or violations of law, or that any of the facts or claims alleged in the Complaint, other than the jurisdictional facts, are true.”
The settlement makes clear the company’s right to bill and collect from consumers who utilize the Alyon billing gateway to purchase goods or services over the Internet, stating “the defendants shall be permitted to bill and collect from those consumers who have not paid all or any part of the charges and who have not submitted a Billing Inquiry… on or before January 15, 2004…. Nothing in this final order shall be deemed to prevent defendants from exercising their lawful right to collect on bills of any consumer who does not submit a signed or sworn affidavit to the defendants within the prescribed time period.”
Among the terms set forth in the order are that the defendants waive any claim they might have to sue the FTC for what Touboul calls the agency’s “unlawful conduct;” that Alyon forgive approximately $17 million in disputed consumer debt and agree to forgive as much as $22 million more in adult entertainment-related revenue billed before June 15, 2003, that may yet be disputed; that Alyon provide to consumers “clear and conspicuous notice of all material terms and conditions” of its services, and that Alyon monitor all companies that use its services for their compliance with the terms of the court order.
The FTC filed suit against Alyon, Touboul, and TelCollect [a subcontracting collection and customer service agency] in May 2003, charging the group with engaging in "unfair and deceptive trade practices" in violation of at least four federal statutes. Among other things, the suit sought an injunction prohibiting Alyon's continued operation as a gateway billing services provider for adult Websites, a freeze on the company's assets, and the insertion of a receiver to manage restitution to consumers.
In his decision dated July 10, 2003, U.S. District Judge Richard W. Story declined to grant the FTC's request. Story issued a subsequent clarification ruling on Oct. 17, 2003, after widespread media coverage of an FTC press release misstating the court's decision. The press release and other related events led to the court threatening in May 2004 to sanction the FTC for its behavior unless remediation was accomplished.
“We got what we wanted; we turned a lemon into lemonade,” a very pleased Touboul said, noting that Alyon has been in settlement talks with the FTC since April, when the agency admitted to wrongdoing in its handling of the affidavits. “The order clearly confirms what we’ve been saying all along: that Alyon’s practices were never determined by any court or the FTC to have been improper in any way.
“The reason why the [FTC] commissioners agreed to the settlement is because we’ve built a system that is totally reliable for age and identity verification.”
The system, now patented and trademarked as Express Verifiable Authorization, arose from a legally binding Assurance of Voluntary Compliance signed by Alyon and the State of Pennsylvania in May 2003, two weeks before the FTC filed suit. The AVC established the rules of conduct for Alyon as it does business in Pennsylvania and served as a template for the federal agreement. It also is serving as the template for similar agreements in 23 other states that had put similar lawsuits against Alyon on hold pending the outcome of the federal case but are now in the process of settling with the company.
“We now have the only process that is fully federally endorsed to provide this kind of transaction,” Touboul said. “Anybody who wants to use an alternative billing mechanism in the U.S. has found one, and they don’t have to worry about the feds coming after them for fraud or allowing minors to access adult materials.
Touboul continued: “Although I am extremely concerned and troubled by the admitted wrongful conduct of the FTC during the litigation, especially their admission to the federal judge that counsel for the FTC had filed altered affidavits with the court, we believed that it was in the long-term interest of our company and the welfare of our customers that we not pursue sanctions against the government, as the judge invited us to do, but rather that we proceed to bring this matter to a conclusion. In this regard, Alyon also fully expects that, in the next 30 days, it will have resolved satisfactorily all the matters commenced by the various states’ attorneys general.
“In the final analysis, we believe that the terms of the settlement, together with the clear non-admission of any wrongdoing on our part, coupled with the FTC's apology letter, which we believe is unprecedented in the history of the FTC, confirms what I have said from the very outset: that I and my company have acted appropriately at all times and would, in the end, be fully vindicated,” he said.
