FTC better than vigilante inspired SS as mill busters?

[Redlyne Racer]

As I posted elsewhere, the recent highly publicized property seizure by Secret Service agents against persons connected to SRU reminded me of a scenario right out of Arlo Guthrie's "Alice's Restaurant," i.e., very much ado about very little.

I realize that in some quarters the notion of armed government troops blitzing the homes and businesses of people they don't like has a certain appeal. For some reason the country has abundant resources available for storming and seizing the property of US citizens in rural areas, but can't figure out how to regulate the criminal activities of the some 10 million people currently in our country illegally, each one of whom is a potential or actual terrorist, convenience store bandit or car thief.

The foregoing then gives rise to the question of whether some alternate method exists for thwarting true "diploma mills" if not by highly publicized armed incursions into people's homes and businesses.

One possibility would be the Federal Trade Commission Act, which makes "unfair and deceptive acts or practices affecting commerce" illegal.

As an example of how this works in practice, recently the FTC took action against Gateway Learning Corp., which sells the well-known "Hooked on Phonics" products. The gist of the complaint was that Gateway represented to customers that they would not sell or rent the customers' personal information, then after collecting the information (including personal info about children under the age of 13 such as name and address) changed its policy and sold and rented it.

The docs are available here:
http://www.ftc.gov/os/caselist/0423047/0423047.htm

When confronted by the FTC, Gateway agreed to stop doing it, and to give back the $4,600 it had earned from selling the information.

No armed federal agents stormed any buildings, no property was seized, nobody had their livelihood taken from them, and everything appears to have been handled calmly in a polite, civilized manner.

I don't pretend to be an expert in this area of the law. Perhaps there are reasons why these simple and tested mechanisms cannot be applied to suspected diploma mills in the same manner they are applied to "Hooked on Phonics" vendors. I simply suggest that if people actually were interested in stopping true diploma mills, rather than just creating a firestorm of publicity or screwing over their enemies, this might be a more preferable, safer and effective method of law enforcement.

[kr]

The FTC took down the University Degree Program in an action about two years ago that started as a way to suppress the sale of fake "international drivers licenses" by the bad guys. But when the investigators began calling the phone numbers that had been rented by UDP, they discovered that only about a tenth of them were advertizing licesnes for sale and that the rest were selling fake degrees. So they broadened the scope of their investigation.

The "means and instrumentalities" argument they made (see http://www.hep.uiuc.edu/home/g-gollin/diploma_mills.pdf) was a new approach for them, and required some discussion inside the FTC to obtain the go-ahead for the attorney who ran the action. The FTC's "model of liability" assumed that UDP customers understood perfecly well that they were buying a meaningless "degree" and consequently that the customers were not being defrauded by the UDP. However, as soon as UDP customers began using their fake degrees to attract their own unsuspecting customers, they were transgressing what was allowed under Title 15 of the United States Code. In addition, the diploma mills were crossing the line of 15 U.S.C. by providing the tools for this. There are some fine points in this, and it's interesting stuff.

Note that the FTC's model assumed that the UDP customers knew what they were buying. In the case of SRU, the argument is being put forth that a non-negligible fraction of the SRU customers really did think they were having meaningful PLA assays done, etc. etc. and that they were therefore being harmed directly by SRU.

There is a tendancy in the FTC right now to view a number of messy things as local enforcement problems, alarming as this might seem. The example of this I was told would be the FTC's reaction to the sale of fake MD diplomas by your guy-in-the-garage style mill. Even though the garage med school might be selling them nationally, the local authorities need to be the first responders, going after the quacks pretending to practice medicine in their local neighborhoods. I was surprised by this.

As it is, the statements by Novak and Dunbar in the affidavit indicate that several Liberian officials were taking money (and perhaps others were willing to receive money) in exchange for government actions that would help SRU. That's a bad, destabilizing thing to do to Liberia, and it has long-term consequences. It's also a violation of 15 U.S.C. And I'm pretty sure it's illegal even if Liberian law were to allow it.

And don't you love the willingness of SRU to sell advanced degrees to a "Syrian army chemist and chemical engineer" so he could stay in the U.S.? Do you suppose the SRU folks thought the ChemE guy was working on a better laundry detergent for the army?

And "Miranda International University" sells a "Bachelor of Science in Nursing." Recall that Miranda-related goodies were found in Dixie Randock's house.

From the point of view of the investigators, the houses and offices they entered were likely to be places associated with criminal activity. "Likely to be" means of sufficient probability (based on information already collected) to cause a judge to issue search warrants. The U.S.S.S. wasn't going into the homes of private citizens to scare them into behaving differently; they were going into the homes and businesses of people who were "likely to be" (same sense as above) criminals.

This all needs to run its course in the U.S. judicial system, naturally, and it is proper to assume innocence while the process unfolds. But it is also reaonable, I think, to assume that the raw facts presented in the affidavit and search warrant inventories (things like "corporate seal for AEIT, Inc. for 2003 Nevada") are also accurate.

[Redlyne Racer]

Your comments are appreciated. Getting the government to do its job really is a tough nut. It always seems to be somebody else's problem, the current illegal immigration debacle being a good example.

It seems that if the FTC is willing to go after the phonics guys for $4600 worth of ill gotten gains they might find the time to take a flyer when the stakes are "a billion dollar industry" (according to Dr. Bear).

I do appreciate your insight on the FTC processes, but the docs you referenced concerned their run at the fake international driver's license scam.

Although the preliminary injunction does mention in passing the term "phony diplomas" and includes "diplomas, school transcripts" under the definition of "Identification Document," it is otherwise concerned entirely with the fake international driver's licenses the defendants were selling.
http://www.ftc.gov/os/2003/01/unknownpi.pdf

Likewise, there is no mention at all of diplomas, phony or otherwise, in the complaint, which also is devoted entirely to the driver's license issue.
http://www.ftc.gov/os/2003/02/mvslamdcmp.htm

However, I do understand your point that the FTC has to use the mechanisms available to it under the FTC Act.

The text of the FTC Act may be found here: http://www.fda.gov/opacom/laws/ftca.htm

Section 45(a)(1): "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."

In the UDP case, as in the "Hooked on Phonics" case I mentioned, the FTC proceeded under the commission's "deceptiveness" power. "Under that power, the FTC will find a practice deceptive if (1) there is a representation, omission or practice that (2) is likely to mislead consumers acting reasonably under the circumstances, and (3) it is likely to affect the consumer's choice of, or conduct regarding, a product."

"The second requirement, therefore, is the essence of this definition. The issue is not whether an advertising claim is "false." The issue is whether the claim is likely to lead consumers to develop a false belief." http://www.museum.tv/archives/etv/F/htmlF/federaltrade/federaltrade.htm

As you pointed out, in the case of most degree mill customers, even though the statements the seller makes are false the customer is not being lead to develop a false belief, since he already knows or should know the degree is fake.

So, perhaps the FTC's "unfairness" power might be a better fit for this situation. As discussed in the article:

"The new definition of "unfairness" permits the commission to regulate marketing practices that (1) cause or are likely to cause substantial injury to consumers, (2) are not reasonably avoidable by consumers, and (3) are not outweighed by countervailing benefits to consumers or to competition. The implications of this definition are not yet known, but it is unlikely that the agency will make extensive use of its "unfairness" power in the near future." http://www.museum.tv/archives/etv/F/htmlF/federaltrade/federaltrade.htm

The issue under this power then is not what the particular consumer is likely to believe, but rather whether consumers are likely to be injured by the practice.

Consider the classic diploma mill situation, where a degree typically is awarded for unverified, undocumented, unevaluated "prior learning assessment." That is, essentially a perfunctory resume and a credit card.

In that case even if the customer knows the degree is fake, consumers are injured by the practice. We probably could fill a thread just listing the ways. In a legitimate situation the consumer and the schools must devote substantial time and resources to verify, document and evaluate the information to properly conduct a prior learning assessment. An unfair competitive imbalance exists when one consumer and his school must make a significant commitment of resources while others do nothing.

Again, somehow the FTC managed to clear up its little $4600 problem with the phonics guys without raiding the place. I'm sure the feds who visited Randy Weaver's family all had properly issued warrants too. http://land.netonecom.net/tlp/ref/weaver.shtml

As you know, there was no Syrian chemist, just a fed pretending to be a Syrian chemist and submitting fake references as well. If a real Syrian chemist wanted to get into the country he's probably already here and didn't need to lie to SRU to do it.

Likewise, paying the likes of Dunbar $5000 or five cents is offensive to me, but it's probably not illegal under the circumstances. People who do business internationally would be impressed that they got off for so little. That's why the law has an exception for payments to facilitate or expedite performance of a "routine governmental action." http://www.usdoj.gov/criminal/fraud/fcpa/dojdocb.htm

[kr]

I do appreciate your insight on the FTC processes, but the docs you referenced concerned their run at the fake international driver's license scam.

Although the preliminary injunction does mention in passing the term "phony diplomas"...
You will find the diploma mill action described primarily in the first and seconded amended complaints. See this link: http://www.osac.state.or.us/oda/index_OR.html#FTC for more information about them and some links. Here is some of the text under that link.FTC closure of some University Degree Program sites

The United States Federal Trade Commission, in cooperation with the British Government, took action against organizations run by some of the same people as those who run the University Degree Program. The FTC filed a preliminary injunction [FTC 2003a] in Federal Court in January, 2003 and amended complaints in February, 2003 and May, 2003.

The "first amended complaint" stated that the "Defendants market and sell phony international drivers' licenses via unsolicited commercial emails... and the Internet." [FTC 2003b] Though the primary purpose of this injunction was to stop the sale of the fake driving credentials, many UDP university web sites (such as www.parkwooduniversity.org, the domain for Parkwood University) were ordered closed by the injunction. The "second amended complaint" explicitly included action against the UDP university sites, declaring them in violation of federal law. [FTC 2003c] The FTC's announcement of their intention to file the second amended complaint refers to them as "diploma mills":

The Commission has authorized the staff to file a second amended complaint related to "Operation License for Trouble." Through this action, the FTC is adding a means and instrumentalities count to address the alleged operation of a diploma mill by defendants Mountain View Systems, Ltd. (Case No. 03-CV-00021-RMC (D.D.C.)). Specifically, the amended complaint alleges that the defendants provided the phony academic degrees, associated verification, and backup materials that recipients used to represent falsely to others that the diplomas constitute academic degrees, that established colleges and universities issued the degrees, and that the recipient had proficiency in a curriculum recognized as necessary to earn the academic degree. The Commission vote to authorize the staff to file the amended complaint was 5-0. (File No. X030018; staff contact is Gregory A. Ashe, Bureau of Consumer Protection, 202-326-3719; see press release dated January 16, 2003.) [FTC 2003d]

The second amended complaint states that

Defendants sell bachelors degrees, masters degrees, MBA's, and Ph.D.'s in a variety of fields including many medical related fields such as anesthesia, cardiology, cardiovascular surgery, dentistry, energency medicine, endocrinology, epidemiology, gastroentology, gerontlogy, gynecology, neonatology, obstetrics, oncology, ophthalmology, orthopedics, otorhinolaryngology, pediatrics, pharmacology, psychiatry, radiology, rheumotology, surgery, and urology. Other fields include engineering, law, architecture, computer science, psychology, and international finance. [FTC 2003c]

Count IV of the complaint asserts that

50. Defendants provide to others phony academic degrees, including, but not limited to, doctoral degrees in medical related fields, and associated verification and backup materials, including, but not limited to, university transcripts, letters of recommendation, and other verification materials. These materials are used to facilitate deceptive activity, including, but not limited to, falsely representing that the recipient has completed and shown proficiency in a curriculum recognized as necessary to earn the academic degree, and that the diplomas are issued by established colleges or universities. By providing the academic degrees and associated verification and backup materials, Defendants have provided the means and instrumentalities for the commission of deceptive acts and practices.

51. Therefore, Defendents acts and practices, as outlined above, constitute deceptive acts and practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). [FTC 2003c]

Here is a portion of the text of 15 U.S.C. § 45(a):

The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except... [a list of types of organizations which are not to be regulated by the FTC under 15 U.S.C. § 45(a) follows] from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.

It would seem that the phrase "deceptive acts or practices in or affecting commerce" is the key to the FTC's opinion that there has been a violation of U.S. code.

Here is a link to the preliminary injunction associated with Case No. 1:03-CV-OOO21-RMC, filed January 24, 2003. (A local copy of the pdf file is here.) Here is a link to the amended complaint for Case No. 1:03-CV-OOO21-RMC, filed with the United States District Court for the District of the District of Columbia on February 21, 2003. (A local copy of the html file is here.) Here is a link to the FTC's announcement of its intention to file a second amended complaint. (A local copy of the html file is here.) A link to a scanned version of the second amended complaint can be found here. (See Count IV on page 14.)

The injunction and first amended complaint included a list of sites that were ordered disabled by their internet service providers:

* www.ashforduniversity.org (domain for Ashford University)
* www.brentwickuniversity.org (domain for Brentwick University)
* www.kingsfielduniversity.org (domain for Kingsfield University)
* www.parkwooduniversity.org (domain for Parkwood University)
* www.universityofravenhurst.org (domain for the University of Ravenhurst)
* www.thornewooduniversity.org (domain for Thornewood University)
* www.westbourneuniversity.org (domain for Westbourne University)
* www.universityofwexford.org (domain for the University of Wexford)
* www.henryheston.com.cnchost.com (domain containing sites for the University of Devonshire, Glencullen University, Harrington University, and Shelbourne University).

The second amended complaint added to this list

* www.landforduniversity.org (domain for Landford University)
* www.northfield-university.org (domain for Northfield University).