Five states file suits in newspaper subscription scam – azcentral.com
Authorities in several states are suing to shut down a tangle of Oregon companies accused of bilking consumers out of $20 million in a nationwide newspaper-subscription scam.
Attorneys general in Minnesota, Missouri, New York, Oregon and Texas filed a coordinated series of lawsuits this month accusing nine people of operating a network of companies that sent fake invoices to customers of dozens of publications, including The Arizona Republic.
The civil fraud and racketeering lawsuits allege the companies targeted primarily senior citizens and charged them up to 200 percent for subscriptions that didn’t need to be renewed. In other cases, consumers were billed for subscriptions they didn’t have.
The lawsuits say operators set up companies to send out bills and controlled them through companies with names such as Liberty Publishers Services and Orbital Publishing Group. More than 70 subsidiaries have been identified.
Authorities say the operators used companies to launder money, then “transferred the proceeds from their unlawful activity” into their personal accounts and used the money to buy property and invest in real estate.
The lawsuits paint a complex picture of what authorities describe as a fraudulent enterprise built around the subscriptions.
The lawsuits detail the roles served by various companies: consulting firms that purport to provide services to the subscription companies; a financial center responsible for bookkeeping, data processing, employee staffing and accounts payable; holding companies that move money into accounts for principal operators; processing companies that handle magazine orders; marketing companies that solicit subscriptions by mail and phone; and bogus clearinghouses that serve as middlemen between publishers and subscribers.
The Wisconsin Department of Justice filed a lawsuit against Liberty and Orbital in November, alleging they ran a subscription scam targeting the elderly.
The lawsuits came after a cease-and-desist letter filed in November by the Newspaper Association of America on behalf of 363 newspapers.
The association’s letter said Liberty and Orbital falsely implied their companies were acting on behalf of newspapers and gave the impression customers were getting favorable prices.
“These were deceptive notices,” Paul Boyle, Newspaper Association of America senior vice president of public policy, said Friday. “They were saying they represented newspapers when they did not represent newspapers. They were saying it was a renewal when it was not a renewal.”
A new focus on newspapers
An investigation by The Arizona Republic last year found the renewal scheme has been around for almost two decades. The companies involved have aggressively defended their right to solicit subscriptions, and lawyers for the companies have denied in lawsuits that the solicitations were deceptive. Attorneys claimed the companies were independent renewal agents that had every right to sell subscriptions, regardless of whether publishers were aware of it.
For years, the Oregon companies appeared to concentrate exclusively on magazine subscribers. The strategy changed in 2011, when Orbital was accused of sending invoices to Wall Street Journal customers.
Boyle said newspapers across the country began getting complaints from customers about renewal notices in October 2014. Newspaper officials reacted by sending scam advisories to customers, publishing alerts and, in some cases, paying bills for customers who responded to the bogus invoices.
The Republic logged at least 70 complaints in a matter of days. Two companies, Readers Payment Services and Publishers Education Services, sent invoices to Republic customers asking $469.95 for an annual renewal, about 20 percent more than the actual cost.
Newspapers don’t use independent renewal agents, Boyle said Friday. He said many newspapers use renewal systems that automatically bill customers until they decide to cancel service.
Boyle said the magazine-subscription scams cropped up every few years and then disappeared in the wake of legal action. But he said newspapers are committed to making sure the scam doesn’t re-emerge.
“We don’t want it to happen; to go away and then come back again,” he said.
The Republic in October tracked 44 of the subscription companies to a post office box in Medford, Ore. The companies, with names that included “publishers,” “readers,” “magazine,” “billing,” “services,” “payment” and “circulation,” were owned by 37-year-old Laura Lovrien of Eagle Point, Ore.
Lovrien is president of Liberty Publishers Service, which owns the domain name for the processing center used to collect payments from newspaper and magazine customers who are led to believe they are renewing legitimate subscriptions.
Lovrien, who is named in the lawsuits, did not return calls Friday.
It is unclear how or when Lovrien became involved in the companies. Computer searches and business records indicate Lovrien managed a construction company in the 1990s. She appears to have taken over the subscription-renewal companies beginning in 2010, when she became president, treasurer, secretary and director of Orbital.
Orbital was originally incorporated in New York in 2009 and then transferred to Nevada. Records are unclear as to whether Lovrien was involved in Orbital before then.
“Orbital also operated under numerous assumed business names,” the Oregon Department of Justice said in its lawsuit. “Orbital shared in the proceeds of the unlawful activity.”
Oregon authorities said Orbital actually was owned by a New York company called Henry Cricket Group LLC, which describes itself as a consulting firm.
The owner of Henry Cricket is Jeffrey Hoyal, a Medford businessman. Oregon authorities said Hoyal used Henry Cricket and another company called Maximillian Inc. to direct operations of the subscription scam and to obtain the bulk of the proceeds.
Oregon authorities described Henry Cricket as “a fiction.”
Hoyal, who resides at a $2 million, 140-acre estate, has gained prominence for his efforts to develop an Oregon winery, according to reports in the Medford Mail Tribune.
Hoyal did not return multiple calls about the lawsuits Friday. An unidentified woman who answered a phone registered to Hoyal said he was “too busy to talk” and hung up.
Hoyal’s companies launched costly lawsuits against publishers who complained about his operations. They also sued government regulators who accused them of violating the law.
Financial records show Hoyal was president of a company in the early 2000s that operated a direct-mail firm called IC Marketing, which was doing business in Oregon as American Consumer Publishing.
IC Marketing was similar to Liberty and Orbital in that it served as an umbrella for at least 11 subsidiary companies, public records show. Several lawsuits were filed against IC Marketing, including two consumer-protection suits by attorneys general in Oregon and Washington.
In 2001, the Oregon Attorney General’s Office sued IC Marketing, claiming its subsidiaries violated the state’s “simulated invoice” law.
The Oregon Department of Justice “found instances where consumers were confused or misled about the source of the solicitations they received,” according to information on the state’s website. “In some cases, consumers believed the mailing was an invoice for a previously ordered subscription. Justice also identified instances in the company was unable to supply the ordered magazine.”
IC Marketing countered with a federal-court lawsuit against the state. Both cases were settled in 2004 with a consent judgment that required IC Marketing to pay a $71,950 fine and use new language for solicitations.
In 2003, IC Marketing sued Taunton Press, the publisher of Fine Woodworking and Fine Homebuilding, among other magazines. Taunton had warned customers in a bulletin that an IC subsidiary called Publishers Marketplace was not authorized to sell its subscriptions.
IC Marketing, in its lawsuit, claimed that Taunton made a greater profit selling directly to customers than using independent agents.
IC lawyers argued Taunton failed to retract its notice to customers and damaged the reputation of the subscription companies, bringing them into “disastrous scandal, ridicule and professional disrepute.”
A judge dismissed the case against Taunton in 2006, records show.
Records show IC Marketing was dissolved in 2006.
Hoyal and Lovrien’s subscription companies appear to overlap.
American Consumer Publishing and Publishers Marketplace Services, which were owned by IC Marketing, are among Lovrien’s 44 companies.
In June 2011, Liberty Publishers Service was formed in New York. Two weeks later, Liberty filed incorporation papers in Oregon, and Lovrien was listed as president. Later that year, 40 companies were transferred to Liberty on the same day from a Medford lawyer.
Attorney David Lennon signed off on the transfer, listing himself as the power of attorney on corporation documents. Lennon signed similar transfer papers for nearly all of the companies, stating that Liberty was assuming the business name and acting as owner/agent.
Court documents show Lennon has represented subscription companies in lawsuits for several years.
He could not be reached for comment Friday. In an interview with the Medford Mail Tribune this month, Lennon said those named in the case would defend themselves vigorously against allegations of wrongdoing.
The Tribune also reported Lennon bought his home from one of the holding companies Oregon authorities say was used in the subscription scam.
No criminal charges have been filed against the operators. Although authorities allege criminal conduct, including wire fraud, mail fraud, racketeering and money laundering, the lawsuits are civil. They primarily seek to prevent the companies from continuing to operate. The lawsuits also seek hundreds of thousands of dollars in penalties and fines.
Oregon authorities are asking the court to impose a forfeiture order, allowing them to seize any “real property and personal property, including money,” that operators derived from the subscription scheme since 2010.
Federal authorities are also involved. Officials with the U.S. Postal Inspection Service confirmed in October they were investigating the subscription-renewal offers.
Boyle said he anticipates more lawsuits will follow. “We know the Federal Trade Commission and U.S. Postal inspectors are interested,” he said. “We continue to work with other law-enforcement agencies as well.”
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