The Federal Trade Commission and the Missouri Attorney General’s Office have agreed to settle a consumer-protection suit against Kansas City-area sweepstakes and prize-mailer companies for $30 million.
Missouri Attorney General Eric Schmitt announced the settlement March 7. In a statement, he said the sweepstakes operators appeared to target senior citizens. As a result of the settlement, the companies will be permanently banned from the prize-promotion business.
“Protecting our most vulnerable citizens, including the elderly, is something that I dedicate myself to every single day,” Schmitt said. “With this record settlement, we sent a clear message to those who seek to perpetrate fraud within the State of Missouri: Your actions will not go unpunished.”
Andrew Smith, director of the FTC’s Bureau of Consumer Protection said in a statement that the defendants “tricked millions of people — many of them older adults — into paying money to collect prizes that never materialized.”
“With our valued partners in the Missouri AG’s office, we are working hard to protect older Americans against scams like these,” he said.
The case began in 2018, when the FTC and former Missouri Attorney General Josh Hawley filed suit against several Kansas City-area businesses and three individuals associated with them, Kevin R. Brandes, William J. Graham and Charles Floyd Anderson.
The three had officer roles and ownership interests in the companies.
The plaintiffs alleged that since 2013, the defendants sent tens of millions of personalized sweepstakes and prize mailers to consumers internationally, in which they falsely represented that the recipient had won or was likely to win a substantial cash prize in exchange for paying a mandatory fee.
They also alleged that consumers paid the defendants more than $110 million in response to receiving the mailers but have not received their promised prizes.
The settlement imposes a monetary judgment of more than $114.7 million, which will be suspended after the defendants turn over $30 million in assets and cash. According to Schmitt, if the defendants are found to have misrepresented their financial condition, the full judgment will become due immediately.
As part of the $30 million, the defendants are required by the settlement to turn over more than $21 million in cash, two luxury vacation homes, a yacht, a Bentley automobile and other personal property.
According to Schmitt, the settlement is the largest forfeiture either the FTC or the state of Missouri has ever obtained in a case involving a sweepstakes scam.
As part of the settlement agreement, a court-appointed receiver will wind down and dissolve the companies. The receiver also will liquidate the property forfeited by the defendants. The proceeds, along with the $21 million cash payment, will go towards compensating the victims of the scam.
The agreement permanently bans the defendants from prize promotions, except for those in which consumers sign up in person.
Nathan Garrett of Graves Garrett represented the defendants. He could not be reached for comment.
Last year, attorneys from Graves Garrett and another Kansas City firm representing the defendants, Kennyhertz Perry, asked Judge Greg Kays for the release of attorneys’ fees in the case because their clients’ assets were frozen.
Kays approved nearly $600,000 in fees but denied an additional nearly $300,000 in October, expressing concern about their reasonableness. He instructed the attorneys to return at the conclusion of the case with their fee requests.
According to online court records, defense counsel have not yet sought more fees.
The case is Federal Trade Commission et al. v. Next-Gen Inc. et al., 4:18-cv-00128.