An Ontario judge has sharply criticized the U.S. Federal Trade Commission for the way it has handled a case against a Canadian businessman who is alleged to have fraudulently sold thousands of lottery tickets across the border.
Mr. Justice Arthur Gans of the Ontario Superior Court called the FTC's case against George Yemec a "pittance" and rapped the agency for spending months investigating Mr. Yemec to turn up allegations that don't come close to fraud. "I must confess that I find this lack of activity on the part of the FTC surprising if not astounding, having regard to the resources at its disposal," he said in a ruling released last week. The FTC's conclusions "were more hyperbolic than they were fair, let alone factual."
His ruling overturned a court injunction issued last year that froze Mr. Yemec's assets pending a hearing on the fraud allegations. Lawyers representing the FTC filed an appeal late Friday.
David Wires, a Toronto lawyer representing Mr. Yemec, said he is pleased with the ruling, adding if the decision stands, his client is entitled to seek millions of dollars in damages from the FTC . He said the asset freeze left Mr. Yemec virtually bankrupt, even though none of the allegations have been proven.
In 1999, the FTC began investigating Mr. Yemec and his Toronto-based companies, including World Media Brokers Inc. Using telemarketers based in Toronto, Mr. Yemec sold Canadian lottery tickets to Americans through a series of companies and bank accounts. According to documents filed in court, his businesses processed about 50,000 orders a year and had about 5,000 customers. In the business for 20 years, he was considered one of its largest players.
In June, 2002, the FTC went to court in Chicago and Ontario in a bid to shut him down. It alleged his companies defrauded U.S. customers, mostly seniors, and misrepresented chances of winning Canadian lotteries.
The case was considered a major victory for the FTC in its efforts to crack down on illegal telemarketers, and the agency filed hundreds of documents in the Ontario court to back up its allegations. The FTC touted its actions against Mr. Yemec on the agency's Web site, and a U.S. lobby group for senior citizens filed material in court supporting the allegations against Mr. Yemec.
The FTC won the asset freeze in October, 2002, and another order that gave their investigators access to dozens of Mr. Yemec's bank records. As a result, FTC investigators seized 200 boxes of documents from Mr. Yemec's office, along with a dozen computers. Mr. Yemec shut down, and laid off his staff.
In his ruling, Judge Gans said the FTC failed to prove the need for an asset freeze, despite having access to Mr. Yemec's records for nearly a year. He also questioned the authority of the FTC to seek the order and said the agency was not entirely forthcoming with all the information it had when it went to court.
The judge said Mr. Yemec's staff engaged in high-pressure sales tactics, particularly with seniors. He also said there is compelling evidence he sold tickets in states where such sales are not allowed. But he added such activities don't come close to "up-front fee" fraud, and the FTC must do more than it has so far if it hopes to establish a strong prima facie case for fraud. He said keeping the freeze in place would be an "injustice."