Updates on Vivaro Corp. Bankruptcy

It has been about three months now since the powerhouse phone card company Vivaro Corporation and it's child companies STI Prepaid LLC, Epana and Kare Distribution entered into chapter 11 bankruptcy protection (filed Sept 5th 2012). The company continues to operate but it is not clear as to how long they can continue to operate in this environment as some of their distributors begin to withhold payments (more about this later). Unfortunately since the initial filing news has been limited and the company representatives mostly tight lipped so I thought I would put out a post with all of the updates I could provide.

• In early September, Vivaro applied for and was granted by the courts the ability to continue to honor it's cards already in the channel.

• In mid September, Vivaro made it known that it was open to a buyout.

• In late September, Gustavo M. De la Garza the President of Vivaro Corporation, steps down from his position as chairman of The American PrePaid Phonecall Association (APPPA) and is replaced by Pete Pattullo, CEO of Network IP.

• According to an article in the Prepaid Press from October, Red Cherry/Sigma Prepaid took over distribution for Vivaro's NY/NJ cards and in contrast to what you would expect with a company in bankruptcy, Vivaro is giving more minutes than advertised in some cases. Most likely to help continue the consumer and distributor trust in their products.

• In early November, Vivaro sued one of it's major distributors Raza Communications over what it claims is $7.4 million in missed payments. No doubt more of these type of lawsuits will follow!

• Numerous lawsuits filed from the companies owed monies are in process against Vivaro.

There are clearly a lot of rumors floating around in the phone card world but I won't dive into those and will stick with the known facts right now. I will post more information as it becomes publicly available!

Is this the End for STI?

Vivaro Corporation, the parent company for STI, filed a voluntary chapter 11 bankruptcy petition this past past week in the NYC bankruptcy court for all of it's telecom related units including: Kare Distribution Inc, STI CC 1, LLC, STI CC 2, LLC, STI Telecom, Inc, STI Prepaid, LLC and TNW Communications.

Reason for Filling
Vivaro's revenues' have dropped by over 40% since 2010 and their total liabilities are double that of their current assets. Their cash flow situation is what forced them to finally to file for chapter 11 protection having slightly less than $150,000 in cash

Who they Owe the Most?
Sprint - $4.5 million dollars
Telecommunication Relay Service - $2.7 million dollars
Telecom Italia Sparkle - $2 million dollars
Verizon - $1.9 million dollars
Level 3 - $1.3 million dollars

How Many Phone Cards are Currently on the Street?
According to the bankruptcy filing, they have about 22 million unused active cards currently on the market representing about $31.2 million face value dollars.

What are Some of their Card Brands?
Digame, Mi Carnal, STI Family, El Chavo, Eroika, STI Edge, and Clarito

How Many Employees Jobs are Currently at Risk?
In total all of the companies listed above has a total of 231 full time employees & 64 part time employees.

What's Next?
It is important to note that chapter 11 does not mean the company is closing down, it just means that they are trying to seek temporary relief from creditors so that they can restructure and hopefully emerge more stable. However, the odds seem to be against Vivaro since most telco's in this position usually end up going to chapter 7 (bankruptcy) within weeks or months. Vivaro has made it clear that they need more time and absolutely cannot have their big creditors shut them down as they need to be able to honor all of the cards currently on the street as failure to continue to provide service for these cards will make a recovery all but impossible. There is a hearing on the motion is scheduled for September 10th.

Stay tuned for updates...

FTC Reaches Settlement with NJ Based Millennium Telecard, Inc.

Just wanted to follow up on an earlier post about Millennium Telecard who had run a foul of the Federal Trade Commission for deceptive advertising practices. It seems as if both sides have reached an agreement where Fadi Salim, the principal of this company and two others also under investigation, has agreed to hand over 2.3 million dollars to settle this accusation of wrong doing (without acknowledging that they did anything wrong of course). The money will be paid over a 10 year period and the settlement will ultimately stop Mr Salim from misrepresenting the amount of minutes on a phone card in any of it's advertising campaigns.

The settlement is the biggest of it's kind and is sure to signal the end of what has been a dark period of prepaid calling, where the fees in many cases would out-bill the actual minutes on a card. It is important to note that they will still be allowed to have fees on their cards but they all must be clearly displayed on all printed materials and be easy to understand (better than nothing I guess).

I wonder if this government crackdown is at the beginning, the middle or the end?

To read the full article go to the Star Ledger Article here!

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Temporary Restraining Order Issued Aginst Millennium Telecard, Inc.

Based on the findings of the Federal Trade Commission (FTC), a federal court order was issued on May 2nd (but only made public this week) against Millennium Telecard, Inc. and it's principal owner Fadi Salim. The court order is aimed at getting the company to immediately halt its misleading practice of advertising a certain number of minutes but only delivering a portion of those promised (in some cases they are being accused of delivering less than 50% of the advertised minutes).

The court order will bar Millennium Telecard from engaging in further practices like this and will also freeze their assets while possibilities of reparations are investigated (they want to avoid the possibility of the company of hiding or moving monies). A temporary receiver and manager of funds has been appointed by the courts to handle all financial affairs for the company while the matter is investigated further.

Millennium Telecard is fighting the FTCs finding and is litigating the matter. It is important to note that the court order has been issued based on recommendations of the FTC and not based on the ruling of guilt in any matter.

A copy of the court order can be found on the FTC web site.

Diamond Phone Card Reaches Settlement With FTC

In a follow up to an earlier post from 2009 regarding Diamond Phone Cards alleged misleading of customers, the Federal Trade Commission has announced that they have reached a settlement with Diamond Phone Cards in which Diamond will pay the amount of $500,000 (not legaly labeled a fine but we all know what it really is) and agree to stop misleading consumers about talk time provided by providing all fee details in the language for which the product is being marketed.

This brings the total settlement pot up to 4 million dollars for the FTC in it's war against the corrupt practices of phone card companies. Companies who have contributed to this number include: Total Call (300K), Clifton Telecard (1.3M), and a handful of Florida companies (2.25M). The 4 million amount only includes what the FTC has levied and does not include the additional cases brought by many State's Attorney Generals.

Government Crack Down On Phone Cards Goes North of The Border

While we here in the US have been undergoing a legal and governmental crack down on the phone card industry over the last couple of years, Canada has until recently enjoyed a care free business as usual environment. Well that all changed this month when one of Canada's largest prepaid phone card companies Phonetime Inc. was fined $300,000 by the Canadian Competition Bureau, a government agency in charge of business oversight, for misleading consumers. Phonetime will also need to offer 78% refund to any customer who returns a Bravo or Bravo Atlantic card to the company (a $10 card would yield a $7.80 return amount). However, most agree that it is highly unlikely that many will be able to return old cards as most phone cards as disposed of after being used.

Also required of Phonetime by the bureau will be a corrective statement to be placed in a national newspaper clarifying their cards fees and notifying the general public about the 78% return settlement on all old Bravo cards.

The settlement is final and Phonetime has been quoted as being very cooperative in this matter.

Total Call International Settles Class Action Lawsuit

Total Call International announced last week that they had reached a settlement in the class action lawsuit recently brought against them by plaintiffs nationwide. The class action suit alleged that Total Call International sold prepaid phone cards without properly disclosing all of the fees and charges on their products. While Total Call admits to no wrongdoings they have agreed to the settlement to keep from having to pay further dollars in legal fees defending this mater.

While the settlement is not completely finalized yet (still requires court approval), it will give any customer who purchased a card from them between January 1st 1999 to July 28th 2009 a replacement pin valued at $0.50 to customers calling domestically (with a $0.10 a minute rate) or a pin valued at $0.25 to those calling internationally (with an undisclosed rate).

To qualify to receive a replacement pin, customers must submit a PIN number from an eligible Total Call International calling card or submit a notarized, written statement declaring that they were the purchaser of an eligible Total Call International calling card. Seems like a big process to get a $.50 PIN especially if you don't still have the pin from one of your cards in the past!

For customers to file a claim they should visit Total Call's website at http://www.totalcallusa.com/news

Just one interesting point of note, the law firm that orchestrated this whole class action lawsuit is Freed & Weiss LLC, the same one that brought the class action suit against Locus Telecommunication last year.

FTC Crack Down Continues - Diamond Phone Card the Latest Target

The Federal Trade Commission has once again cracked down on phone card distributors, this time going against Diamond Phone Card, Inc. a Elmhurst NY based distributor. The FTC is claiming that Diamond has been misleading consumers with false advertising practices (the same claims as with the ones from before) which stated more minutes on posters than the cards actually delivered. They are also accused of not adequately disclosing all terms and fees on their products and marketing materials.

The FTC has brought the mater to the district court and is seeking an immediate halt order to be issued to stop these deceptive practices. They are also seeking punitive damages, most likely in the millions if you use the Clifton Telecard Suit as a benchmark.

One of the examples given by the FTC was that one Mexico product from Diamond advertised 400 minutes to Mexico but only delivered 106 minutes of calling time.

This most likely will not be last case we see against phone card distributors. It just shows that all of the distributors and service providers need to clean up their act or else it could end up costing them millions.

Read the full article here: http://www.consumeraffairs.com/news04/2009/08/ftc_callingcard_scam.html

Clifton Telecard Settles Suit With FTC

It was announced today that Clifton Telecard Alliance One, LLC has agreed to a settlement with the FTC in the amount of $1.3 million dollars. The lawsuit was brought against Clifton Telecard back in March 2008 and alleged that CTA had been falsely advertising the amount of minutes available on the prepaid phone cards.

The settlement is to be paid within 5 days and the funds will be wired into a unique bank account for the FTC set up to use for Consumer redress. Any remaining funds will be deposited into the United States Treasury.

The settlement came as no surprise as it is hard to fight the government and win especially when it comes to prepaid phone cards which, let's face it, were engaging in a large abuse of false advertising as a whole over the last few years. However, the amount of the settlement is not much more than a slap on the wrist for a company that produces over 4 billion dollars worth of calling card sales per year.

Source for data in this article = Examiner.com

Total Call The Latest Ordered To Pay Up and Be Clean!

Total Call International a leading phone card provider located in California is the latest company ordered to pay penalties and clean up their cards.

In a civil case brought by the State of California, Total Call was ordered to pay $300,000 in penalties and mandated to be monitored for the next 4 years to ensure that they no longer charge "hidden and deceptive fees" which are against the State's false advertising and unfair competition laws. In order to remain in compliance Total Call must clearly disclose all charges on it's advertising materials and the cards themselves.

In response Total Call has already started removing some fees from it's products and has begun to revise all of it's marketing materials to get into compliance.

April's Poll Results - Will There Be More or Less Government Involvement in 2009

The results for April's poll have been tabulated and here they are:

We Asked:

Will Federal and Local Agencies Continue To Crack Down on The Phone Card Business?

You Answered:

Yes 14 (63%) No 8 (36%) Not Sure 0 (0%)

NJ Division of Consumer Affairs Settles With 7 Calling Card Companies

Today the New Jersey Department of Consumer Affairs announced that seven phone card providers have agreed to a settlement in principal with the state regarding possible misleading and deceptive advertising practices (sound familiar).

Dollar Phone, IDT, STI, Total Call, Epana, CVT and Locus have all agreed to a settlement with that state that will involve the companies cleaning up their advertising practices, agreeing to three years of close monitoring, paying a 1 time $5,000 amount to the state to help cover the costs of the investigation and an additional $5,000 a year for each of the next three years to help pay the costs of monitoring (CVT will pay the initial $5,000 but not the additional $5,000 a year since they are no longer operating an active calling card business).

I am now left wondering how many other states are going to take the phone card business down the same path? Are we going to see all 50 states go sown this same path?

To view more details about the settlement visit: http://www.consumeraffairs.com/news04/2009/03/nj_calling_cards.html

12th Company Reaches Settlement With Florida Attorney General

Business Telecommunications Services, Inc., also known as ADMA Telecom, Inc. reached a settlement deal with the Florida State Attorney Generals Office in regards to the recent actions taken by Florida to crack down on the practice by phone card companies of delivering less minutes than promised. In June of this year, 10 companies had settled with the Attorney General (including IDT, Dollar Phone, STI and others) and then a few months later an 11th company, Cinco Telecom Corp. settled.

Terms of the settlement were similar to the other companies, with ADMA Telecom agreeing to disclose all fees and charges clearly and by delivering the advertised minutes. In addition the company also agreed to auditing for 3 years and to donate $75,000 to the Hispanic Institute, the organization that assisted the Attorney Generals office with their investigation.

The State's Economic Crimes division will also continue to look into other companies and has acknowledged that there are still a few more companies under investigation.

The official release from the Florida Attorney Generals Office can be found here.

Potential Class Action Lawsuit Against Calling Card Companies

Well as if the calling card companies didn't have enough to worry about with all of the proposed government regulations and watch dog groups, it might just be getting a little worse with the announcement that the law firm of Statman, Harris & Eyrich, LLC is starting to look inot a potential class action lawsuit against some prepaid calling card companies including but not limited to alleged practices of CVT Prepaid Solutions, Inc.; Dollar Phone Services, Inc.; Dollar Phone Enterprises, Inc.; Dollar Phone Corp.; Dollar Phone Access, Inc.; Epana Networks, Inc.; Locus Telecommunications, Inc.; STi Phonecard, Inc.; Telco Group, Inc.; VOIP Enterprises, Inc.; Find & Focus Abilities, Inc.; and Total Call International, Inc.

This law firm specializes in class action lawsuits and is currently gathering data as well as customer complaints to decide how and if they should pursue this matter. So stay tuned and see if this graduates into a full fledged class action suit!

http://www.marketwatch.com/news/story/statman-harris--eyrich-llc/story.aspx?guid=%7B9FC977DA-5855-46E1-B05B-A48D77E6EF78%7D&dist=hppr

Senate Panel Hearing on Prepaid Phone Cards Concludes

On Wednesday a Senate panel hearing was conducted on the prepaid calling card business. Presentations included those by Federal Trade Commission Chairman William Kovacic, Hispanic Institute President Gus West, Senator Bill Nelson (D. Fla.), executive director of the National Consumers League Sally Greenberg, commissioner of the New York State Public Service Commission Patricia Acampora, and director of marketing for the Military Marketing, LLC, a New York-based firm that helps businesses market their products to the military Rosemary O'Brien.

While no formal decisions were made or laws enacted at this meeting, the presenters all stated their case that the prepaid calling card business has been engaged in deceptive marketing practices and that more enforcement was needed to bring these companies into line. One such proposal, is the bill S. 2998, the Prepaid Calling Card Consumer Protection Act of 2008 which would call for tougher enforcement on all prepaid calling card distributors and providers to ensure that consumers are being accurately informed of all of the charges and fees in order to make more informed purchasing decisions.

Perhaps the most compelling case was made by Hispanic Institute President Gus West, whose group conducted a long term study on prepaid calling cards back in 2007 and found that the majority of all cards in the market delivered significantly less than advertised minutes.

To find out more you can read the full transcript of the Senate hearing

Cinco Telecom Corp. Settle With Florida Attorney Generals Office

Just one month after reaching settlements with 10 major prepaid phone card companies, Attorney General Bill McCollum has reached a settlement with an 11th company, Florida based Cinco Telecom Corp. (dba Orbitel). The company agreed to revise it's advertising to be more reflective of the actual minutes delivered and also agreed to pay an undisclosed sum to the Florida Attorney Generals office to help cover the costs of this year long investigation.

The settlement is in line with what the 10 other companies agreed to and Cinco Telecom, while a little late in their settlement, was stated to have been very cooperative with the state agency in all of their investigations. The company, like the other 10, has also agreed to auditing for the next 3 years to ensure that they maintain a fair and honest advertising practice. It is not know at this point if other companies are still under investigation at this time.

Prepaid Calling Card Consumer Protection Act Hearing Delayed

With all of the recent uproar from local officials about the deceptive practices in the phone card industry, it looked like the issue was finally going to reach the federal level, with scheduled hearings to be conducted by the Senate Commerce, Science and Transportation Committee on Senator Bill Nelson's (D-FL) proposed bill S. 2998. However, it looks like that hearing has been postponed with no new date given leaving us to wonder if the calling card persecution movement is truly dying down?

It was commonly known that IDT had been the lead lobbyist for reforms in the business, utilizing heavy political contributions and insider CEO Jim Courter's connections to help push these initiatives along. However, with Jim Courter's recently being forced to step down from John McCain's fund raising committee due to the scandal behind a shady IDT and Telco Haiti deal, the movement may have lost it's conductor.

It's my personal opinion that the worst of the witch hunt against the phone card industry for the last few months may be behind us. It will never completely go away, but I think the process has run it's course, with lot's of positive changes in the industry like a higher percentage of cleaner cards, clearer advertising and most of all more legitamate overall business practices.

Florida Attorney General and Phone Card Companies Reach a Settlement

I reported back in August of last year that the Florida Attorney General's office was investigating numerous prepaid phone card providers for false and deceptive advertising. Well the issue has finally been settled, with the companies involved (IDT, UTA, Total Call, Dollar Phone, CVT Prepaid, Cristel, and Alternatel) all agreeing to stop the deceptive practices.

As part of the settlement, the phone card companies will be required to deliver the minutes advertised on their cards and fully disclose any fees in the language of which the product is advertised. They also have to make the fee disclosure more prominent on the store point of sale materials and will be subject to close monitoring for the next 3 years. Also as part of the agreement the companies will need to repay the Florida Attorney General's office the more than 1 million dollars it cost them to investigate this issue. Not sure how the payments will be divided up between the companies but it will most likely be an even split.

While their have been many investigations launched recently by government agencies, this is the first one that I know of that has been settled!

You can read the full article here

FTC Stikes Again: Ordering More Companies to Halt Deceptive Advertising

The FTC got the US District Court of Miami to issue a temporary injunction against the deceptive advertising used by Alternatel, G.FG. Enterprises (d/b/a Mystic Prepaid), Voice Prepaid, Voice Distributors, and Telecom Express. The FTC alleges that these companies advertise more minutes than they deliver and knowingly rip off the consumers.

The FTC tested a total of 83 cards from the above mentioned companies and on average delivered only 50% of the advertised minutes. Some of the cards named in this case are “Aló Mamá,” “Coffee Time,” “Rey de Florida,” “Tree Monkey,” and “Voz do Brasil.” One of the cards tested only delivered 23 minutes to Panama out of an advertised 360 minutes.

The agency is also seeking for the companies to provide restitution to those consumers who were ripped off or at least be forced to give up some of their gains received due to these practices. The matter will be brought to trial some time in the near future.

Judging by the slew of recent movement against prepaid cards by various government agencies, I think this business is high on the radar screen and we will be seeing a lot more actions country wide. Don't be surprised if your company is targeted next! The mandate is clear... clean up your business or you will be in for a tough ride!

To read the full details of the FTC ruling got to the FTC Website.

US Considering Bill Requiring Identification for Prepaid Cell Phone Purchases

There is some discussion going on at the Federal and State levels about the issue of requiring identification for the purchase of prepaid cell phones. Up until now individuals could walk into any outlet and buy a prepaid cell phone with complete anonymity, a big selling point for this type of service. However, this same anonymity also causes the phones to be popular with drug dealers, terrorists, and illegal immigrants. Many retailers have begun to restrict the number of phones that can be bought at one time to help curb illegal uses but there is no law requiring this to be done.

Senator John Carona from Texas is leading the charge in trying to require government issued ID to be shown and recorded by retailers in order to purchase prepaid mobile phones. He is also proposing to make it law that no more than 3 phones can be bought at one time. These laws, in his opinion, will help curtail criminals from using these phones.

As you can imagine prepaid cellular phone companies like Virgin Mobile USA are fighting hard against this, citing the fact that they have always worked closely with law enforcement to provide the necessary info to help fight back against these criminals. Prepaid cell phone companies state that the bulk of their users are law abiding citizens who value the level of anonymity and privacy that these phones offer. So why should we penalize the majority for what the minority do?

Another major objection to the laws comes from the cost associated with having to gather and store each and every users personal info. Retailers would have to enter in data to the providers database with every sale and providers would have to spend millions to build and maintain this database. The cost would ultimately have to be passed along to the consumer by paying higher prices for the service.

Even if this bill never sees the light in the Federal governement, many states like Michigan, New Jersey and others are considering their own bills to combat the criminal usage patterns.

Read the full article here