The Timeshare Beat
August 8, 2001
August 15, 2000 was a payday for Epic staff in the west Orlando office and it was business as usual-- until the
FTC and 35-40
| An August 15, 2000 message received by The Timeshare Beat: "Hey TSbeat did you catch the 11o'clock news in Orlando Fl. tonight. Epic Resorts Telemarketing office in Winter Garden was closed down by the FEDS. Way to go... will these guys ever learn. Vacation Break wasn't damaging enough, then they close down Silver Lake Resorts call center and tonight (name witheld) is on the news trying to cover his face when it was the other end he should be worried about. The State of Florida takes the vacation package and cert. laws very seriously." |
"Step away from the computer!" they shouted as they rounded up around 30 thoroughly stunned staff members and herded them into the tele-sales room.
Epic reportedly had around 20-30 vendor rooms selling on their behalf at the time, contracted out to independent brokers. Those rooms were allegedly being run poorly, with consistent misrepresentation and unauthorized charges being made.
According to complaints from consumers, some of the misrepresentation went something like this: "You have won this travel package Mr. Jones, CONGRATULATIONS! I just need to get your credit card number so we can verify your age." The next morning, Mr. Jones realizes Epic has taken $398-$598 for an 11 night, land/sea vacation, with backend port charges as much as $175 per person-- none of which he authorized. He's mad. He feels like a sucker. So he calls his Attorney General/BBB and files a complaint.
Epic sales reps themselves weren't necessarily responsible for the misrepresentation, but it was Epic's toll free number that was given, and it was Epic's merchant account that captured the funds. During the raid on August 15, the FTC reportedly copied every file in every computer. They took every memo and report to a Kinko's copy center and copied box loads of documents.
Because the FTC required that Epic maintain enough staff to answer the phones and service customers, the sales center was never completely closed-- they just stopped sales. The staff was cut from around 40 to a mere 5 during this time. (It should be noted that the entire Epic staff was paid on August 15 at around 7 P.M., and continued to be paid in full throughout the entire ordeal.)
Epic quickly faxed all its brokers/telemarketing centers a memo demanding that they stop selling immediately, but the problems didn't stop there. When The FTC froze company assets Epic couldn't issue any refunds, and customers were reportedly just getting more frustrated as days went on. According to inside sources, the day the FTC busted into the Orlando area office, they found hundreds of thousands of dollars worth of refunds (some over 100 days from the cancel date) in the filing cabinets. The customers who were owed money would call every day screaming and threatening the staff, to which the standard reply was, "You should see it on your next billing statement". Eventually, Epic sent all these customers refund checks and the problems were seemingly behind them.
However, The Timeshare Beat has been told that since an estimated 70% of deals written by the brokers historically canceled, if Epic paid the brokers what was due them the week of the raid, who would cover the refunds/chargebacks when the customers canceled? Result: the brokers were not paid, and some of them are complaining about it to The Timeshare Beat to this day.
The Timeshare Beat began hearing reports of financial difficulties for Epic shortly after the FTC filed its
complaint against the company for various counts of fraudulent telemarketing activities and conducted its raid.
For months we have been receiving accounts of vendors being stiffed or slow-walked, of people showing up for work
in the morning in sales centers only to discover that the electric bill and/or phone bill hadn't been paid and
there were no lights or no phones, that money was not available to gift the tours and other such events.
As early as December 2000 we were asked, "How is Epic making all its moves with new sales centers and new projects when they cannot or will not pay their bills? Vendors, marketers, even salespeople go unpaid as a matter of routine. What is really going on?"
On February 4 of this year we were asked, "Why hasn't Epic paid their I.I. dues? Sales people are feeling those old 'integrity blues'!"
Another wondered, "So what's the REAL STORY? Why are so many of the top brass pulling stakes at EPIC? Are they sick of getting their phones cut off or electricity or just can't handle not having money to buy premiums with to gift the tours? Joseph Hutchings, Sr. VP; David DiBerardino, VP Western Region; and Frank Drozd, Director, Special Projects have officially resigned effective Feb. 5, 2001."
On February 15 we were informed that twenty different vendors who provide premiums, leads, and other marketing services to Epic Resorts LLC were planning a class action lawsuit against Epic. The allegation was that Epic did not pay their bills and that they were signing up new vendors without having paid the vendors that had already provided services and products.
In April we received word that there were 2 picketers in front of Epic Las Vegas holding signs in front of the resort that read "Epic doesn''t pay their bills" and "Buy a timeshare so Epic can afford to pay me".
Finally, on July 3, the "B" word was first spoken when we received a note asking, "If Epic resort
does file for bankruptcy, as is the news here in Minnetonka ... will we be able to get our reserves from the reserve
account, does a reserve account truly exist with this company? They were not in compliance with the escrow accounts,
and other legal issues, and we all saw this coming since last November here in Minnetonka, Mn."
Vendors and staff contacted The Beat in record numbers throughout this period. However, since vendors were afraid
that if they talked they would never get paid what was owed to them and sales staff did not really want
to get fired for talking to us-- in which case they would be unlikely to get their money, either-- The Timeshare
Beat was unable to get enough verification to go to full print with such potentially damaging information at that
time.
While all of this controversy was swirling around the company, Epic went ahead and purchased the Paradise Point
Resort in Branson, MO from struggling Quintus Resorts early in 2001, opened new sales centers, and is said to have
sent a crew down to Cabo San Lucas, Mexico to open a resort there. Neither the Branson Resort nor the Cabo San
Lucas Resort is yet represented on the company Web site, and we have almost no information on the Cabo property.
"Operation Travel Unravel"
Over the last few years the FTC has demonstrated a firm commitment to protecting consumers from travel-related fraud. Since 1997, the FTC has conducted three sweeps of the US travel industry, targeting travel-related fraud and deception. The first investigation, in 1997, resulted in 36 separate actions. The second sweep resulted in 25 separate actions and the sweep completed in August 2000 resulted in 85 separate actions.
Epic's ordeal began with the FTC's "Operation Travel Unravel" operation last year. The FTC filed three complaints in federal District Court seeking to permanently enjoin the alleged law violations and award consumer redress. The complaints were brought against Leisure Time Marketing, Inc./Discovery Rental, Inc. of Cocoa Beach, Florida; Med Resorts International, Inc. of Clearwater, Florida; and Epic Resorts, Inc. of King of Prussia, Pennsylvania. In each case, the Commission sought a temporary restraining order with asset freeze and appointment of a receiver to ensure that no additional consumers were defrauded while the permanent injunctions were being sought.
Med Resorts almost immediately entered bankruptcy, and the bar date for filing proofs of claim against this company is August 31, 2001. The case against Leisure Time/DRI and their principals Marlin Swanson, Britt Shenkman, Edward Sebastian ("the DRI defendants") and Fereidoun Khalilian was recently settled. The DRI defendants will be required to post a bond in order to engage in telemarketing of vacation travel packages and will pay $125,000 in consumer redress. As an individual defendant, Khalilian will be barred from all travel-related telemarketing, will have to post a $500,000 bond before engaging in any other types of telemarketing and will pay $185,000 in consumer redress.
The complaint against Epic included Epic Resorts, LLC; Epic Travel; Thomas Flatley; and Scott Egelkamp (collectively "Epic Resorts"). According to the Commission's complaint, Epic Resorts violated the FTC Act by misrepresenting that consumers had won or were specially selected to receive a vacation, misrepresenting the total cost of the package and failing to disclose material conditions and restrictions on the use of the vacation package. In addition, the company sent out unsolicited faxes and "cold-called" consumers based on leads obtained at public events where consumers registered to win a vacation.
Accordingly, the complaint cited violations of the Telemarketing Sales Rule, because in these solicitations Epic Resorts failed to disclose material costs and restrictions concerning the vacation packages. Finally, the company was charged with additional TSR violations for not abiding by the Rule's "Do Not Call" provision. This was the first time the Commission had alleged a violation of the "Do Not Call" provision of the Rule.
According to Ken Knight, an agreement has finally been reached with the FTC but its contents have not yet been made public. The FTC cannot comment until everything has been signed off on and released.
Epic's problems with the FTC are certainly not unique to that company, and the FTC's recent push on the timeshare front points out the larger scope of fraudulent or misrepresentative marketing and selling techniques within the industry. One of the more interesting things regarding this whole topic is how many of the people involved with those techniques continue to set up new alliances and marketing venues within the industry, as though timeshare companies either don't care about or fail to research the past history of those individuals. Too often, it is the company that hired them in the first place, which is ultimately responsible for their actions, that suffers the recriminations while the actual perpetrators move on to the next effort.
Regardless of the disposition of this particular case, it appears as though Epic either was not paying attention to what their brokers were doing or didn't care, and that subsequent to the FTC raid the company has been making poor financial and operating decisions. Purchasing new inventory and opening new call centers while you are unable to service your current accounts does not seem a fiscally responsible thing to do.
In Part 3 of this series we will provide some information about the very interesting lawsuit involving American Financial Mortgage Corp./Thomas F. Flatley and Pioneer Commercial Funding.
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