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16 November 04
Companies warned to be on their guard against unsolicited calls The DTI today warned companies to be on their guard against unscrupulous cold callers offering services of little value, then aggressively demanding payment of unexpected invoices.

The warning comes following the disqualification, for a total of 25 years, of three directors of a telesales business that was responsible for more than 70,000 cold calls a month.

Berger & Co, which at one point had the dubious honour of being the most complained about company in the UK, cold called business offering to send them reports giving advice and analysis on management and HR issues.

The reports were offered on a "21 day free review", but it was not always clear that an invoice would follow if the reports were not returned.

If the reports were not received back within 21 days, an invoice was issued for between 295 and 395.

At its height, Berger & Co sent out around 1,200 reports a week, knowing that many companies would be caught out and fail to return the report within the 21 days.

The size of Berger's operation was reflected in the amount of complaints received by Trading Standards: 796 between August 1999 and December 2000.

Demands for payment were often backed up by threats of litigation, usually in a county court far away from where the company in question was based. In one case, a business in Manchester had proceedings issued in Guildford County Court, while another customer based in Poole had proceedings issued in York. DTI investigations revealed that around 40 per cent of companies paid up, taking Berger & Co's annual turnover to more than 1m.

The High Court heard that Filip Peter Lademacher of Howe Street, Edinburgh was running a devious and misleading scheme, and was responsible for a raft of business malpractice (see 'notes to editors').

Mr Ladermacher was disqualified from acting as a director for 13 years; at an earlier hearding he had an order for 60,000 costs made against him.

Two other directors, Ian Armstrong and David Stirrat, accepted disqualification undertakins of six years each.

Consumer Minister Gerry Sutcliffe said: "The reports sent out by Berger & Co were virtually worthless, but the company knew that if they sent out thousands of reports and aggressively pursued payment, enough companies would pay up to make a tidy profit.

"What they didn't bank on was the ability of DTI investigators to act swiftly and shut down this deception. This is an unusually long disqualification and should serve as a warning to others."

Although the majority of businesses that cold call companies offering goods and services are operating legitimately and within the law, the DTI today warns companies to be on their guard.

Tips include:
* beware of calls made to junior members of staff, who are often
unaware that they have agreed to place an order;
* don't provide contact details unless you know you want to do
business with the company in question;
* don't agree to receive free products or services unless you are
fully aware of the terms and conditions first;
* if you receive goods or services you have not asked for, make
sure you know the terms and conditions; if not, send them back
straight away.

1. On 17 May 2004, Ian Armstrong of Heriothill Terrace, Edinburgh gave a six year disqualification undertaking to the Secretary of State which w as accepted on 28 May 2004 and came into effect on 18 June 2004. On 12 June 2004, David Stirrat of Broughton Street,  Edinburgh gave a six year disqualification undertaking to the Secretary of State which was accepted on 24 June 2004 and came into effect on 15 July 2004 The disqualification order for a period of 13 years against Filip Peter Lademacher of Howe Street, Edinburgh, was made in the High Court on 8 November 2004 and comes into effect on 29 November 2004.

2. The case against a fourth director continues.

3. Berger & Company plc was wound up by the High Court in March 2003 (see DTI press notice: P/2003/153).

4. Companies Investigation Branch (CIB) is part of the Corporate Law & Governance Directorate of the Department of Trade and Industry.

5. CIB carries out confidential enquiries under Section 447 of the Companies Act 1985 and, where necessary, takes further action in the name of the Secretary of State. This can include winding up proceedings in the public interest or disqualification proceedings against directors.

6. Section 8 of the Company Directors Disqualification Act 1986 allows the Court to make a disqualification order of up to 15 years for unfit conduct. On 2 April 2001, amendments were introduced by the Insolvency Act 2000 allowing directors, with the agreement of the Secretary of State, to avoid the need for a Court hearing by offering
an acceptable disqualification undertaking. This has the same legal effect as a disqualification order made by the Court and usually includes a schedule identifying the director's unfit conduct. The consequences of breaching a disqualification undertaking are the same as those for breaching a disqualification order.

7. Contravention of a disqualification order or a breach of a disqualification undertaking is a criminal offence and may result in a fine or imprisonment for up to two years. Information relating to persons acting in contravention of this provision should be passed on to the Department on 0845 601 3546.

The matters of unfitness recorded in the schedules to the disqualification undertakings given by Mr Armstrong and Mr Stirrat were that they:
Caused or allowed Berger to operate a disreputable business which was seriously lacking in commercial probity and contrary to the public interest in that it was dependent on a devious and misleading telesales scheme to ensure that a small proportion of its customers (approximately 10%) actually paid.

Misled or deceived the public by operating a cold-calling telesales scheme that included the following misleading and/or disreputable elements:
* The cold call was often made to a junior employee without purchasing authority.
* The initial pitch in the cold-call suggested that the report was being offered for a free review without any commitment.
* The terms of the initial pitch were designed to get agreement to the free review.
* The close of the call was calculated not to put off a sufficient number of customers either because the recipient of the call had by then switched off or because of the deliberately misleading way in which the sales operatives expressed the price of the report.
* The refusal to give a reminder call or fax because this would have alerted the customer to the need to return the report.
* The covering letter sent out with the report was itself covered up by being placed inside the report such that, together with the fact that the report might give the appearance of being junk mail, a sufficient number of recipients may not have even seen the letter.
* The pricing of the report was calculated to be high enough to ensure substantial turnover by Berger but low enough to ensure that a substantial number of customers would not be bothered to contest the invoice.
* The fact that a certain number of people would not have returned the report because they could not be bothered or they forgot to do so or they had lost the report.
* The cold-calls were not recorded so it was not possible to check exactly what was said.
* By willingly starting Court proceedings which would coerce a substantial number of customers not to instruct solicitors to defend a claim for only 345.
* By deliberately starting Court proceedings in inconvenient locations.
8. At the hearing on 8 November 2004, Registrar Derrett found that Mr Lademacher was unfit to be a director for the same reasons as set out above and in addition by reference to his further conduct in relation to Berger and his conduct in relation to Berger & Company International Ltd, HR Advisor Ltd, Field Publishing Ltd and Executive
Reports Ltd as follows:
* In breach of his duties to Berger and improperly, Mr Lademacher diverted money from Berger to an associated company of his, Executive Reports Ltd trading as Berger Publications, including at a time after the winding up petition had been presented.
* He tampered with Berger's computer records by altering the return date records so as to cause it to issue invoices to customers where none should have been.
* He deleted a number of files critical to the operation of Berger's SAGE accounting system on 20th January 2003.
* He removed certain company records of Berger, including customer letters accompanying returned reports, from its premises over the weekend of 11th January 2003.
* He caused Berger to charge certain customers' credit cards twice over.
* He caused Field Publishing Ltd to operate a similarly disreputable business to that operated through Berger including while the Berger winding up petition was pending.
* He caused Executive Reports Ltd, HR Advisor Ltd and Berger & Company International Ltd to operate a misleading business in that the subscription order forms sent out by direct mail were deliberately made to look like invoices so that a sufficient number of customers might think that they were obliged to pay.

Trading Standards Officers from The Highland Council's Trading Standards Unit received an email from a well known High Street Bank this week - or at least that's what it first appeared to be. In fact the email was a "phishing" scam probably coming from the USA. Phishing is defined as the act of sending an e-mail to a user falsely claiming to be an established legitimate enterprise in an attempt to scam the user into surrendering private information that will be used for identity theft. Normally the e-mail directs the user to visit a Web site where they are asked to update personal information, such as passwords and bank account numbers.  Phishing is a variation on 'fishing', the idea being that bait is thrown out with the hopes that while most will ignore the bait, some will be tempted into biting.

What surprised Trading Standards was that the email was designed to warn customers about internet scams and in particular 'phishing' scams! The email contained extracts from the legitimate Bank's security advice section, for example, "Be wary of emails/websites which ask you to provide your personal or account information - they may be from a fake company".

The scam email goes on to ask you to 'validate your personal online banking account by following the link below'. The link appears to be genuine. It has the correct URL reference; however the true destination of the link is hidden in the computer code making up the email. The link is to a bogus website registered in the USA. The purpose of the bogus site? To trick you into divulging your personal information so the
operators can steal your identity and run up bills or commit crimes in your name. Fortunately the bogus website has been closed but it will almost certainly have done some damage.

Nigel MacKenzie, The Highland Council's, Head of Trading Standards, said: "Although most consumers will hopefully realise that these emails are not genuine, it only takes a tiny percentage of those targeted to respond to make it a worthwhile criminal pursuit. These criminals are sending out millions of these emails at a time and it just shows you that if we can get one sent to our mailbox- then anyone can. The safest and best way to deal with these unwanted emails is to delete them as soon as they are received. "

Mr MacKenzie added: "The UK Government is planning a campaign designed to raise public awareness of computer and Internet security. It is hoped that the initiative, named Project Endurance, will bring together the wealth of IT Security information currently available on various government websites, to provide one easily accessible and user-friendly resource. The project involves various bodies, including law enforcement agencies, computing and Internet companies and government departments."

Consumers with any concerns over whether an email is a genuine can contact Highland Council's Trading Standards Unit by telephoning The Highland Council Consumer Helpline 0845 600 4222 (local rate, mobile call costs may vary) or by e-mail to consumer.advice@highland.gov.uk

For further information please contact: Bob Jones, Principal Trading
Standards Officer, Tel. 01463 228711

Information sources:
APACS, the trade association for payment processing companies, reported a 4,000% rise over the past year in phishing - a scam in which internet users are sent an email claiming to be from their bank, which leads them to a bogus website that tricks them into revealing their bank security details. The information can then be used to siphon money from their banks or steal their identity.

See Also
Hoaxes on the Internet