Sydney publishing company fined $750,000 for scamming small businesses

A Sydney-based publishing business has been fined $500,000 and the owner and a former manager penalised hundreds of thousands of dollars after they admitted making false and misleading representations about advertising services that were never requested.

The owner of Adepto Publications, Craig Mitchell, has been fined $150,000 and a former manager, Danielle McKay, $100,000 after representatives of the business were found by the Federal Court to have made unsolicited phone calls to Australian businesses about advertising in one of its publications.

The publications were: The National Emergency Relief Guide, The Underprivileged Children’s Guide and The Volunteer Organisations Guide.

Following the initial calls, even if the business did not agree to take out an advertisement, Adepto sent a copy of the advertisement as published and an invoice for it to the businesses. If the business did not pay the specified amount, representatives of Adepto made follow-up phone calls to the business demanding payment for the unwanted advertisement.

Proceedings were first launched in the Federal Court in Sydney in October 2010 following an investigation by the Australian Competition and Consumer Commission.

The publishing company admitted while it represented to its customers that 2,000 copies of the publications would be distributed to various organisations in the same area as them, this was untrue. In reality, the number was significantly lower, with at most 2,000 being distributed nationally.

Adepto also admitted its publications were not in any way affiliated with any charitable or non-profit organisations.

As well as ordering fines, the court placed injunctions by consent upon all respondents, restraining them from being involved in similar conduct again, banning them from publishing advertisements without written confirmation and from seeking payment from businesses which were previously sent an invoice in regards to an advertisement in one of its publications.

SmartCompany was unable to contact Adepto Publications or Mitchell.

ACCC chairman Rod Sims said in a statement the consumer watchdog will act vigorously to protect small businesses.

“The ACCC gives enforcement priority to conduct resulting in substantial small business detriment. In ordering these penalties, the court recognised the 312 complaints to the ACCC and the substantial number of small business proprietors who incurred loss or damage from the conduct,” Sims said.

Hall and Wilcox Lawyers partner Sally Scott told SmartCompany it’s becoming more common for businesses in this situation to consent to the orders of the court, as they realise not doing so can lead to greater penalties and legal costs.

“This has been a noticeable trend in the past year or so as companies realise the magnitude of penalties (and costs) that they could face if the case proceeds to a full contested hearing.

“We have seen at least six cases over the past 18 months where the ACCC has obtained penalty orders in excess of $1 million for misleading or deceptive conduct, the highest penalty being $3.61 million ordered against Optus,” she says.

Scott says an intention to mislead is not necessary for the court to find the business guilty, but it does impact upon the penalties issued.

“When considering the size of a penalty, courts consider factors such as intention, prior history, deterrence and whether the business had a compliance program in place (including training and policies).
“Where there is evidence of an intention to mislead or deceive, penalties are likely to be far higher,” she says.

In this case, Scott says, the court found there was an intention to mislead, as the court labelled the conduct a “scam” and “blatantly and knowingly deceitful”.

She says the higher penalties which have been ordered by the courts over the past 18 months have all been to larger companies, such as Optus.