DAMI Begins Bankruptcy Proceedings

A month after it was slapped with a $9-million fraud verdict in Missouri for its sweepstakes mailings, Direct American Marketers Inc. has filed a bankruptcy petition to reorganize its debts and give it time to refocus its telemarketing efforts.

The filing is expected to clear the way for the Irvine firm, which has been targeted by federal and state authorities for allegedly misleading consumers with its direct-mail advertising, to appeal the Missouri judgment without first paying a bond at least equal to the judgment.

DAMI’s chairman, Anthony Brown, on Tuesday called the judgment “extreme and unwarranted and without foundation.” But Missouri officials aren’t backing down, saying they will continue to try to collect.

The verdict pushed DAMI’s total debts to $23 million, well above its $14 million in assets, according to its petition, filed Friday in U.S. Bankruptcy Court in Santa Ana.

“The company doesn’t have the money to post the appeal bond, and it wants to appeal,” said DAMI’s bankruptcy lawyer, William N. Lobel of Lobel & Opera in Irvine.

DAMI, using various names, including Audit Control Bureau and ACG Clearinghouse, has flooded the mailboxes of millions of Americans with fliers, many of them authentic-looking checks marked “Not Valid.”

The company offered prizes to those who dialed its 900 telephone number. Those who didn’t read the small print on the back of one of the enclosures failed to realize that the calls typically cost $30 each.

Some in Missouri paid as much as $400 on calls. Consumers never won more than $1. The state sued, and DAMI went to trial last spring to defend itself.

Executives, besieged by a Federal Trade Commission investigation and attorneys general in a number of states, have shut down the sweepstakes operations as part of settlements with the FTC and the Florida attorney general.

The executives will remain in control of the company under Chapter 11 bankruptcy proceedings.

“We’re very hopeful that all unsecured creditors will receive their money,” Brown said. “But a [reorganization] plan depends on what Missouri is willing to do.”

Brown said DAMI is focusing on building its remaining business activities around its televised membership clubs, which include “It’s a Date” and the psychic and astrological programs “Circle of Vision,” “Psychic Stargate” and “Psychic Revelations,” in which participants pay for the services.

Lobel and Brown said DAMI paid $500,000 in April to settle the FTC investigation and that the money should be beyond the reach of creditors. However, the $250,000 paid to settle a deceptive-advertising and illegal-lottery lawsuit in Florida, which a judge approved Friday, could be disrupted.

The FTC would not comment.

“I’m hoping that something can be worked out,” said Will Haselden, a Florida assistant attorney general. “I hope they can pay us and still continue on with their Chapter 11.”

He said he hopes Missouri authorities will agree to waive the stiff bond in favor of a smaller one so that consumers can get back some of their money now.

“Certainly consumers across the country have been ripped off by DAMI,” said Scott Holste, a spokesman for the Missouri attorney general. “But our responsibility is to those who live in Missouri. DAMI has been trying to evade paying judgment and continues to try to use stall tactics.”