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Judge Curbs Lottery Application Sales Pitch

November 14, 1985

WASHINGTON (AP) _ A federal court has frozen the assets of an application preparation service and blocked it from misleading investors about the chances of winning a lottery for licenses to operate cellular portable telephone systems, the Federal Trade Commission said on Wednesday.

Acting late Tuesday on an FTC complaint, the U.S. District Court for the Central District of California granted a temporary restraining order against American National Cellular Inc. and several of the Los Angeles-based firm’s officers.

The FTC asked the court to cancel the company’s contracts with potential applicants and order a refund of their fees.

Judge William B. Rea froze the company’s assets and appointed a temporary receiver, the FTC said.

The firm had advertised in newspapers, through the mail and on television that it would help investors prepare and file apllications for the Federal Communications Commission’s lottery for licenses to offer cellular service.

Sometime next year, the FCC is expected to start accepting applications to operate in the communities ranked from 121st to 150th in population.

The FTC, in documents distributed on Wednesday in Washington, said the company was telling customers ″that filing a valid application in the lottery virtually assures that each customer will acquire all or part of highly valuable and easily marketable licenses to construct″ a system.

Robert W. Maher, executive director of Cellular Telecommunications Industry Association, a trade group of cellular licensees, said in Washington that freezing the assets of American National ″could be the very safety net these people (applicants) need.″

He said his group has ″gotten tons of phone calls″ from would-be investors.

Maher’s association and the FCC alerted the FTC to the possible legal violations and warned consumers of the potential pitfalls in investing in cellular.

Calling applying for a license through the company a ″high risk investment,″ the FTC complaint said, ″it is unlikely that defendants’ customer-applicants will obtain such a license or any interest in a license.

The firm will be able to respond to the charges at a hearing on the FTC’s request for a preliminary injunction, now scheduled for later this month.

Michael Godfree, president of the company, issued a statement in Los Angeles saying, ″The central argument of the FTC appears to be a claim that ANC failed to disclose to prospective clients that our franchise applications are a ‘high risk investment.’ Even a cursory review of our literature and marketing materials refutes these allegations.″

A separate statement from the company said, ″As a part of a vigorous and ongoing effort to clarify the nature and facts involved with cellular license franchise applications, ANC earlier this week reserved space in USA Today″ to publish an ″open letter to prospective lottery applicants″ urging them to ″carefully consider a number of key questions before deciding to commit to purchasing an application.″

Because its business offices were closed for the night, USA Today was unable to confirm that the space had been reserved.

The FTC complaint said the company charges $5,000 for a single application or $150,000 for an application in each of the 30 lotteries.

Thousands of applications were received when the commission began the lottery process for the 91st to 120th largest markets. That lottery is planned for early next year.

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