A California man accused by the Federal Trade Commission of participating in a subscription fraud ring is suing an alleged scheme ringleader, Jeffrey Hoyal, for $5 million in Jackson County, claiming Hoyal embezzled money.
Dennis Simpson, the plaintiff in the lawsuit, and Hoyal are two of 10 individuals accused by the FTC of deceptive trade practices in a complex scheme to sell marked-up periodical subscriptions. Responding to complaints involving hundreds of newspapers and other periodicals around the country, the FTC accused the individuals of selling subscriptions at inflated prices using deceptive mailers.
Simpson is seeking to be removed from the FTC suit in U.S. District Court and is also suing Hoyal in Jackson County Civil Court over what Simpson claims to be millions of dollars in mismanaged funds over nine years.
Simpson is seeking up to $5 million from Hoyal, alleging he breached his fiduciary duty as trustee of companies tied to the two involving dealings in local real estate and a California housing development.
According to Simpson's lawsuit, Hoyal was trustee of the Scenic Trust, based in Jackson County, which owned Reality Kats, a company founded by Simpson then sold to the trust. Reality Kats owned 43 percent of the Novato Development Company, and Simpson owned 7 percent. Simpson said Hoyal was trustee and beneficiary of the organization that owned the other half, Crater Lake Trust, and together the entities planned to purchase and develop a subdivision in Marin County, California.
Simpson claims that when Novato was sold in November 2015, only Reality Kats, belonging to Hoyal, received a $3 million promissory note. At the time of the sale, Novato had just $2,500, according to Jackson County case filings, when the year before it had more than $1 million.
"The $1,041,253 difference between the cash available to Novato on Dec. 31, 2014, and Nov. 5, 2015, cannot be supported by any bonafide business expenditure of Novato," the complaint says in part.
In a counter-motion filed Thursday, Hoyal argued that Simpson had "no valid claim against him" because Simpson was not a trustee or beneficiary of Scenic Trust, and further stated that Simpson managed Reality Kats and had full knowledge regarding the housing development's sale.
Simpson also filed in U.S. District Court a motion seeking to be removed from the suit filed by the FTC, both individually and through his work for Reality Kats, on grounds that he was only providing "a data management service" to the co-defendants in the suit. The federal suit names more than two dozen primary companies and dozens of "shell corporations," for a total of 94 defendants.
Simpson claims he's lived in San Diego since 2007, far removed from "the Oregon operation," though he also asserted the subscription companies followed the law and that the FTC suit is baseless.
"The FTC had not informed anyone that the mail pieces were unfair and deceptive even though it had ample opportunity to do so," the suit reads.
The state of Oregon, through the Attorney General's Office, reached a settlement agreement with the group in 2015 in which the participants agreed to pay $3 million to the state and up to $500,000 in restitution to Oregon victims. Despite that agreement, the participants denied any wrongdoing. Hoyal said last year that no one other than Simpson had sold subscriptions since mid-2015.
In the federal suit filed in 2016, the FTC alleged that more than 375 newspapers have sent cease-and-desist letters to the companies involved in the suit, and claimed the Oregon companies used strategies to avoid publications' detection, such as through the creation of new "shell corporations." The FTC suit also alleged the companies and individuals worked together in "complicated interrelationships" that make it difficult to pinpoint each person's role within the numerous companies.
Hoyal has previously asserted that he worked as a mere consultant for the subscription-selling agencies. Simpson denied any involvement either individually or through his work, claiming "Reality Kats did not 'participate' in a common enterprise with any co-defendants."
— Reach reporter Nick Morgan at 541-776-4471 or email@example.com. Follow him on Twitter at @MTCrimeBeat.