This article is by Steve Eder, Richard Sandomir and Alison Leigh Cowan.
In March 2012, a group of online retailers was sued in federal court, accused of having participated in a cynical and longstanding scheme to cheat customers out of millions of dollars. One of the named defendants is 1-800-Flowers.com Inc., which says it is the world’s leading florist and gift shop.
The plaintiffs said the system worked this way: a customer, perhaps racing to buy flowers online for Mother’s Day, would enter a credit card number, click “Purchase,” and then be offered a cash-back rebate. If the customer clicked on the rebate option and failed to read the fine print, however, he or she wound up registering for a near-worthless club membership that would charge the credit card for months, sometimes years, before the expenses on the credit card statements were detected. Outfits like 1-800-Flowers.com received a cut of the operation, what regulators and others have called “bounties.”
A recent legal filing by lawyers in the case asserted that “1-800-Flowers was well aware that its customers were getting defrauded.”
Shortly after the lawsuit was filed in Connecticut last spring, the founder and chief executive of 1-800-Flowers.com officially became a minority owner of the Mets. The company executive, James F. McCann, had been selected by the team’s owners as one of a handful of investors whose infusion of cash was needed to help rescue the Mets from a financial crisis.
The team’s owners, Fred Wilpon and Saul Katz, have never told the public, or fans, the identity of the emergency investors — and new part owners. But McCann, whose company has long been an official sponsor of the Mets, and whose advertisements are prominently displayed at Citi Field, has acknowledged that he now owns a small chunk of the team.
It is unclear if Wilpon and Katz knew that McCann’s company had been accused of defrauding customers.
But a review of 1-800-Flowers.com’s legal problems makes clear that the 2012 lawsuit is hardly the first time someone has accused McCann’s business of knowingly participating in defrauding customers — with some of its victims quite possibly Mets fans, given the company’s aggressive marketing to the team’s loyal supporters.
Two years ago, a lawsuit was filed in federal court in Long Island claiming consumer fraud and racketeering violations against 1-800-Flowers.com and other companies, alleging they had worked together to “levy unauthorized charges on the unsuspecting consumers’ credit or debit card accounts” by inducing customers to pay for memberships to discount clubs without their knowledge.
That lawsuit, now in the process of being consolidated with the Connecticut case, came after the New York attorney general at the time, Andrew M. Cuomo, launched an investigation into the “discount club” industry, finding that 1-800-Flowers.com and other companies had “tricked” consumers into signing up for these memberships that charged them hidden fees.
There were also Senate investigative reports, issued in November 2009 and May 2010, that prominently cited 1-800-Flowers.com for its aggressive online sales tactics, saying the Long Island-based flower firm had been paid more than $10 million for allowing others to engage in what the report described as “post-transaction marketing.”
A spokesman for McCann and 1-800-Flowers.com would not comment for this article but said in an e-mail that the matters raised “are more than two years old, have been largely resolved and have been previously disclosed in our company’s public filings.” Last month, 1-800-Flowers.com Inc. said in a regulatory filing that it intended to defend itself vigorously in each of the outstanding lawsuits.
But in a 2010 settlement with the New York attorney general, the company paid $325,000 and promised to end practices Cuomo’s office had called “fraudulent,” at least as they related to the company’s New York customers. The company neither admitted nor disputed claims of wrongdoing as part of the settlement.
The settlement noted that 1-800-Flowers.com had since removed the solicitation and membership club enrollment link from its order confirmation page.
A spokesman for Wilpon and Katz and the Mets declined to comment on McCann’s legal entanglements.
In 2008, when Bernard L. Madoff was arrested and his multibillion-dollar Ponzi scheme collapsed, Wilpon and Katz, as longtime Madoff clients with investments of hundreds of millions of dollars, had their financial empire upended. Things got worse when, late in 2010, the court-appointed trustee representing Madoff’s victims sued Wilpon and Katz for $1 billion, saying they had enriched themselves for years while ignoring warnings that Madoff was up to no good.
Wilpon and Katz, as a consequence, went in search of cash. The men needed to repay some of their debt and deal with operating losses that rose to $70 million in 2011. The men ultimately decided to raise $200 million by selling 10 to 12 shares in the club, each representing a 4 percent ownership stake. Eventually, 12 were sold, but only a small number went to true outsiders.
One of those outsiders is Steven A. Cohen, the head of SAC Capital Advisors, a $14 billion hedge fund at the focus of an intensifying government investigation into insider trading. Cohen has not been accused of wrongdoing and may never be, but last month federal prosecutors charged a former portfolio manager with a $276 million insider trading scheme that for the first time connected Cohen to some questionable trades. Prosecutors have called the most recent case against an associate of Cohen’s the most lucrative insider trading case in history.
McCann, while technically an outside investor, is an old friend of Wilpon’s. McCann has long been part of a group that every season visits spring training at Port St. Lucie, Fla.
