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Magazine / POLITICS

Meet the Shady Corporation That Allied With Romney While Scamming Customers

Mitt Romney points to a home-alarm business as a model for American capitalism. Just don’t tell the customers it ripped off.

Romney attends a ribbon cutting ceremony at APX in 2009.(.)

photo of Ben  Schreckinger
October 11, 2012

Correction: An earlier version of this story misspelled the name of Lucas Fernandes.

Every company hopes for the kind of ribbon-cutting that APX Alarm organized on a clear and cold December day in Provo, Utah, when it opened its new headquarters. It was only 2009, but Mitt Romney—already the GOP presidential front-runner—was treating the ceremony like a campaign event. “This,” he told the assembled crowd and local reporters about the home-alarm company, “is the kind of stimulus that makes the country great.”

 

That day, President Obama had convened a jobs summit in Washington, but Romney wanted the people of Provo to know that conclaves don’t create jobs. “A lot of politicians and economists, professors and so forth, will come together” in Washington, he complained. “I wish they were here instead seeing how jobs are actually created—not just talking about it, not just wondering how government can make things better, but instead seeing how jobs in this economy are actually created in the private sector, with real businesses.” This paean to industry eventually found its way into his stump speech.

Romney was truly in his comfort zone. Here was a successful start-up business, in a state where he has deep roots, run by Mormons he knew and trusted who had given generously to his campaign. Its C-Suite included a former adviser to the Massachusetts governor and future fundraisers. CEO Todd Pedersen and COO Alex Dunn, together with their wives, had personally contributed more than $15,000 to Romney’s 2012 presidential ambitions thus far and would give another $300,000 in the coming years, according to the Center for Responsive Politics, which compiles FEC filings.

But there was a problem. APX, which rebranded itself as Vivint in 2011, had received an “F” rating from the Utah Better Business Bureau, and the national organization had logged hundreds of complaints about the company. It had been the subject of government action in at least seven states (the total is now at least 11) for alleged sins that ranged from deceptive sales practices to operating without a license. Disgruntled people, often seniors, were pressured to buy the company’s alarm system and then forced to pay much higher costs than they had expected, according to their complaints to police, state investigators, and local reporters. Vivint has never admitted wrongdoing and did not return many calls for comment over two months.

Presidential candidates scrupulously manage their public images, so it is rare for a candidate to embrace a business with such obvious problems. After all, “when a candidate praises a donor or a donor’s business enterprise, the candidate is linking himself or herself to that entity,” says David Magleby, a professor of political science at Brigham Young University who specializes in campaign finance.

Romney apparently never knew about APX’s record, because he probably failed to vet it. (His campaign did not respond to several requests for comment on his relationship to the firm.) And what campaign wants to investigate its top donors? But Romney’s ribbon-cutting conveyed his imprimatur. In return, Vivint provided another reminder—there are several every campaign season—that the pressures of fast-paced fund­raising force pols to trust close allies with money.

TOUGH TACTICS

On a spring afternoon in 2008, Scott Harris of Little Rock, Ark., answered a knock at his front door. A clean-cut young man was selling home-security systems, and Harris invited him in. The salesman, who looked like a college student, told Harris that he worked for APX and that, like with televisions, all alarm systems would be digital within five years. A married man himself, he said, he pressed Harris repeatedly on the perils he and his wife faced: A determined thief could easily thwart their old analog alarm system by cutting the couple’s phone line.

Then the salesman began ticking off the features of APX’s system. It used a cellular network, so a thief couldn’t disable it by cutting a hard line; the company would install up to 10 sensors for free, and installation would take only 45 minutes; several area businesses, including the pizza place up the street, Damgoode Pies, were switching to it. Harris, 48, agreed to give it a try. “It sounded too good to be true,” he recalls.

It was.

The next week, while Harris—who travels frequently for his job—was away, the salesman dropped by the house twice to chat up Harris’s then-wife, Dana. She put him off, but he was back soon after Harris returned, arriving to formalize the contract and promising to install the APX system that day. But now some sensors would carry a fee (Harris doesn’t remember how much). And when the technicians arrived, they showed an unusual interest in Harris’s 6-year-old daughter, talking to her at length and asking her parents about her. The installation took three hours, preventing Harris from putting her to bed. Dana was frightened enough to take their license-plate numbers.

Mitt Romney Speaking at APX Headquarters

Days later, the salesman, whose name Harris doesn’t remember, returned for a follow-up call. Harris was away again. This time, he told Dana he was single. What should have been a perfunctory customer-service check-in dragged on for an hour, until Harris’s wife finally asked him to leave. “He was trying to hit on my wife,” Harris says.

Then Harris discovered that the APX system ran on the analog phone line, just like his old alarm had, and it cost $45 per month before fees and taxes, $5 more than he was promised. Suspicious, Harris traipsed up the street to Damgoode Pies. The pizza place had never switched to APX. Harris canceled his credit card, bought fraud protection, and filed a complaint with the Arkansas attorney general—after which, he says, APX released him from his contract.

Across town, Carrie Raynor also opened her door to an APX salesman named Richard that spring. He told her he was there on behalf of her existing provider, ADT, to attach lights to the ADT sign on her front lawn. Then Richard said that she qualified for a wireless upgrade, as long as she gave him her credit-card number to update the company’s records. When she asked him to use the card ADT had on file, he said that his company was only an ADT contractor.

She signed a contract. “They had a crew in within 15 minutes,” Raynor recalls. “I told them it wasn’t a convenient time,” but Richard explained that this was the only day they could update her alarm system. Raynor says the technicians seemed to be in a hurry, and she realized that these were not ADT contractors at all but “a totally different company.” By that point, the APX technicians had disconnected her ADT system, but Raynor refused to leave her home unprotected so she stuck with APX. “I hate that we’re paying that company to mislead other customers,” she says.

She took a photo of their license plates with her cell phone. After they left, Raynor noticed that APX had not replaced the sensors on her front windows. She called Richard, and two technicians returned to finish the job. After consulting with her husband, Stan, she too filed a complaint with the Arkansas attorney general that very night.

The attorney general, Dustin McDaniel, was hearing many stories like  these. In 2008 and 2009 alone, 30 consumers complained to his office about deceptively long contracts; promotions that didn’t exist; bogus alarm-system giveaways; salesmen who impersonated representatives of a rival firm; fake discounts for switching to APX; and damage to the home of a customer who canceled service and had equipment removed.

The complaints allege that aggressive and misleading salesmen took advantage of vulnerable customers until McDaniel filed suit in September 2010. One was accused of lying to a 78-year-old woman about the length of the contract she was signing. Others were said to have pressured a woman with dementia and an 89-year-old blind woman with Alzheimer’s. “I was confused and disoriented from my medication,” a patient with a mental illness wrote in her complaint. “I felt overpowered and not in control of the situation.”

“Consumers opened their doors to these salesmen who pressured, deceived, and misled them into purchasing a product and service under false pretenses,” McDaniel said, announcing the lawsuit. The state charged the company with violating its Deceptive Trade Practices Act; a June 2012 settlement resulted in a $125,000 payment to the attorney general without an admission of wrongdoing.

APX’s problems were deepening elsewhere, too. In January 2009, the company settled with Maryland after that state’s attorney general accused it of “unfair and deceptive trade practices.” In September, it was permanently banned from operating in Louisiana. In December, a few months before the Oregon attorney general called its business practices “unacceptable,” Romney hailed APX as a model of American capitalism. In a typical settlement, the company agreed this September to pay a fine to the state of Wisconsin and to cancel customers’ debts in the state; it also promised to change its practices. In other settlements, too, it admitted no wrongdoing.

In the past three years, the Better Business Bureau has received more than 1,400 complaints about the company. (In just two months this summer alone, police in Palm Bay, a Florida city of 100,000 people, recorded scores of complaints, according to the newspaper Florida Today.) In comparison, Stanley Convergent Security Solutions, Vivint’s next-largest competitor according SDM magazine’s 2011 rankings, has been the target of just 40 complaints during the same three-year period.

Vivint did not respond to multiple requests for comment made by National Journal.

CORPORATE PHILOSOPHY

After Todd Pedersen completed his two-year stint as a Mormon missionary, he returned to Brigham Young University to finish his bachelor’s degree with an incredible background in door-to-door sales, the core technique of Mormon evangelism. There, Pedersen hit upon the idea for APX and opened shop in 1999. The door-knocking sales force he built was, at first, composed largely of returning missionaries.

APX grew quickly. The home-security trade press hailed it as an innovator in the alarm and home-automation industries, thanks to products that allowed people to manage security, appliances, locks, and energy consumption from a smartphone. In recent years, the rechristened company began selling solar-panel arrays for homes. Today, Vivint has more than 500,000 customers and 5,000 employees, according to its website. The private-equity firm Blackstone acquired it last month for $2 billion, and Utah Business magazine described it as one of the five fastest-growing companies in the state.

But its tactics caused it problems almost from the beginning. Storefront businesses have a certain level of visibility, accountability, and stability, but door-to-door sales work differently. The practice pressures the customer in a place where he or she is captive. (One can always leave a store.) And a salesman can simply misrepresent the company he works for, because it’s difficult to track down an out-of-state firm when something goes wrong with the product. Traveling salespeople often work on a commission basis with little oversight.

National and state lawmakers have long seen door-to-door sales as easily perverted by abusive and fraudulent practices. Numerous attempts across the country to ban these sales have led to Supreme Court protections of the practice, but states and municipalities regulate it tightly. The Federal Trade Commission also requires a 72-hour period in which any purchase people make in their homes can be refunded. (Vivint has been accused by watchdog groups of evading that rule in multiple states.) “We don’t condone any aggressive-style sales, but there is no such thing as a sales process that doesn’t have some aggressiveness to it,” Pedersen told Bloomberg News last year. “[Otherwise,] you’re not going to sell anything.”

Lucas Fernandes, 22, says he worked for Vivint for four months last year in Arizona and Texas, where he learned just how abusive door-to-door sales could be. At first, Fernandes couldn’t understand how his team members sold five systems a day, making as much as $3,000 in commissions, depending on how many bells and whistles they pitched to their clients. Then they explained to him that, as he puts it, “you have a different pitch for if you’re knocking ’hood or knocking rich.”

“Knocking rich” entails selling in wealthy neighborhoods and touting the product’s high-tech features, such as surveillance cameras and a smartphone app. “Knocking ’hood,” however, was far more lucrative. Salesmen would go to poor neighborhoods with more vulnerable customers and tell them, “Everything’s free.” Company technicians told Fernandes that they routinely got summoned to install systems before clients had even signed their contracts.

Sometimes, Fernandes says, his teammates told homeowners about nonexistent crime waves. Other times they said they’d come to install an upgrade for whatever home-security system the customer already had—the same thing that happened to Raynor. Fernandes recalls them telling confused marks, “We used to be Brinks,” a rival firm. In August 2006, Brinks sued APX, accusing it of fraudulently poaching customers in several states. According to the lawsuit, APX salesmen pretended to work for Brinks and told homeowners, “In a couple of years, federal law will require everyone to have a wireless security system.” In August 2008, General Security sued the company on similar grounds. (Vivint, in turn, has sued other companies for stealing its clients.)

Not long after learning how things really worked, Fernandes says, he quit. “Once I realized that you get to the paperwork and you’re really bullshitting people,” he says, “I couldn’t look them in the face.”

ROMNEY AND VIVINT

There’s no evidence that Romney knew about any of this. But he would have been disinclined to find out, because Vivint has multiple ongoing ties to the presidential nominee. Dunn, its chief operating officer, was Romney’s deputy political director during his 2002 Massachusetts gubernatorial campaign. When Romney assumed office, Dunn became his deputy chief of staff. Then he jumped back to Romney’s campaign organization, leading the governor’s effort to increase GOP representation in the state Legislature. Dunn attended Harvard Business School with Tagg Romney, the candidate’s eldest son, and has been described as “a close family friend” by the Boston Herald. He lived near the family in Belmont, Mass., for a time, and moved to Utah in 2005. Dunn did not respond to multiple NJ requests for comment.

Pedersen and Dunn are part of a fundraising network in Utah that has been important to Romney’s success, especially in his campaign’s early stages. Utah has provided a Western complement to Romney’s Boston network, which is built primarily on business ties. His top fundraiser, Spencer Zwick, who first met Romney while working for the Salt Lake Olympics, is another BYU graduate (like Dunn, Pedersen, and Mitt Romney). He was reportedly present for Romney’s appearance at Vivint’s headquarters.

During Romney’s first presidential run in 2008, Vivint employees donated more than $10,000 to his campaign; Pedersen and Dunn also gave $21,000 to Romney’s Free and Strong America PAC, according to the Center for Responsive Politics. During this cycle, direct employee contributions to his campaign have increased to more than $80,000. In June 2011, Pedersen hosted a Romney fundraiser at his Orem, Utah, home; and nine of Vivint’s top 13 executives made the maximum contribution. Pedersen and Dunn and their wives also cochaired a private fundraiser for Romney this June in Salt Lake City, where $10,000 got attendees access to a VIP reception with the candidate.

The two couples have directly contributed more than $300,000 to Romney, allied GOP committees, and pro-Romney PACs during his current bid. According to reports filed with the Federal Election Commission, each of the four gave Romney the maximum $5,000 (half for the primaries, half for the general election). They also each contributed $65,800 through Romney Victory Inc., the affiliated fundraising corporation, to allied Republican committees. That’s on top of a combined $34,000 from Pedersen and Dunn to the pro-Romney Restore Our Future and Free & Strong America PACs.

Debbie and Alex Dunn did not respond to multiple requests for comment. Andie Pedersen directed a request for comment to her husband’s office, which directed the request to Vivint’s public-relations office, which did not respond to several inquiries.

Steve Schwarzman, the chairman of Blackstone, which bought Vivint, is another Romney friend who donated the legal maximums of $5,000 to Romney and $30,800 to the Republican National Committee. He also hosted a Romney fundraiser at his home in New York. Blackstone declined to comment about how much it knew of Vivint’s reputation before the private-equity firm bought the company.

Politicians are often linked to donors whose dubious activities they claim not to have known about. (Obama, for instance, helped score tax breaks as a state and U.S. senator for Chicago developers, some of whose projects fell into disrepair.) Vivint shows that the networks closest to a pol are the ones most likely to fall into a blind spot. Romney’s relationships with his alumni network and Utah’s Mormon business community are closer than his ties to supporters who came on board more recently, says Matthew Burbank, a professor of political science at the University of Utah. And greater intimacy leads to lower scrutiny. “Things like being an active member of your church and being a BYU grad, people tend to assume that if that’s the case, there aren’t other problems here,” he says. “And it can be a mistaken assumption.”

This article orignally appeared in print as "Bad Company."

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