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How 'Girls Gone Wild' Founder Exposed Direct Response Scandal

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The FCC has oversight of broadcast networks, but save for children's programming, it does not oversee cable networks. There is a culture of self-policing in cable because those nets are wary of a slip-up that would attract government attention and calls for regulation. After a deluge of shady infomercials led Congress to launch a broad investigation in 1990, a group of direct-response marketers formed what is now the Electronic Retailing Association. The trade organization aims for industry self-regulation and also lobbies Congress and the FTC.

Networks that are most dependent on direct-response marketing include those with risque or violent late-night programming. In January, for example, after Taco Bell, Wrigley and General Motors discontinued advertising on MTV's controversial teen drama Skins, the holes were filled with direct-response spots for such products as acne-treatment device Zeno and Celtrixa, a topical cream that purports to banish stretch marks.

Francis himself has contributed to the image problems of the direct-response business. In 2007, he served jail time in Florida after pleading guilty to contempt of court in connection with litigation over allegations a cameraman contracted by Girls Gone Wild had filmed footage for the company of seven women who were minors at the time.

Francis believes his company was misled about payments that were intended to buy ad time with Viacom but went to dummy corporations instead. He says determining how much money was involved is "a nightmare" and that he still hasn't ascertained the amount.

"There is so just so much money going [to buy ads] — tens and tens of millions of dollars sometimes in a month," he says. "It is a lot to keep track of, both for Viacom and for us." Francis says he was joined by at least three other advertisers in complaining to Viacom about alleged improprieties. He believes the alleged scheme "has absolutely nothing to do with Viacom's business practices as a whole."

Meanwhile, a former MTV Networks insider who was involved in hiring Fays expresses shock at the alleged scheme. "Fays came with high recommendations from clients," says this person. Nonetheless, Fays was "a guy with a lot of bravado" who left this person feeling something less than instinctive trust.

(Fays also has had scrapes with the law, including a late-night March 2009 citation for public urination in Manhattan and a January 2011 citation connected to calling a police officer a "f—ing asshole.")

It is unclear whether allegations arising from Fays' conduct have been reported to authorities. Several legal sources say Viacom would not be obligated to make any such report. (The FBI and the New York County District Attorney's Office declined comment.)

But a former longtime Viacom executive says he would be surprised if the company did not seek prosecution, especially given chairman Sumner Redstone's pugnacious reputation. "It would seem weird, knowing that Redstone and [Viacom CEO Philippe] Dauman are lawyers and love legal action, that they wouldn't go after this guy," says this observer. He remembers an instance in which the company sought criminal prosecution of another employee who ran a comparatively small scam, noting, "They always pride themselves on zero tolerance."

But as the direct-response industry nervously awaits potential fallout from the Fays matter, it is clear that media conglomerates' dependence on this crucial revenue stream means the business will not abate. "It's not like the networks have much of a choice," says Stern. "It's time bought at undesirable points of the day. It is what happens in the middle of the night that keeps these companies in the black."

-- Marisa Guthrie contributed to this report.

Email: Daniel.Miller@THR.com; Kim.Masters@THR.com

Twitter: @DanielNMiller; @KimMasters