Under the deal, New York Attorney General Dennis C. Vacco would distribute $750,000 from the company to about 12,000 New Yorkers, or some $60 each, for subscriptions bought in what authorities consider a deceptive promotion campaign.
The Jersey City-based company will also pay New York $50,000 to cover costs of its investigation under the settlement first reported in Monday's editions of USA Today.
As part of the accord, American Family Publishers admits no wrongdoing. The company maintains that its mailings are not misleading.
Vacco said the settlement requires the company's mailings to clearly state that no purchase is necessary to enter the sweepstakes. It must also start a toll-free telephone line for cancellations and to assist consumers.
The company's promotions feature celebrity spokesmen Ed McMahon and Dick Clark and are mailed to about 200 million people annually. The latest sweepstakes offers an $11 million top prize.
In March, American Family Publishers reached a $1.25 million settlement with 32 other states and the District of Columbia. Several other states have outstanding legal actions against the company.
That money, however, went to the government. New York participated in negotiating that deal, but withdrew to pursue its own arrangement because complaints increased after the company's January mailing, Vacco said.
This is the first time the company is reimbursing subscribers.
As for subscribers in other states, company spokesman Eric Andrus said, "We don't know what will happen with the others...but this could serve as a model for the others."
New Yorkers eligible for the settlement are those who bought at least six subscriptions between November 1996 and November 1997 and an additional subscription in the two months that followed that period, Vacco said.
The company is owned by TAF Holdings Inc., a subsidiary of Time Inc., and a group of private investors.
Written by Jeffrey Gold