updated 3/14/2006 5:40:47 PM ET 2006-03-14T22:40:47

The department store chain that owns Kaufmann’s has agreed to settle an investigation into claims of misleading advertising practices and “phony sales promotions,” said New York Attorney General Eliot Spitzer.

Federated Department Stores Inc., which also owns Macy’s and Filene’s, agreed to pay $725,000 in civil penalties and costs, Spitzer said Tuesday. All 33 Macy’s and Filene’s stores in New York state will comply with the settlement.

Consumers complained about a Kaufmann’s department store, Spitzer said. He said Kaufmann’s, with 14 stores statewide, contradicted its saving coupons and store-saving passes that promised discounts off every item in the store. Small print, Spitzer said, excluded a “significant” number of items.

Spitzer also said that promotions for extra-savings coupons included photos of items not eligible for the savings and that vague terms were used to describe items not eligible for sales. Misleading in-store signs were also used to promote sales, he said.

Tuesday’s announcement follows a 2005 agreement in which Kaufmann’s agreed to stop promoting “fake sales,” said Spitzer spokeswoman Christine Pritchard.

Federated spokeswoman Robin Reibel said the company cooperated fully with Spitzer. She noted Federated acquired Kaufmann’s in 2005 when it bought May Department Stores, but wouldn’t say if the sale practices were changed since then.

“Federated believes in accurate and responsible advertising that presents our pricing and merchandise promotion with integrity,” she said.

Spitzer said one example of the nearly continuous sales of some items was the high priced hot beverage maker. Its full price is $219, but it was on sale at $169 for 74 out of 94 days. Spitzer contends that’s misleading because its “regular” price is rarely charged.

Other specific problems cited by Spitzer included the use of “biggest sale of the year” or “lowest prices of the season” to create a sense of urgency when the prices continued well after the sale.

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