| STEPHEN CALKINS General Counsel CHARLES A.
HARWOOD TRACY S. THORLEIFSON, WSBA #16623 Local Counsel: ATTORNEYS FOR PLAINTIFF
UNITED STATES DISTRICT
COURT
Plaintiff, the Federal Trade Commission ("Commission"), for its complaint alleges as follows: 1. The Commission brings this action under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), to obtain preliminary and permanent injunctive relief against the defendants to prevent them from engaging in unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and to obtain other equitable relief, including rescission, restitution and disgorgement, as is necessary to redress injury to consumers and the public interest resulting from defendants' violations of the FTC Act. JURISDICTION AND VENUE 2. Subject matter jurisdiction is conferred upon this Court by 15 U.S.C. §§ 45(a) and 53(b) and 28 U.S.C. §§ 1331, 1337(a), and 1345. 3. Venue in the United States District Court for the District of Arizona is proper under 15 U.S.C. § 53(b), as amended by the FTC Act Amendments of 1994, Pub. L. No. 103-312, 108 Stat. 1691 and 28 U.S.C. § 1391(b) and (c). THE PARTIES 4. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. 15 U.S.C. § 41 et seq. The Commission enforces Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act and to secure such equitable relief as is appropriate in each case, including redress and disgorgement. 15 U.S.C. § 53(b). 5. Stealth Publications, Inc. ("Stealth"), is an Arizona for-profit corporation with its office and principal place of business at 4820 North 8th Place, Phoenix, Arizona 85014. Stealth has also used mail drops in other states, including, for example, 5223 Wisconsin Ave., N.W., Suites 281 and 301, Washington, D.C. 20015; 205 East Dimond Boulevard, #524, Anchorage, Alaska 99515; 3140-K South Peoria Street, # 415, Aurora, Colorado 80014; and 150 East Whitestone, #148293, Cedar Park, Texas 78613. Stealth engages in telephone fundraising for several purportedly nonprofit entities, soliciting donations from consumers and small businesses nationwide. Stealth transacts business in the District of Arizona. 6. Donald L. Ritta ("Ritta") is the president of Stealth. Individually or in concert with others, at all times material to this complaint, Ritta has formulated, directed and controlled the policies, acts and practices of Stealth, including the acts and practices set forth in this complaint. He resides and transacts business in the District of Arizona. 7. Leon Saja ("Saja") is an individual doing business as Southwest Publishing ("Southwest"), an unincorporated business entity with its office and principal place of business at 505 West Dunlap, Suites 1A and 2B, Phoenix, Arizona 85021. Southwest has also used mail drops in other states, including, for example, 5223 Wisconsin Ave., N.W., Suites 281 and 301, Washington, D.C. 20015. Saja is the sole owner of Southwest. Individually or in concert with others, at all times material to this complaint, he has formulated, directed and controlled the policies, acts and practices of Southwest, including the acts and practices set forth in this complaint. Individually or in concert with others, including defendant Ritta, at all times material to this complaint, Saja has formulated, directed, controlled or participated in the acts and practices of defendant Stealth. Saja resides and transacts business in the District of Arizona. COMMERCE 8. At all times relevant to this complaint, defendants have maintained a substantial course of conduct in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS' COURSE OF CONDUCT 9. Since at least 1994, Southwest, through a nationwide network of telephone fundraising rooms, has routinely made material misrepresentations to induce consumers and small businesses to donate to various nonprofit organizations. Southwest has contracted to solicit on behalf of these nonprofit and purportedly nonprofit groups, which include, but are not limited to, the American Deputy Sheriffs' Association ("ADSA"), the International Union of Police Associations ("IUPA"), United Fire Fighters of America ("UFFA"), Fire Fighters Association of America ("FFAA"), Disabled Peace Officers of America ("DPOA"), National Reserve Peace Officers of America ("NRPOA"), the National Association of Veteran Police Officers ("NAVPO"), and the Nation's Missing Children Organization ("NMCO"). T10. ypically, Southwest agrees to pay the organization a flat fee of $1,000 or $1,500 per week in exchange for the right to solicit in the organization's name, with the amount increasing to as much as $2,500 per week in the second or third years of its contract with the organization. Any funds collected over that flat amount are retained by Southwest. Southwest may also agree to print and distribute a quarterly or yearly publication for the organization in which Southwest will print the names of individuals and small businesses who donate or sponsor an advertisement. The contracts usually call for Southwest to use only "approved" scripts and materials in soliciting the public. The contracts also authorize Southwest to open a bank account in the organization's name, for the purpose of receiving donations. 11. n the resulting fundraising campaigns, Southwest and its telephone fundraising rooms solicit individuals and small businesses to donate to these organizations. (Telephone solicitors for Southwest and its telephone fundraising rooms will be collectively referred to as "telefunders.") Southwest operates its own telephone fundraising room and also contracts with other telephone fundraising rooms, including but not limited to defendant Stealth, to solicit on behalf of its nonprofit clients. Individuals who agree over the telephone to make donations are sent invoices in the name of the organization, and directed to make their checks payable to the organization and return them in reply envelopes preprinted with the organization's name and, typically, a mail drop address. Southwest deposits these checks in the account it establishes in the organization's name. Businesses that agree to make a donation or sponsor an advertisement typically are sent, in the name of the organization, a cash-on-delivery ("COD") package via United Parcel Service for the amount of the donation or sponsorship. In many cases, businesses' payments are returned directly to Southwest. 12. While soliciting donations, Southwest's telefunders, including but not limited to telefunders employed by defendant Stealth, frequently identify themselves falsely as law enforcement officers calling on behalf of local, county or state law enforcement groups. The impression that the caller is a local officer is reinforced to some donors by the telefunders' claims that they will send donors car window decals that purportedly will assist them if they are stopped for traffic violations. The telefunders also routinely misrepresent that contributions will directly benefit the prospective donor's local law enforcement agency or fire department. 13. In addition, Southwest's telefunders, including but not limited to telefunders employed by defendant Stealth, misrepresent the purposes for which the donations will be used. In soliciting for NMCO, for example, Southwest's telefunders claim that donations will pay for placing pictures of missing children on milk cartons or billboards, when in fact, NMCO does not pay to place pictures of missing children on milk cartons or billboards. In soliciting for ADSA, Southwest's telefunders regularly misrepresent that contributions will be used to purchase bulletproof vests for officers in the potential donor's local police or sheriff's department. In other solicitations, telefunders falsely claim that contributions will help support drug education programs in the donors' local schools, or be used to pay death benefits to families of local law enforcement officers. In some instances, the telefunders have seized on the fundraising opportunities created by local tragedies. For example, when an Anchorage, Alaska police officer was killed in the line of duty, Southwest's telefunders told Alaskan donors that their contributions would benefit the family of the slain officer, when in fact they did not. Also, in many instances, the telefunders falsely tell consumers that their donations are tax deductible. 14. In numerous instances, when businesses have refused to sponsor an advertisement or otherwise donate, the telefunder nonetheless sends the business a COD package, implying that the business has authorized the charge. In some cases, unwitting businesses accept and pay the COD charges, thinking the package relates to their business or that the COD charge was approved by another employee, only to find that the package contains an unauthorized invoice. 15. Saja learns about the misrepresentations described above, as well as others, in several ways: from his nonprofit clients, who often pass on to him complaints that they receive; from law enforcement agencies that often call him to inquire about misrepresentations; from state consumer protection officials who forward complaints to him; and from donors themselves who call Southwest's 800 number. 16. Generous individuals and businesses rely on the false promises of benefits to their local communities and donate in response to Southwest's fundraising pleas, believing that their donation will support the programs described to them and that their contributions are tax deductible. In fact, the small portion of the donation that makes its way to the organization -- typically less than 10% of the total amount raised by Southwest -- goes to the coffers of national organizations who often do not undertake the programs described to the prospective donors or who are not active in the donors' locale. Nonprofit organizations that do undertake charitable endeavors in the donor's community also suffer from Southwest's deceptive tactics, as individuals and businesses with limited disposable income have fewer dollars available to support these local programs. DEFENDANTS' VIOLATIONS OF THE FTC ACT COUNT ONE 17. In numerous instances, in connection with soliciting contributions from prospective donors by telephone, defendants represent, expressly or by implication, that the caller is a member of a local law enforcement agency or fire department in the donor's state or local area. In truth and in fact, the caller is not a member of a local law enforcement agency or fire department in the donor's state or local area, but rather is a commissioned telephone solicitor. 18. The representation described in Paragraph 17 above is false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, § 15 U.S.C. § 45(a). COUNT TWO 19. In numerous instances, in connection with soliciting contributions from prospective donors by telephone, defendants represent, expressly or by implication, that donors' contributions will directly benefit law enforcement agencies or fire departments in the donors' state or local area, or will otherwise be earmarked for use in the donors' state or local area. In truth and in fact, in numerous instances, little or none of donors' contributions directly benefit law enforcement agencies or fire departments in the donors' state or local area, or are otherwise earmarked for use in the donors' state or local area. 20. The representations described in Paragraph 19 above are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, § 15 U.S.C. § 45(a). COUNT THREE 21. In numerous instances, in connection with soliciting contributions from prospective donors by telephone, defendants represent, expressly or by implication, that donors' contributions will be used to support particular charitable programs, such as:
22. In truth and in fact, in numerous instances, donors' contributions are not used to support the particular charitable programs described by defendants and will not be used to:
23. The representations described in Paragraph 21 above are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, § 15 U.S.C. § 45(a). COUNT FOUR 24. In numerous instances, in connection with soliciting contributions from prospective donors by telephone, defendants represent, expressly or by implication, that the donor's contribution is tax deductible. In truth and in fact, in numerous instances, the donor's contribution is not tax deductible. 25. The representation described in Paragraph 24 above is false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, § 15 U.S.C. § 45(a). COUNT FIVE 26. In numerous instances, in connection with soliciting contributions or advertising sponsorships from business donors, defendants represent, expressly or by implication, that a business donor has previously authorized the donation or advertising sponsorship and thus is obligated to pay an invoiced amount. In truth and in fact, in numerous instances, the customer has not previously authorized the donation or advertising sponsorship and thus is not obligated to pay any amount. 27. The representation described in Paragraph 26 above is false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, § 15 U.S.C. § 45(a). INJURY TO THE PUBLIC INTEREST 28. Consumers, businesses and nonprofit organizations throughout the United States have suffered injury as a result of defendants' violations of Section 5(a) of the FTC Act. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers and harm the public interest. THIS COURT'S POWER TO GRANT RELIEF 29. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to issue a permanent injunction against defendants' violations of the FTC Act and, in the exercise of its equitable jurisdiction, to order such ancillary relief as a preliminary injunction, rescission, restitution, and disgorgement of profits resulting from defendants' unlawful acts or practices, and other remedial measures. PRAYER FOR RELIEF WHEREFORE the Commission respectfully requests that this Court, as authorized by 15 U.S.C. § 13(b) and pursuant to its own equitable powers: (1) Award the Commission such temporary and preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of injury to consumers and businesses during the pendency of this action, and to preserve the possibility of effective final relief, including but not limited to temporary and preliminary injunctions and an order freezing assets; (2) Permanently enjoin defendants from violating Section 5(a) of the FTC Act as alleged in this complaint; (3) Award such relief as the Court finds necessary to remedy the defendants' violations of Section 5(a) of the FTC Act including, but not limited to, rescission of contracts, the refund of monies paid, and the disgorgement of ill-gotten gains; and (4) Award the Commission the costs of bringing this action, as well as such other and additional equitable relief as the Court may determine to be proper and just. DATED: , 1997 Respectfully submitted, STEPHEN CALKINS CHARLES A. HARWOOD Tracy S. Thorleifson FEDERAL TRADE COMMISSION |