| DEBRA A. VALENTINE General Counsel LINDA M. STOCK (State Bar No. 143774) FEDERAL TRADE COMMISSION UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. INETINTL.COM, INC., a California corporation, a.k.a. Inet International; CRAIG A. LAWSON, a.k.a. Bob Bryan, individually and as an owner, officer, or manager of INETINTL.COM, INC.; ERIK R. ARNESEN, individually and as an owner, officer, or manager of INETINTL.COM, INC.; and STANLEY R. GOLDBERG, a.k.a. Geoff Stevens, individually and as an owner, officer, or manager of INETINTL.COM, INC.; Defendants. Civ. No. COMPLAINT FOR INJUNCTION AND OTHER EQUITABLE RELIEF Plaintiff Federal Trade Commission ("FTC" or "Commission") for its Complaint alleges: 1. The Commission brings this action under Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, to obtain preliminary and permanent injunctive relief, rescission or reformation of contracts, restitution, disgorgement, appointment of a Receiver, and other equitable relief for defendants’ violations of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the Commission’s Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" (the "Franchise Rule" or "the Rule"), 16 C.F.R. Part 436. JURISDICTION AND VENUE 2. This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a) and 1345 and 15 U.S.C. §§ 53(b) and 57b. 3. Venue in the United States District Court for the Central District of California, Western Division, is proper under 28 U.S.C. §§ 1391(b) and (c), and 15 U.S.C. § 53(b). 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 is charged, inter alia, with enforcement of 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 also enforces the Franchise Rule, 16 C.F.R. Part 436. The Commission is authorized to initiate federal district court proceedings to enjoin violations of the FTC Act in order to secure such equitable relief as is appropriate in each case and to obtain consumer redress. 15 U.S.C. §§ 53(b) and 57b. 5. Defendant Inetintl.Com, Inc., ("Inetintl.Com"), also known as Inet International ("Inet"), is a California corporation with its principal place of business at 2716 Ocean Park Blvd., Santa Monica, California 90405. Inetintl.Com promotes and sells purportedly lucrative Internet franchises or "business systems" promising to help consumers market, inter alia, Internet access, web sites, and computers. Inetintl.Com transacts or has transacted business in the Central District of California. 6. Defendant Craig A. Lawson, also known as Bob Bryan, is an owner, officer, or manager of Inetintl.Com. His title is National Marketing Director of Inet. At all times material to this Complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Inetintl.Com, including the acts and practices set forth in this Complaint. He transacts or has transacted business in the Central District of California. 7. Defendant Erik R. Arnesen is an owner, officer, or manager of Inetintl.Com. His title is President of Inetintl.Com. He is also the individual registered as doing business as Inet International. At all times material to this Complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Inetintl.Com, including the acts and practices set forth in this Complaint. He transacts or has transacted business in the Central District of California. 8. Defendant Stanley R. Goldberg, also known as Geoff Stevens, is an owner, officer, or manager of Inetintl.Com. His title is Division Marketing Director of Inet. At all times material to this Complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Inetintl.Com, including the acts and practices set forth in this Complaint. He transacts or has transacted business in the Central District of California. COMMERCE 9. At all times relevant to this Complaint, the defendants have maintained a substantial course of trade in the offering for sale and sale of Internet marketing business ventures, in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S. C. § 44. DEFENDANTS’ BUSINESS PRACTICES 10. Since at least March 1997, the defendants have engaged in a deceptive scheme to offer and sell purportedly profitable business ventures to members of the public. In order to induce purchasers to make a typical initial investment of $3,000 to $10,000, the defendants have misrepresented the earnings potential of the business ventures and have failed to provide prospective purchasers with the information required by the Franchise Rule to enable them to evaluate these claims. 11. Defendants purport to offer franchisees the products, services, and marketing support to enable the franchisees to market Internet access, as Internet service providers, through "affiliates." By placing advertising in magazines and newspapers, franchisees solicit affiliates to purchase an Inet "Internet Business Marketing System" that will purportedly allow the affiliates to sell Internet access (as well as web site development, TV Internet boxes, computers, and on-line dating services) to the public. According to defendants, affiliates will pay franchisees up to $199 for the "Internet Business Marketing System." Affiliates are to sell the public unlimited Internet access for $15.95 per month, using CD ROM software supplied by Inet and marked with the Inet trade name. According to defendants, affiliates earn $2 per month per Internet access user, and franchisees earn an additional $4 per month per user. Franchisees also are promised residuals when their affiliates sell web site development services, TV Internet boxes, computers, or on-line dating services. 12. Defendants claim that sales of the "Internet Business Marketing Systems" to affiliates and residuals from their affiliates’ sales will allow franchisees realistically to earn $100,000 in the first year of business and $300,000 in the second year. Defendants further claim that obtaining up to 100,000 Internet access subscribers and thereby earning up to $400,000 per month in residual income is "easily achievable and realistic." 13. Defendants frequently encourage prospective investors to call purportedly satisfied franchisees as references. At least one of these references has claimed to have made $10,000 the first month and over $50,000 from March through November 1997 as a purchaser of an Inet business opportunity. 14. Defendants offer programs with startup franchise fees of $3,000, $5,000, or $10,000, in addition to monthly maintenance fees of up to $250 per month. For the $5,000 fee, franchisees receive 200 "Internet Business Marketing Systems," which they are required to sell to affiliates for up to $199 each. Franchisees pay for and place advertisements in newspapers and magazines soliciting affiliates. Franchisees are also asked to pay additional fees and to purchase air time for a purportedly soon-to-be-aired infomercial to entice affiliates to purchase the "Internet Business Marketing System." Defendants claim that franchisees will sell these 200 marketing systems within 90 days, for a gross profit of almost $40,000. According to defendants’ plan, franchisees may personally sell the marketing systems to affiliates and retain the entire $199, or they may opt to have defendants’ "Call Center" handle telephone calls from prospective affiliates responding to the franchisee’s advertisements. In that case, the franchisee purportedly earns $100 per sale and defendants’ "Call Center" takes $99. 15. Defendants have also sold or encouraged franchisees to sell the marketing systems, without websites, to affiliates for only $29.95, with that entire amount going to defendants. According to defendants, the franchisees will thereby initially attract more affiliates, who will then purchase the $200 package, including website. Once a franchisee sells the 200 marketing systems, defendants promise to provide the franchisee with additional systems for $15 each, thereby supposedly allowing the franchisee a net profit (less advertising costs) of up to $35,000 per month in sales to affiliates. VIOLATIONS OF SECTION 5 OF THE FTC ACT COUNT ONE 16. In the course of advertising, promoting, marketing, offering for sale, or selling their business ventures, defendants Inetintl.Com, Lawson, Arnesen and Goldberg have represented, expressly or by implication, that purchasers of their business ventures can reasonably expect to achieve specific levels of earnings, such as $100,000 the first year and $300,000 the second year. 17. In truth and in fact, few if any purchasers achieve the specific levels of earnings promised by defendants, as described in Paragraph 16 above. 18. Therefore, defendants’ representations as set forth in Paragraph 16 were and 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 TWO 19. In the course of advertising, promoting, marketing, offering for sale, or selling their business ventures, defendants Inetintl.Com, Lawson, Arnesen and Goldberg have represented, expressly or by implication, that certain company-selected references have purchased the defendants’ business ventures and will provide reliable descriptions of the references’ experiences with the defendants’ business ventures. 20. In truth and in fact, one or more of the company-selected references have not purchased the defendants’ business ventures or do not provide reliable descriptions of the references’ experiences with the defendants’ business ventures. 21. Therefore, defendants’ representations as set forth in Paragraph 19 were and 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). VIOLATIONS OF THE FRANCHISE RULE 22. The business ventures sold by the defendants are franchises, as "franchise" is defined in Section 436.2(a) of the Franchise Rule, 16 C.F.R. § 436.2(a). 23. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing twenty categories of information, including information about the history of the franchisor and the names and addresses of other franchisees. 16 C.F.R. § 436.1(a)(1)- (a)(20). Disclosure of this information enables a prospective franchisee to assess any potential risks involved in the purchase of the franchise. 24. The Franchise Rule additionally requires: (1) that the franchisor give prospective franchisees a document disclosing the material basis (or the lack of such basis) for any oral, written, or visual earnings or profit representations it makes to a prospective franchisee, 16 C.F.R. § 436.2(b)-(e), and (2) that the franchisor, in immediate conjunction with any generally disseminated earnings claim, disclose the number and percentage of prior purchasers known to have earned as much or more than the amount claimed, and include a warning that the earnings claim is only an estimate. 16 C.F.R. § 436.1(e)(3)-(4). 25. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. 57a(d)(3), and 16 C.F.R. § 436.1, violations of the Franchise Rule constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT THREE 26. In numerous instances in connection with the promotion, offering for sale and sale of franchises, as "franchise" is defined in the Franchise Rule, 16 C.F.R. § 436.2(a), defendants Inetintl.Com, Lawson and Arnesen have failed to provide prospective franchisees with accurate and complete disclosure documents, thereby violating Section 436.1(a) of the Rule, 16 C.F.R. § 436.1(a), and Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT FOUR 27. In numerous instances in connection with the promotion, offering for sale and sale of franchises, as "franchise" is defined in the Franchise Rule, 16 C.F.R. § 436.2(a), defendants Inetintl.Com, Lawson and Arnesen have made earnings claims within the meaning of the Rule, 16 C.F.R. § 436.1(b)-(e), but have failed to give prospective franchisees the earnings claim document required by the Rule, thereby violating Sections 436.1(b)-(e) of the Rule, 16 C.F.R. § 436.1(b)-(e), and Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). CONSUMER INJURY 28. Consumers throughout the United States have suffered and continue to suffer substantial monetary loss as a result of defendants’ unlawful acts or practices. In addition, the defendants have been unjustly enriched as a result of their unlawful practices. Absent injunctive relief by this Court, the defendants are likely to continue to injure consumers, reap unjust enrichment, 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 grant injunctive and other ancillary relief, including consumer redress, disgorgement, and restitution, to prevent and remedy any violations of any provision of law enforced by the Commission. 30. Section 19 of the FTC Act, 15 U.S.C. § 57b, authorizes this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from the defendants’ violations of the Franchise Rule, including the rescission and reformation of contracts and the refund of money. 31. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy the injury caused by the defendants’ law violations. PRAYER FOR RELIEF 32. WHEREFORE, plaintiff requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, and pursuant to its own equitable powers:
Date: ___________________, 1998 Respectfully submitted, DEBRA A. VALENTINE GREGORY W. STAPLES ______________________________ |