UNITED STATES DISTRICT COURT
The Federal Trade Commission ("FTC" or "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, and under the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. § 6101 et seq., to secure a permanent injunction, preliminary injunctive relief, rescission of contracts, restitution, disgorgement, and other equitable relief for Defendants’ violations of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the FTC’s Telemarketing Sales Rule, 16 C.F.R. Part 310. JURISDICTION AND VENUE 1. Subject matter jurisdiction is conferred upon this Court by 15 U.S.C. §§ 45(a), 53(b), 57b, 6102(c), and 6105(b), and 28 U.S.C. §§ 1331, 1337(a) and 1345. 2. Venue in this district is proper under 15 U.S.C. §§ 53(b) and 28 U.S.C. § 1391(b) and (c). THE PARTIES 3. 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 the FTC Act, which prohibits deceptive acts or practices in or affecting commerce, and trade regulation rules promulgated thereunder, including the Telemarketing Sales Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive telemarketing acts or practices. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act and the Telemarketing Sales Rule in order to secure such equitable relief as is appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b), 57b, 6102(c) and 6105(b). 4. Defendant Commonwealth Marketing Group, Inc. ("CMG") is a Pennsylvania corporation with its principal place of business at One Executive Center, Route 40 East, Hopwood, Pennsylvania 15445. CMG also does or also has done business as Cruise Marketing Group, CMG, CMG Vacations, Great Escape Vacations, and Worldview Travel. At all times material to this complaint, CMG has transacted business in the Western District of Pennsylvania. 5. Defendant Great Escape Vacations & Tours, Inc. ("GEV") is a Pennsylvania corporation with its principal place of business at One Executive Center, Route 40 East, Hopwood, Pennsylvania 15445. At all times material to this complaint, GEV has transacted business in the Western District of Pennsylvania. 6. The corporate defendants are affiliated companies controlled in whole or in part by one or more of the individual defendants named herein. They share officers, office space, and employees and cooperate and act in concert to carry out the Defendants' business practices as alleged herein. They constitute a common enterprise for purposes of this proceeding. 7. Defendant Frederick F. Zeigler, III, is an officer, director, or owner of corporate defendants CMG and GEV. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in, and has had knowledge of, the acts and practices of corporate defendants CMG and GEV and their sales agents, including the acts and practices set forth in this complaint. At all times material to this complaint, Defendant Zeigler has transacted business in this District. 8. Defendant Robert E. Kane is an officer, director, or owner of corporate defendants CMG and GEV. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in, and has had knowledge of, the acts and practices of corporate defendants CMG and GEV and their sales agents, including the acts and practices set forth in this complaint. At all times material to this complaint, Defendant Kane has transacted business in this District. COMMERCE 9. At all times material to this complaint, the Defendants’ course of business, including the acts and practices alleged herein, has been 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 1993, Defendants have engaged in the deceptive telemarketing and sale of vacations throughout the United States, in Canada, and abroad. Defendants market and sell these vacations, which include a boat ride to the Bahamas and several nights of accommodations in Florida and the Bahamas, under various names, including Cruise Marketing Group, Great Escape Vacations, CMG, CMG Vacations, and Worldview Travel. 11. Defendants operate their scheme through a network of telemarketing boilerrooms throughout the United States and in Canada. In some instances, Defendants telemarket the vacations directly to consumers. In other instances, Defendants enter into contracts with other telemarketers (hereinafter "outside telemarketers"), who sell Defendants’ vacation packages. 12. Defendants’ outside telemarketers obtain "leads," i.e. the names and telephone numbers of potential consumer targets, from "lead generators." In many instances, leads are gathered at local fairs and trade shows. Booths are decorated with banners or signs inviting people to "register" for a vacation. Consumers "register" thinking they are entering a drawing to win a vacation. 13. Defendants provide substantial assistance to their outside telemarketers by, among other things, creating, printing, and sending direct mail solicitations to consumers; providing outside telemarketers with the names and telephone numbers of consumers to solicit or paying outside telemarketers for obtaining the names of such consumers; creating or approving sales scripts for outside telemarketers to use; providing "verification" of sales made by the use of such telemarketing scripts; mailing vacation confirmation packages; processing credit card charge sales; making travel reservations; and providing customer service, thereby enabling outside telemarketers to deceptively sell the vacation packages. 14. Defendants and their outside telemarketers contact consumers in several ways:
15. Once telemarketers have a consumer on the line, they describe an exciting vacation in Florida and a "luxury cruise" to the Bahamas. Telemarketers state that the vacation is worth a significant amount, sometimes as much as $2,500, but that the consumer will pay a much smaller amount to receive it, typically $398, $498, or $598. The amount CMG charges for its vacation has varied during the course of its operation. Telemarketers urge consumers to immediately secure or "register" this vacation with a major credit card. Telemarketers represent that the payment covers the cost of the consumer’s accommodations in both Florida and the Bahamas, as well as the Bahamas "cruise." 16. Telemarketers inform consumers that they must purchase the vacation immediately. Telemarketers respond to consumers who request time to think over the offer, or receive it in writing, with canned rebuttals such as "I can only enter your assigned number into the computer one time" or "this is a limited promotion based on availability." In fact, there is no limit to the number of such vacations for sale. 17. Consumers give their credit card numbers to the telemarketers. Once the credit card number is obtained, the telemarketer tells the consumer he or she will be switched over to a "supervisor." In actuality, the call is transferred to the "verification" department at CMG’s headquarters in Hopwood, Pennsylvania, where a third person comes on to the line to confirm details of the sale. Unlike the sales portion of the call, the "verification" is tape recorded. During the verification, the verifier asks for the consumer’s credit card number again, quickly reviews the details of the vacation package and, in some but not all instances, tells the consumer for the first time that the consumer will have to pay additional charges for "port service reservation processing fees" and that the vacation package is "non-refundable." These disclosures, when given, occur only after the consumer has provided a credit card number. The consumer’s credit card is charged within minutes after the consumer hangs up. 18. In the travel certificate industry, the amount the consumer is initially charged during the sales call is known as the "front end" fee. Consumers do not receive a vacation for the money initially charged to their credit card accounts, nor does that "front end" fee pay for the consumer’s vacation. In fact, most, if not all of the "front end" fee pays Defendants and their telemarketers for their sales efforts. For their initial $398, $498, or $598 "front end" fee, consumers receive nothing more than a package containing a short video, some advertisements, and "reservation request vouchers" for the Bahamas cruise and the Florida vacation. In order to book the cruise or visit Florida, consumers must pay more money to Defendants. The required additional payment, or the "back end" fee as it is known in the travel certificate industry, is at least $198 to $316. The Defendants falsely state that the "back end" fee is for "port reservation processing fees." In fact, the "back end" fee pays for most, if not all, of the consumers’ "cruise" to the Bahamas and their vacation accommodations. 19. When they receive Defendants’ vacation package, consumers learn for the first time that the "luxury cruise" is actually a five to six hour ferry ride to the Bahamas and back; discover that they will have to pay more to take the vacation they thought they had already paid for; and realize that they did not win a thing. Many consumers call Defendants and attempt to cancel their vacations. Defendants flatly state that they have a "no refund" policy and that consumers cannot cancel their initial purchases. If consumers read the fine print on the back of the reservation vouchers that are included in their vacation packages, they discover that Defendants actually do have a return policy of a specified number of days, depending on the state in which the consumer lives. 20. Consumers who return the vacation package by following the instructions on the back of Defendants’ reservation voucher inevitably receive their packages back, often several times, until the consumer either gives up or calls a law enforcement agency, the Better Business Bureau, his or her credit card company, or a private attorney seeking assistance. Consumers who seek third party assistance generally receive a refund. Those who do not seek the assistance of a third party are generally stuck paying for Defendants’ misrepresented vacation package. 21. Those relatively few consumers who decide to pay the extra "back end" fee to take the vacation discover that the vacation is not the "fantasy cruise holiday" they were promised. If consumers wish to stay at the better-known hotels and resorts referred to in Defendants’ solicitations and brochures, they must pay yet more undisclosed "upgrade" fees; otherwise they must endure the sub-standard accommodations provided by Defendants. VIOLATIONS OF THE FTC ACT COUNT I 22. Since at least 1993, in connection with the telemarketing of vacations, Defendants, in numerous instances, have represented, expressly or by implication, that consumers who pay Defendants the amount specified in the initial solicitation or sales call will receive a vacation. 23. In truth and in fact, in numerous instances, consumers who pay Defendants the amount specified in the initial solicitation or sales call do not receive a vacation. All the consumer receives for the payment is the option to purchase a vacation. In order to receive the vacation, the consumer must pay additional amounts to Defendants and to others. 24. Therefore, Defendants’ representation as set forth in Paragraph 22 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 II 25. Since at least 1993, in connection with the telemarketing of vacations, Defendants, in numerous instances, have represented, expressly or by implication, that consumers who return, within a specified number of days, the materials sent to them by Defendants will receive a refund of monies paid to Defendants. 26. In truth and in fact, in numerous instances, consumers who return, within a specified number of days, materials sent to them by Defendants do not receive a refund of monies paid to Defendants. Defendants refuse to refund consumers’ payments and often return or resend the materials to consumers. 27. Therefore, Defendants’ representation as set forth in Paragraph 25 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 III 28. Since at least 1993, in connection with the telemarketing of vacations, Defendants, in numerous instances, have represented, expressly or by implication, that consumers would receive "luxury," "world-class," or otherwise superior vacations worth much more than consumers were paying for them. 29. In truth and in fact, in numerous instances, consumers do not receive "luxury," "world-class," or otherwise superior vacations worth much more than consumers were paying for them. 30. Therefore, Defendants’ representation as set forth in Paragraph 28 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). THE TELEMARKETING SALES RULE 31. In the Telemarketing Act, Congress directed the FTC to prescribe rules prohibiting deceptive or abusive telemarketing acts or practices. On August 16, 1995, the FTC promulgated the Telemarketing Sales Rule, 16 C.F.R. Part 310. The Rule became effective on December 31, 1995, and remains in full force and effect. 32. Defendants are "sellers" or "telemarketers" engaged in "telemarketing," as those terms are defined in the Telemarketing Sales Rule, 16 C.F.R. §§ 310.2(r), (t) and (u). 33. The Telemarketing Sales Rule requires sellers and telemarketers to disclose, promptly and in a clear and conspicuous manner, in outbound telephone calls that the purpose of the call is to sell goods or services. 16 C.F.R § 310.4(d). 34. The Telemarketing Sales Rule also requires sellers and telemarketers to disclose "[b]efore a customer pays for goods or services offered . . . in a clear and conspicuous manner . . . [t]he total costs to purchase, receive, or use, and the quantity of, any goods or services that are the subject of the sales offer . . ." 16 C.F.R. § 310.3(a)(1)(i). 35. The Telemarketing Sales Rule also requires sellers and telemarketers to disclose "[b]efore a customer pays for goods or services offered . . . in a clear and conspicuous manner . . . [i]f the seller has a policy of not making refunds, cancellations, exchanges or repurchases, a statement informing the customer that this is the seller’s policy . . ." 16 C.F.R. § 310.3(a)(1)(iii). 36. For purposes of the Telemarketing Sales Rule, the term "before a customer pays for goods or services" means before the customer "sends funds . . . or divulges . . . credit card or bank account information." 60 Fed. Reg. 43,846 (1995). A telemarketer who takes a credit card number before the required disclosures are made violates the rule. Id. 37. The Telemarketing Sales Rule also prohibits sellers and telemarketers from "[m]isrepresenting, directly or by implication, . . . [a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of the sales offer . . ." 16 C.F.R. § 310.3(a)(2)(iii). 38. The Telemarketing Sales Rule also prohibits sellers and telemarketers from making a false or misleading statement to induce any person to pay for goods or services. 16 C.F.R. § 310.3(a)(4). 39. The Telemarketing Sales Rule also prohibits any person from providing substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice in violation of the Telemarketing Sales Rule, such as the acts and practices described in Paragraphs 33-38, above. 16 C.F.R. § 310.3(b). 40. Pursuant to Section 3(c) of the Telemarketing Act, 15 U.S.C. § 6102(c), and Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), violations of the Telemarketing Sales 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). VIOLATIONS OF THE TELEMARKETING SALES RULE COUNT IV 41. In numerous instances, in the course of telemarketing vacations, Defendants have failed to disclose, in a clear and conspicuous manner before a customer pays, the total costs of the vacation in violation of Section 310.3(a)(1)(i) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(1)(i). COUNT V 42. In numerous instances, in the course of telemarketing vacations, Defendants have failed to disclose, in a clear and conspicuous manner before a customer pays, a policy of not making refunds, cancellations, exchanges, or repurchases, in violation of Section 310.3(a)(1)(iii) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(1)(iii). COUNT VI 43. In numerous instances, in the course of telemarketing vacations, Defendants’ outside telemarketers have:
44. Defendants provide substantial assistance or support to their outside telemarketers, including, but not limited to, creating and sending direct mail solicitations, paying for the names and telephone numbers of potential customers, creating or approving scripts to be used in the telemarketing of vacations, mailing vacation confirmation packages, processing credit card charge sales, making travel reservations and providing customer service when Defendants know, or consciously avoid knowing, that their outside telemarketers are engaged in acts or practices that violate Sections 310.3(a) and 310.4(d) of the Telemarketing Sales Rule as set forth in Paragraph 43, above. Defendants have thereby violated Section 310.3(b) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(b). CONSUMER INJURY 45. Consumers throughout the United States have suffered substantial monetary loss as a result of Defendants’ unlawful acts or practices described in Counts I through VI, above. Absent injunctive relief, defendants are likely to continue to injure consumers. THIS COURT'S POWER TO GRANT RELIEF 46. 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. 47. Section 19 of the FTC Act, 15 U.S.C. § 57b, and Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), authorize 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 Telemarketing Sales Rule, including the rescission and reformation of contracts and the refund of monies. 48. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by the Defendants’ law violations. PRAYER FOR RELIEF 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, Section 6(b) of the Telemarketing Act, 15 U.S.C. 6105(b), and pursuant to its own equitable powers:
Respectfully submitted, DEBRA A. VALENTINE Dated: BRENDA W. DOUBRAVA |