| DEBRA A. VALENTINE General Counsel GARY IVENS JOHN JACOBS, Cal. Bar No. 134154 FEDERAL TRADE COMMISSION UNITED STATES DISTRICT COURT Federal Trade Commission, Plaintiff v. Century Direct Marketing, Inc., d/b/a Consumer Information Services, Inc., New Concept Communications, LLC., Christian Hunter, Antoine Bourdeaux, Thomas Adams, III, Sven Klein, and Lisa Sultan, Defendants Civ. No. Plaintiff, the Federal Trade Commission (“FTC” or “Commission”), for its complaint alleges: 1. The FTC brings this action under Section 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 53(b), to secure a permanent injunction, preliminary injunctive relief, rescission of contracts, restitution, disgorgement, appointment of a receiver, and other equitable relief for defendants’ deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). JURISDICTION AND VENUE 2. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345, and 15 U.S.C. § 53(b). 3. Venue in the United States District Court for the Central District of California is proper under 28 U.S.C. § 1391(b) and (c), and 15 U.S.C. § 53(b). PLAINTIFF 4. Plaintiff, the FTC, 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 is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act in order to secure such equitable relief as may be appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b) and 57b. DEFENDANTS 5. Defendant Century Direct Marketing, Inc. (“CDM”), is a California corporation with its principal place of business at 1421 State Street, Santa Barbara, California. Doing business as Consumer Information Service, Inc. (“CIS”), CDM offers to sell and sells information packages about the auction sale of automobiles, houses, and other property. CDM transacts business in the Central District of California. 6. Defendant New Concept Communication, LLC (“NCC”), is a Texas limited liability corporation with its principal place of business at 1421 State Street, Santa Barbara, California. NCC promotes and sells an employment opportunity based on the distribution of applications for long distance calling cards. NCC transacts business in the Central District of California. 7. Defendant Christian Hunter is an officer of CDM and NCC. 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 CDM and NCC, including the acts and practices set forth in this complaint. He transacts business in the Central District of California. 8. Defendant Antoine Bourdeaux is an officer of CDM and NCC. 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 CDM and NCC, including the acts and practices set forth in this complaint. He transacts business in the Central District of California. 9. Defendant Thomas Adams, III, is an officer of CDM and NCC. 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 CDM and NCC, including the acts and practices set forth in this complaint. He transacts business in the Central District of California. 10. Defendant Sven Klein is an officer of CDM and NCC. 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 CDM and NCC, including the acts and practices set forth in this complaint. He transacts business in the Central District of California. 11. Defendant Lisa Sultan is an officer of CDM and NCC. At all times material to this complaint, acting alone or in concert with others, she has formulated, directed, controlled or participated in the acts and practices of CDM and NCC, including the acts and practices set forth in this complaint. She transacts business in the Central District of California. COMMERCE 12. At all times material to this complaint, defendants have maintained a substantial course of trade in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS’ BUSINESS ACTIVITIES 13. Since at least 1995, the defendants have been engaged in a common enterprise nationwide to promote, offer to sell, and sell auction information packages and a job opportunity package. Defendants’ Promotion and Sale of Auction Information Packages 14. Through CIS, defendants offer to sell and sell information packages about auctions of automobiles, houses, and other property. The consumer usually learns of CIS’s offerings through CIS’s extensive advertising in local newspaper classified ads, and on radio and television. The ads tout such offers as “Hondas for $100” or “Houses for $4,000.” 15. The CIS ads invite consumers to call a 1-800 number and to use a certain extension when calling. Some extensions relate to auto advertisements, others to housing advertisements. Once the consumer is on the line, the defendants’ telemarketers use a script to attempt to sell information packages relating to either autos or houses, depending upon which ad the consumer is responding to. In the course of the fast-paced sales pitch, the CIS telemarketers ask for certain information from the consumer, such as his or her zip code. The CIS telemarketers then tell the consumer, regardless where he or she lives, that there are several auctions held in his or her local area per month. 16. In many cases, the defendants’ telemarketers persuade consumers to divulge their credit card or bank account numbers and other account information during this initial call, often by misrepresenting the company’s purpose for requesting that information. For example, the defendants often tell consumers that account information is needed to verify creditworthiness or for security purposes. Often, CIS agents tell consumers that they will not be charged, even if they give their account information. CIS telemarketers tell consumers that they will be charged for the auction information package only at the end of a free trial period if the consumer decides to keep it. Consumers later discover that defendants have charged or debited their accounts without authorization. CIS telemarketers often tell consumers that they can obtain a refund if they are not satisfied with the auction information package. 17. After getting information from the consumer, the CIS telemarketers mention that they will send the other auction information package in addition to the package the consumer called about. For example, if a consumer called regarding the automobile auction information package, the CIS telemarketer will note that the housing information package will also be sent, and vice versa. As the call wraps up, the telemarketers note that the material will arrive at the consumer’s residence in a few days. 18. In many instances, the defendants bill consumers’ bank accounts or credit card immediately. Sometimes consumers do not realize that their account information has been used by CIS to bill them for the material until they receive the package and an invoice or statement. In other cases, consumers do not realize they have been billed until they receive credit card or banking statements. In any event, when consumers become aware that CIS has billed charges to, or debited amounts from, their accounts, many of these consumers also learn that they have been billed not the $49 mentioned by CIS’s telephone sales persons, but $98.85 for the two packages, one of which was not necessarily of interest to them. 19. The defendants’ telemarketers often tell consumers that they can obtain a full refund within 90 days, or some specified period of time, if they are not satisfied. Consumers who receive the defendants’ offerings discover, however, that under defendants’ instruction, they must wait 90 days before requesting a refund and must provide proof that they used or attempted to use the auction information package and must send in this proof with the CIS material. Defendants tell consumers who try to get a refund before the 90 day period has elapsed that they will have to pay a 20% restocking fee and they will also be charged for shipping and handling. 20. Consumers who try to use the auction information package to actually attend auctions frequently find that the auctions are remote from their residences; that there are no bargain automobiles, houses, or other property at the auctions; and that proof of attendance at the auctions is not generally obtainable. Defendants’ Promotion and Sale of the Job Opportunity Package 21. In newspaper classified sections and on television, defendants advertise their NCC job opportunity offer. The ads typically state that applicants can earn $20 per hour making local deliveries. The ads invite consumers to call a certain 1-800 number to apply for the job. NCC telemarketers generally tell consumers that the cost of the job opportunity package is only $49. 22. The job opportunity package NCC offers to sell and sells consists of two components: (1) general application materials inviting the purchaser to become a sales agent for NCC, and (2) materials allowing the purchaser to personalize the offeree’s business, such as business cards. Being a sales agent for NCC entails distributing fliers which promote NCC’s long distance calling card. NCC agents’ payment is based on the long distance usage of the persons who use the calling cards. The purchasers of the NCC job opportunity package are generally billed $49 for the general component of the package and another $49 for the “personalized” component of the package. Many consumers who express interest in the general component are sent and charged for the personalized component also, which they do not necessarily want. 23. In many cases, the defendants’ telemarketers persuade consumers to divulge their credit card or bank account numbers and other account information during this initial call, often by misrepresenting the company’s purpose for requesting that information. For example, the defendants often tell consumers that account information is needed to verify creditworthiness or for security purposes. Often, NCC telemarketers tell consumers that they will not be charged even if they give their account information. Consumers later discover that defendants have charged or debited their accounts without authorization. 24. The defendants’ telemarketers often tell consumers that they can obtain a full refund within 90 days if they are not satisfied. Consumers who receive the defendants’ offerings discover, however, that under defendants’ instruction, they must wait 90 days before requesting a refund and must provide proof that they used or attempted to implement the program. Defendants tell consumers who try to get a refund before the 90 day period has elapsed that they will have to pay a 20% restocking fee, that the personalized part of their package is not refundable, and they will also be charged for shipping and handling. VIOLATIONS OF SECTION 5 OF THE FTC ACT COUNT ONE 25. In numerous instances, in the course of offering for sale or selling auction information packages, defendants have represented, expressly or by implication, that consumers who purchase their publications on seized cars frequently are able to purchase vehicles for a fraction of their wholesale values, including as little as $100. 26. In truth and in fact, consumers who purchase defendants’ publications on seized cars rarely, if ever, are able to purchase vehicles for a fraction of their wholesale values, including as little as $100. Indeed, while agencies such as the United States Marshals and the United States Customs Service do regularly seize vehicles, they rarely, if ever, sell those vehicles to the general public at prices significantly below their wholesale values. 27. Therefore, the representation set forth in paragraph 25 was, and 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 28. Defendants have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representation set forth in paragraph 25, at the time the representation was made. 29. In truth and in fact, defendants did not possess and rely upon a reasonable basis that substantiated the representation set forth in Paragraph 25, at the time the representation was made. 30. Therefore, the representation set forth in Paragraph 28 was, and 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 THREE 31. In numerous instances, in the course of offering for sale or selling auction information packages, defendants have represented, expressly or by implication, that consumers who purchase their publications on foreclosed homes frequently are able to purchase foreclosed homes at prices substantially below their market values. 32. In truth and in fact, consumers who purchase defendants’ publications on foreclosed homes rarely, if ever, are able to purchase foreclosed homes for substantially below their market values. Indeed, entities such as the Department of Housing and Urban Development, Fannie Mae, and Freddie Mac that regularly foreclose on homes rarely, if ever, sell those homes to the general public at prices substantially below their market values. 33. Therefore, the representation set forth in Paragraph 31 was, and 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 FOUR 34. Defendants have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representation set forth in Paragraph 31, at the time the representation was made. 35. In truth and in fact, defendants did not possess and rely upon a reasonable basis that substantiated the representation set forth in Paragraph 31, at the time the representation was made. 36. Therefore, the representation set forth in Paragraph 34 was, and 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 37. In numerous instances, in the course of offering for sale and selling a job opportunity package, defendants have represented, expressly or by implication, that purchasers of the job opportunity package can reasonably expect to achieve a specific level of earnings, such as $20 per hour. 38. Through the representation described in paragraph 37, above, defendants have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representation set forth in Paragraph 37, at the time the representation was made. 39. In truth and in fact, defendants did not possess and rely upon a reasonable basis that substantiated the representation set forth in Paragraph 38, at the time the representation was made. 40. Therefore, the representation set forth in paragraph 38 was, and is, false and misleading and constitutes a deceptive act or practice in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT SIX 41. In numerous instances, in the course of offering for sale or selling auction information packages or a job opportunity package, defendants have represented, expressly or by implication, that they will not use consumers’ checking account or credit card information for the purposes of debiting consumers’ bank accounts or billing consumers’ credit card accounts without consumers’ authorization. 42. In truth and in fact, in numerous instances, defendants do use consumers’ checking account or credit card information for the purposes of debiting consumers’ bank accounts or billing consumers’ credit card accounts without consumers’ authorization. 43. Therefore, the representation set forth in paragraph 41 was, and 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 SEVEN 44. In numerous instances, in the course of offering for sale or selling auction information packages or a job opportunity package, defendants have represented, expressly or by implication, that the cost of the product bought by consumers and charged to consumers’ checking or credit card account is $49. 45. Defendants have failed to disclose that, in truth and in fact, they frequently ship additional products and charge consumers’ checking or credit card accounts for amounts as much as $98.85 without first having obtained consumers’ consent for either the additional products or the additional charges. 46. In light of the representation made in paragraph 44, above, the failure to disclose that defendants make an additional charge to consumers’ checking or credit card accounts is a deceptive act or practice in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT EIGHT 47. In numerous instances, in the course of offering for sale or selling auction information packages or a job opportunity package, defendants have represented, expressly or by implication, that they will provide refunds to consumers upon request. 48. In truth and in fact, defendants have failed to disclose that they impose additional refund restrictions that discourage consumers from seeking refunds or restrict the availability of refunds, including, for example, the conditions that: consumers must wait 90 days before applying for a refund and that consumers must provide proof that they attempted to use defendants’ products or services. These additional conditions would be material to consumers in their decisions to purchase defendants’ products and to dissatisfied consumers in their decisions to seek refunds. 49. In light of the representations made in paragraph 47, above, the failure to disclose that defendants will impose additional refund conditions is a deceptive act or practice in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. CONSUMER INJURY 50. 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, defendants have been unjustly enriched as a result of their unlawful practices. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest. THIS COURT’S POWER TO GRANT RELIEF 51. 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 Federal Trade Commission. 52. 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) of the FTC Act, 15 U.S.C. § 53(b), and pursuant to its own equitable powers:
Respectfully submitted, ___________________________________ Gary Ivens Dated: November ___, 1998 |