JOHN D. JACOBS (CA Bar No. 134154)
Federal Trade Commission
10877 Wilshire Blvd., Ste. 700
Los Angeles, California 90024
(310) 824-4360 voice
(310) 824-4380 fax

Attorneys for Plaintiff

IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION

FEDERAL TRADE COMMISSION,
Plaintiff,

v.

INFODIRECT, INC., a corporation,
JASON C. McCOMB, an individual, and
THOMAS R. FLETCHER, an individual,
Defendants

CV-

COMPLAINT  FOR INJUNCTION
AND OTHER EQUITABLE RELIEF

Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), for its Complaint alleges:

1. This is an action under Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, and 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' deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the FTC's Trade Regulation Rule entitled "Telemarketing Sales Rule" ("the Telemarketing Rule" or "the Rule"), 16 C.F.R. Part 310.

JURISDICTION AND VENUE

2. This Court has jurisdiction over this matter pursuant to 15 U.S.C. §§ 45(a), 53(b), 57b, 6102(c), and 6105(b); and 28 U.S.C. §§ 1331, 1337(a), and 1345.

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) and 6103(e).

PLAINTIFF

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 Telemarketing Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive telemarketing acts or practices. The Commission is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act and the Telemarketing Rule and to secure such equitable relief as may be appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b), 57b, 6102(c), and 6105(b).

DEFENDANTS

5. Defendant Infodirect, Inc. ("Infodirect") is a California corporation with its principal place of business at 802 E. Cota Street in Santa Barbara, California. At all times material to the Complaint, Infodirect has transacted business in the Central District of California.

6. Defendant Jason C. McComb is the Chief Executive Officer and a director of corporate defendant Infodirect. At all times material to this Complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in Infodirect's acts and practices, including the acts and practices set forth in this Complaint. He resides and transacts business in the Central District of California.

7. Defendant Thomas R. Fletcher was formerly an officer and director of corporate defendant Infodirect. At all times material to this Complaint until at least March 1998, acting alone or in concert with others, he has formulated, directed, controlled, or participated in Infodirect's acts and practices, including the acts and practices set forth in this Complaint. He resides and transacts business in the Central District of California.

COMMERCE

8. 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 PRACTICES

9. Since at least 1996, and continuing thereafter, defendants have engaged in a scheme to defraud thousands of consumers throughout the United States through advertisements, direct-mail solicitations, and telemarketing.

10. Defendants have advertised, offered to sell and sold information packages about auctions and distressed sales of automobiles, houses, and other property. Infodirect would initially attract consumers through extensive advertising in classified ads in various local newspapers and consumer shopper magazines, such as the Penny Saver and Thrifty Nickel, and in direct-mail advertisements. Two typical ads--one related primarily to cars, the other to homes--are set forth below:

CARS FOR $100/OBO.

Seized and sold locally by DEA, IRS, and law enforcement. Trucks, boats, motor-cycles, furniture, and more.

Call toll-free 1-800-963-8937 ext. 4295.

********

HOMES FOR PENNIES on the dollar!1000's of VA, HUD, FHA & bank repossessions. Gov't financing, low or no down, list for your area.

Call toll-free (800) 963-8937, ext. 2096.

11. Consumers who called the telephone number provided in the advertisement spoke to one of defendants' telemarketers. Using a script, defendants' telemarketers made a sales pitch to consumers.

12. Consumers calling in response to the ads relating to cars were told about auctions at which consumers could allegedly find cars and other items seized by the government being sold at prices substantially below market value. After requesting an address, telemarketers would tell these consumers, regardless of the consumer's location, that "[m]y computer's showing anywhere from 1 to 4 auctions, in and around that area per month." Consumers were also told that they would receive catalogs in the mail "about a week before each auction" that would describe when and where the next auction would be and what would be offered for sale. The defendants' telemarketers would tell consumers that "we'll send the listing right out to you." The cost for this information was $59.

13. Consumers calling in response to the ads relating to homes were told they would receive listings of homes in the consumer's area that had been "repossessed or foreclosed on by the government." The cost for this information was also $59.

14. In numerous cases, consumers were told that they could return the information package within thirty days and would receive a full refund. In other cases, consumers were led to believe that they would not be charged for the information package for thirty days and would not be charged at all if the consumer returned the product within that time. Defendants' telemarketers also asked consumers for credit card or checking account information, which they claimed was required for purposes such as "verification" or to show creditworthiness. In many instances, the telemarketers assured consumers that the credit or checking account information would not be used to charge them.

15. Defendants typically used consumers' account information to bill consumers' credit card accounts, or to submit demand drafts against the consumers' checking accounts, within one to four days of obtaining the information, notwithstanding the fact that, in numerous instances, defendants had advised the consumers that the information would not be used for these purposes.

16. The information package relating to auctions that the defendants ultimately sent to consumers consisted of a publication titled "The Insider's Auction Resource Guide." The publication describes agencies that hold auctions, such as the U.S. Customs Agency, the U.S. Marshals Service, the General Services Administration ("GSA"), and various local police departments and law enforcement agencies. The publication then provides over twenty-five pages of mailing addresses and telephone numbers, organized by state and agency, for GSA, state surplus agencies, Defense Reutilization and Marketing Offices, and the U.S. Marshals Service. The publication instructs consumers to write to the listed agencies so that the consumers can be placed on a mailing list for the agency or organization. No information on any specific auction, however, is included.

17. The information package relating to foreclosed and repossessed homes that the defendants sent to consumers consisted of a publication titled "The Insider's Housing Resource Guide." This publication contains information on mortgages and on various government agencies that foreclose on homes or otherwise repossess residential properties. The agencies discussed include, inter alia, Fannie Mae, Freddie Mac, the Department of Housing and Urban Development ("HUD"), the Veterans Administration ("VA"), the Federal Deposit and Insurance Corporation ("FDIC"), and GSA. The publication then lists contact information for the numerous state offices of these various organizations. Consumers also received a list of homes purportedly available for sale by some of these agencies. In many instances the lists did not include homes within the consumer's area or within a reasonable driving distance.

18. Consumers attempting to obtain refunds from the defendants, including those who received the product and were dissatisfied, as well as those who wanted their money back after learning that Infodirect had charged them prematurely or without authorization, discovered that obtaining a refund from the defendants was extremely difficult if not impossible. They had to make numerous toll calls to the defendants' "Customer Service" department and were frequently given various if not conflicting stories and excuses. Frequently consumers would not receive any refund until, after weeks and weeks of trying, they complained to the Better Business Bureau or a government agency, and the third party then contacted Infodirect. When the defendants did provide a refund, it typically subtracted an amount for "shipping and handling." The defendants' routinely did not issue refunds before ninety days after the consumer had received the product.

VIOLATIONS OF SECTION FIVE OF THE FTC ACT

COUNT ONE

19. In numerous instances, in the course of advertising, offering for sale or selling their information packages relating to auctions, defendants have represented, expressly or by implication, that consumers who purchase their publications on seized cars frequently are able to purchase vehicles in good condition for a fraction of their wholesale values, including for as little as $100.

20. In truth and in fact, consumers who purchase defendants' publications on seized cars rarely, if ever, are able to purchase vehicles in good condition for a fraction of their wholesale values, including as little as $100. Indeed, while agencies such as the DEA and IRS do regularly seize vehicles, including vehicles in good condition, these vehicles rarely, if ever, are sold to the general public at prices substantially below their wholesale values.

21. Therefore, the representation set forth in Paragraph 19 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

22. Defendants have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representation set forth in Paragraph 19, at the time the representation was made.

23. In truth and in fact, defendants did not possess and rely upon a reasonable basis that substantiated the representation set forth in Paragraph 19, at the time the representation was made.

24. Therefore, the representation set forth in Paragraph 22 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

25. In numerous instances, in the course of advertising, offering for sale or selling their information packages relating to foreclosed homes, defendants have represented, expressly or by implication, that consumers who purchase their publications on foreclosed homes are frequently able to purchase homes in reasonably good condition for substantially below their market values.

26. In truth and in fact, consumers who purchase defendants' publications on foreclosed homes rarely, if ever, are able to purchase homes in reasonably good condition for substantially below their market values. Indeed, entities such as HUD, Fannie Mae, and Freddie Mac that regularly foreclose on homes that are in good condition rarely, if ever, sell those homes to the general public at prices substantially below their market 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 FOUR

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 FIVE

31. In numerous instances, in the course of advertising, offering for sale or selling their information packages relating to auctions and foreclosed homes, defendants have represented, expressly or by implication, that they would not use consumers' checking account or credit card information for the purpose of debiting consumers' bank accounts or billing consumers' credit card accounts.

32. In truth and in fact, in numerous instances, defendants did use consumers' checking account or credit card information for the purpose of debiting consumers' bank accounts or billing consumers' credit card accounts without the consumers' authorization.

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 SIX

34. In numerous instances, in the course of advertising, offering for sale or selling their information packages relating to auctions and foreclosed homes, defendants have represented, expressly or by implication, that they were requesting that consumers divulge checking account or credit card information for "verification" or "insurance" purposes, or to establish that the consumer had credit or was creditworthy, or for a purpose other than to promptly bill the consumer.

35. Defendants have failed to disclose that in truth and in fact, they intended to use consumers' checking account or credit card information for the purpose of debiting consumers' checking accounts or billing consumers' credit card accounts without the consumer's authorization or in advance of when they had told consumers that their accounts would be charged. This fact would be material to consumers in their decisions to purchase defendants' products.

36. In light of the representations described in Paragraph 34, above, the failure to disclose that defendants intended to use consumers' checking account or credit card information for the purpose of debiting consumers' checking accounts or billing consumers' credit card accounts without the consumer's authorization or in advance of when they had told consumers that their accounts would be charged was, and is, a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

COUNT SEVEN

37. In numerous instances, in the course of advertising, offering for sale or selling their information packages relating to auctions and foreclosed homes, defendants have represented, expressly or by implication, that they would promptly provide refunds to consumers if the consumers returned the defendants' product within the thirty-day trial period.

38. In truth and in fact, in numerous instances defendants did not promptly provide refunds to consumers when the consumers returned the defendants' product within the thirty-day trial period. Indeed, consumers frequently were unable obtain a refund from defendants for at least ninety days after receiving the defendants' information packages or before they filed a complaint with the Better Business Bureau or a government agency.

39. Therefore, the representation set forth in Paragraph 37 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).

THE TELEMARKETING RULE

40. In the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101, et seq., Congress directed the FTC to prescribe rules prohibiting deceptive and abusive telemarketing acts or practices. On August 16, 1995, the Commission promulgated the Telemarketing Sales Rule ("Telemarketing Rule" or "the Rule"), 16 C.F.R. Part 310, with a Statement of Basis and Purpose, 60 Fed. Reg. 43842 (Aug. 23, 1995). The Rule became effective December 31, 1995.

41. Defendants are "sellers" or "telemarketers" engaged in "telemarketing," as those terms are defined in the Telemarketing Rule, 16 C.F.R. §§ 310.2(r), (t), and (u).

42. Telephone calls initiated by a customer in response to direct mail solicitations are covered by the Rule when the direct mail solicitations do not clearly, conspicuously, and truthfully disclose all material information listed in § 310.3(a)(1) of the Rule, 16 C.F.R. §310.6(f), including the total costs to purchase, receive, or use, and the quantity of, any goods or services that are the subject of the sales offer; and all material restrictions, limitations, or conditions to purchase, receive, or use the goods that are the subject of the sales offer. 16 C.F.R. § 310.3(a)(1).

43. Defendants' direct mail solicitations do not include any of the material information described in § 310.3(a)(1) of the Rule or in Paragraph 42.

44. The Rule prohibits any seller or telemarketer from misrepresenting, directly or by implication, any material aspect of the nature or terms of the seller's refund, cancellation, exchange, or repurchase policies. 16 C.F.R. § 310.3(a)(2)(iv).

45. The Rule also prohibits any seller or telemarketer from misrepresenting, directly or by implication, any material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer. 16 C.F.R. § 310.3(a)(2)(iii).

46. The Rule also prohibits any seller or telemarketer 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).

47. The Rule also prohibits obtaining or submitting for payment a check, draft, or other form of negotiable paper drawn on a person's checking, savings, share, or similar account, without that person's express verifiable authorization. 16 C.F.R. § 310.3(a)(3).

48. 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 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 EIGHT

49. In numerous instances, in connection with telemarketing offers of their information packages relating to auctions and foreclosed homes, defendants have made false or misleading statements to induce the purchase of their information packages that include but are not limited to:

a. that consumers who purchase their publications on seized cars frequently are able to purchase vehicles in good condition for a fraction of their wholesale values, including as little as $100;

 

b. that government agencies such as the DEA and IRS regularly seize vehicles, including vehicles in good condition, and that such vehicles are regularly sold to the general public at prices substantially below their wholesale values;

 

c. that consumers who purchase their publications on foreclosed homes frequently are able to purchase foreclosed and repossessed homes in reasonably good condition for substantially below their market values; and

 

d. that entities such as HUD, Fannie Mae, and Freddie Mac regularly foreclose on or otherwise acquire homes that are in good condition, and regularly sell those homes to the general public at prices substantially below their market values,

thereby violating Section 310.3(a)(4) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(4).

COUNT NINE

50. In numerous instances, in connection with telemarketing offers of their information packages relating to foreclosed homes, defendants have misrepresented, directly or by implication, that consumers who purchase their publications on foreclosed homes would receive listings of homes located within a reasonable distance of where the consumers work or live, thereby violating Section 310.3(a)(2)(iii) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(2)(iii).

COUNT TEN

In numerous instances, in connection with telemarketing offers of their information packages relating to auctions and foreclosed homes, defendants have obtained or submitted for payment a check, draft or other form of negotiable paper drawn on a consumer's checking or savings account without that person's express verifiable authorization, thereby violating Section 310.3(a)(3) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(3).

COUNT ELEVEN

51. In numerous instances, in connection with telemarketing offers of their information packages relating to auctions and foreclosed homes, defendants have misrepresented, directly or by implication, that they would promptly provide refunds to consumers if the consumers returned the defendants' product within the thirty-day trial period, thereby violating Section 310.3(a)(2)(iv) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(2)(iv).

CONSUMER INJURY

52. 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

53. 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.

54. 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 defendants' violations of the Telemarketing Rule, including the rescission and reformation of contracts, and the refund of money.

55. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by 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, Sections 4(a) and 6(b) of the Telemarketing Act, 15 U.S.C. §§ 6103(a) and 6105(b), and pursuant to its own equitable powers:

1. Award plaintiff such preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of consumer injury during the pendency of this action and to preserve the possibility of effective final relief;

 

2. Permanently enjoin defendants from violating the FTC Act and the Telemarketing Rule;

 

3. Award such relief as the Court finds necessary to redress injury to consumers resulting from defendants' violations of the FTC Act and the Telemarketing Rule, including but not limited to rescission of contracts, the refund of monies paid, and the disgorgement of ill-gotten monies; and

 

4. Award plaintiff the costs of bringing this action, as well as such other and additional relief, as the Court may determine to be just and proper.

Respectfully submitted,

DEBRA A. VALENTINE
General Counsel

_____________________________
JOHN D. JACOBS
Federal Trade Commission
10877 Wilshire Blvd., Ste. 700
Los Angeles, California 90024
(310) 824-4343

Attorneys for Plaintiff

DATED: ______________, 19___