GEORGE J. ZWEIBEL
RUSSELL S. DEITCH
UNITED STATES DISTRICT
Plaintiff, Federal Trade Commission ("FTC"), has filed a Complaint for a permanent injunction and other relief pursuant to Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), alleging that defendants The Mentor Network, Inc. ("Mentor"), and Parviz Firouzgar ("Firouzgar") have violated Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
Plaintiff and defendants, by and through their respective counsel, have agreed to entry of this Stipulated Final Judgment and Order ("Order") by this Court, without trial or adjudication of any issue of fact or law. The said parties having requested the Court to enter this Order, it is therefore ORDERED, ADJUDGED, AND DECREED as follows:
1. This Court has jurisdiction over defendants and the subject matter of this action. Venue in the Central District of California is proper.
2. The Complaint states a claim upon which relief may be granted under Sections 5(a) and 13(b) of the FTC Act, 15 U.S.C. §§ 45(a) and 53(b).
3. The Commission has the authority under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), to seek the relief it has requested.
4. The activities of defendants are in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44.
5. Defendants, while neither admitting nor denying any of the allegations of wrongdoing set forth in the Complaint, stipulate and agree to entry of this Order.
6. Plaintiff and defendants waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order, and defendants waive any right that may arise under the Equal Access to Justice Act, 28 U.S.C. § 2412.
7. Entry of this Order is in the public interest.
For purposes of this Order, the following definitions shall apply:
A. "Multi-level marketing program" means any marketing program in which participants pay money to the program promoter in return for which program participants obtain the right to (1) recruit additional participants, or to have additional participants placed by the promoter or any other person into the program participant's downline, tree, cooperative, income center, or other similar program grouping; (2) sell goods or services; and (3) receive payment or other compensation; provided that: (1) the payments received by each program participant are derived primarily from the sale of goods or services, and not from recruiting additional participants nor having additional participants placed into the program participant's downline, tree, cooperative, income center, or other similar program grouping; and (2) the marketing program has instituted and enforces rules to ensure it is not a plan where participants earn profits primarily by recruiting additional participants rather than by the sale of goods or services to persons not eligible to recruit participants into the marketing program. For purposes of this Order, the phrase "goods or services" includes, but is not limited to, child sponsorships or audio and video tapes from a lending library, but does not include a membership or opportunity to participate in a sales or marketing program.
B. "Chain or pyramid marketing program" is a sales device whereby a person, under a condition that he or she make a payment, directly or indirectly, is granted a license or right to recruit for consideration one or more additional persons who are also granted a license or right upon condition of making a payment, directly or indirectly, and may further perpetuate the chain or pyramid of persons who are granted a license or right upon such condition. A limitation as to the number of persons who may participate, or the presence of additional conditions affecting eligibility for the above license or right to recruit or the receipt of profits therefrom, does not change the identity of the program as a chain or pyramid marketing program.
C. "Person" means a natural person, organization or other legal entity, including a corporation, partnership, proprietorship, association, cooperative, government or governmental subdivision or agency, or any other group or combination acting as an entity.
D. "Assisting" means providing the means and instrumentalities for, or otherwise facilitating, any conduct that a defendant knows or should know violates any provision of Section I or II of this Order. "Assisting" includes, but is not limited to, formulating or providing or arranging for the formulation or provision of written or electronic promotional materials that violate any provision of Section I or II of this Order.
IT IS THEREFORE ORDERED that defendants, and each of them, their successors, assigns, officers, agents, servants, employees, and all other persons or entities in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, whether acting directly or through any business, entity, corporation, subsidiary, division, or other device, in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44, are permanently restrained and enjoined from engaging, participating, or assisting in any manner or capacity whatsoever, directly or through an intermediary, in the advertising, promoting, offering for sale, or sale of any chain or pyramid marketing program, except that defendants are not enjoined from engaging, participating, or assisting in multi-level marketing programs.
IT IS FURTHER ORDERED that defendants, and each of them, their successors, assigns, officers, agents, servants, employees, and all other persons or entities in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, whether acting directly or through any business, entity, corporation, subsidiary, division, or other device, in connection with the advertising, promoting, offering for sale, or sale of any marketing or investment program, in or affecting commerce, as "commerce" is defined in the FTC Act, are permanently restrained and enjoined from making, or assisting another in making, directly or by implication, orally, electronically, or in writing, any misrepresentation about any material fact, including, but not limited to, misrepresentations about earnings that any person has actually made or can potentially make or misrepresentations regarding government approval.
IT IS FURTHER ORDERED that defendants, their successors and assigns, jointly and severally, shall pay redress to consumers in the amount of $75,000. Defendants shall transfer the sum of $75,000 from assets currently held by the receiver or otherwise into an interest-bearing escrow account designated by plaintiff, on or before five (5) days from the date of entry of this Order. The total payment of this sum shall fully satisfy all monetary claims asserted by the FTC in the Complaint filed herein against defendants, except as provided in Section IV of this Order, and shall be used to provide redress to consumers who made payments to defendants, and to pay any attendant expenses of distribution to consumers identified by the receiver pursuant to guidelines established by the FTC. The FTC shall determine which consumers are eligible for redress as well as the amounts to be paid.
A. If the Commission determines, in its sole discretion, that redress to consumers is wholly or partially impracticable, any funds not so used shall be deposited into the United States Treasury. Defendants shall be notified as to how funds are disbursed, but shall have no right to contest the manner of distribution chosen by the Commission.
B. Notwithstanding any other provision of this Order, defendants agree that if they fail to meet the payment obligations set forth in this Section, the defendants shall pay the costs and attorneys fees incurred by the FTC and its agents in any attempts to collect amounts due pursuant to this Order.
IT IS FURTHER ORDERED that, within three (3) business days after the date of entry of this Order, defendant Firouzgar shall submit to the FTC a sworn statement, in the form shown in Attachment A to this Order, that shall reaffirm and attest to the truthfulness, accuracy, and completeness of defendants' Financial Statements that were executed on November 14, 1996, and submitted to the FTC pursuant to this Court's Temporary Restraining Order. The FTC's agreement to this Order is expressly premised upon the truthfulness, accuracy, and completeness of defendants' financial condition as represented in the Financial Statement referenced above, which contain material information upon which the FTC relied in negotiating and agreeing to the terms of this Order, including the amount of monetary redress and the terms of the consumer redress payment stated in this Order, provided, however, this Section IV shall not apply to assets acquired by either defendant after the date of entry of this Order.
A. If, upon motion by the FTC, this Court finds that any defendant failed to file the sworn statement required by this Section, or filed a Financial Statement that failed to disclose any material asset, or materially misrepresented the value of any asset, or made any other material misrepresentation in or omission from the Financial Statement, the judgment herein shall be reopened for the purpose of determining an appropriate additional amount for defendants to pay as redress to consumers in accordance with Section III above.
B. For purposes of determining the amount of redress: (1) if the Financial Statements failed to disclose a material asset or materially misrepresented the value of an asset, forfeiture of the asset, or the fair market value (or difference in fair market value) thereof, calculated as of the date of entry of this Order, shall constitute an appropriate amount of redress; and (2) if the Financial Statements failed to report the transfer of any asset to another person, the fair market value of the asset shall constitute an appropriate amount of redress. If defendants cannot pay the fair market value of the asset, and such transfer was not to a bona fide purchaser for value, this Court shall impose a constructive trust for the benefit of injured consumers over the asset, and the asset shall be conveyed by the transferee to the FTC; provided, however, that in all other respects, this Order shall remain in full force and effect unless otherwise ordered by this Court; provided further that, for purposes of this Section, and any subsequent proceedings to enforce payment, including but not limited to a nondischargeability complaint filed in a bankruptcy proceeding, each defendant waives any right to contest any of the allegations of the Commission's complaint; and provided further that proceedings instituted under this Section are in addition to, and not in lieu of, any other civil or criminal remedies as may be provided by law, including any other proceedings the FTC may initiate to enforce this Order. No portion of any forfeiture shall be deemed a payment of any fine, penalty or punitive assessment.
IT IS FURTHER ORDERED that the freeze of defendants' assets ordered in Section II of the Preliminary Injunction entered in this matter on December 11, 1996, to the extent not previously released by any separate Order of this Court, shall be lifted upon: (I) entry of this Order; and (ii) defendants' payment to the FTC of the amount and in the manner set forth in Section III of this Order.
IT IS FURTHER ORDERED that defendants, and their successors and assigns, shall, for a period of five (5) years from the date of entry of this Order:
A. Maintain all records and documents necessary to demonstrate their compliance with the requirements of this Order, including but not limited to sample copies of the following:
1. Each contract, agreement, and statement of policies and/or procedures used in connection with members or participants in any marketing program.
2. Each printed advertisement and promotional item relating to a marketing program.
3. Each advertising or other promotional or commercial item posted in any Internet news group, on the World Wide Web, on any electronic bulletin board system, in any online interactive conversational space or chat room, in the classified advertising section of any online service, or in any other location accessible by modem communications. Each copy shall be accompanied by an indication of the online location where the material was posted.
4. Each advertising and promotional item made available through any "fax on demand" or fax-back service.
5. Electronic copies, in HTML format, of all advertising and promotional material made available on the World Wide Web, together with copies of all graphics files, audio scripts, and other computer files used in presenting information on the World Wide Web. The records shall include the Internet address (URL) of the site, as well as any other information needed to gain access to the site.
6. Each audio and video tape used to advertise or promote a marketing program, and the printed transcript for each such audio and video tape.
7. Each complaint or refund request received in connection with a marketing program and the response thereto.
B. Permit duly authorized representatives of the FTC:
1. Access during normal business hours, upon reasonable notice and so as not to disrupt the ordinary business of the defendant, to any office or facility owned, managed, or controlled by a defendant, or the successor or assign of a defendant, to inspect and copy any document that relates to compliance with this Order; and
2. To interview directors, officers, and employees (including consultants, independent contractors, and the like) of any business entity that is owned, managed, or controlled, in whole or in part, by any defendant, regarding any matter contained in this Order, upon reasonable notice and so as not to disrupt the ordinary business of the defendant.
Without limiting other lawful remedies available to it, the FTC shall make a written request and provide reasonable notice prior to obtaining such access or interviews, and the inspection or interview shall occur without restraint or interference from defendants.
IT IS FURTHER ORDERED that defendants, their successors and assigns, shall, within thirty (30) days from the date of entry of this Order, and for a period of five (5) years thereafter, provide a copy of this Order to each principal, officer, director, employee, agent, representative, or other person having advertising, marketing, distribution, sales, or managerial responsibilities relating to either defendant's business, and to each person in active concert or participation with them concerning the activities that are the subject of this Order, including but not limited to each person eligible to recruit other participants into any marketing program, and obtain from each of them a signed and dated statement acknowledging receipt of the Order. Defendants may, at their option, instead deliver to participants who in the future become eligible to recruit other participants a dated and signed notification letter in the form set forth in Attachment B to this Order, provided that delivery occurs within three (3) days after the person assumes such position and that defendants maintain for five (5) years from the date of entry of this Order records showing the name and address of each such participant as well as the manner and date of delivery.
IT IS FURTHER ORDERED that, for a period of five (5) years from the date of entry of this Order:
A. Defendant Mentor, and its successors and assigns, shall notify the FTC in writing at least thirty (30) days prior to any proposed change in the corporation, including but not limited to dissolution, merger, assignment, or sale that will result in the emergence of a successor corporation, the creation or dissolution of a subsidiary or franchise, the transfer of the business by assignment to another entity, or any other change in the corporation that may affect compliance obligations arising under this Order.
B. Defendant Firouzgar shall notify the FTC in writing of the discontinuance of his present business or employment or of his affiliation with any new business or employment. Said written notice shall be provided to the FTC within fourteen (14) days of each change of affiliation or employment. Each such notice shall include the defendant's then-current business address and telephone number, current home address, and a statement of the nature of the new business or employment along with a description of his interest, duties and responsibilities in such business or employment.
IT IS FURTHER ORDERED that defendants, and their successors and assigns, shall, within sixty (60) days from the date of entry of this Order, file with the FTC a preliminary report, in writing, and within one hundred eighty (180) days from the date of entry of this Order, file a supplemental report, in writing, setting forth in detail in both reports the manner and form in which they have complied with this Order.
IT IS FURTHER ORDERED that all notices and reports required of defendants by this Order shall be made in writing and sent by first class United States mail to Regional Director, Federal Trade Commission, 915 Second Avenue, Suite 2896, Seattle, Washington 98174.
IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for all purposes, including construction, modification, and enforcement of this Order.
JUDGMENT IS THEREFORE ENTERED under the terms and conditions recited above, each party to bear its own costs and attorney fees incurred in connection with this action.
SO ORDERED, this day of , 1997.
The parties hereby stipulate and agree to the terms and conditions set forth above and consent to entry of this Stipulated Final Judgment and Order.
FEDERAL TRADE COMMISSION:
Charles A. Harwood
George J. Zweibel
THE MENTOR NETWORK, INC.
Parviz Firouzgar, Individually
CHARLES A. HARWOOD
GEORGE J. ZWEIBEL
RUSSELL S. DEITCH
1. My name is Parviz Firouzgar. I am over the age of eighteen. I reside in Newport Beach, California. I have personal knowledge of the matters discussed in this declaration, and if called as a witness, I could and would competently testify as to the matters stated herein.
2. I am a defendant in FTC v. The Mentor Network, Inc., et al., Civil Number SACV 96-1104 LHM (EEx) (U.S. District Court, Central District of California).
3. The information contained in the Financial Statements of Parviz Firouzgar and The Mentor Network, Inc., executed by me on November 14, 1996, and provided to the Federal Trade Commission, were true, accurate, and complete on the date they were executed.
I declare under penalty of perjury that the foregoing statement is true and correct.
Executed on this ____ day of ______________, 1997.
The Federal Trade Commission ("FTC") has conducted an investigation to determine whether The Mentor Network, Inc. ("Mentor"), and its president and founder, Parviz Firouzgar ("Firouzgar"), may have engaged in acts or practices that violate Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, as amended, including, but not limited to, making false earnings representations. As a result of its investigation, the FTC filed a complaint in the U. S. District Court for the Central District of California (Civ. No. SACV 96-1104 LHM (EEx)), on November 5, 1996.
As a result of discussions between the FTC and Mentor and Firouzgar, the parties have agreed to a Stipulated Final Judgment and Order ("Order"), which was approved by the Court on [date]. The Order is for settlement purposes only and does not constitute an admission of violations of law by either Mentor or Firouzgar. Pursuant to the Order, Mentor and Firouzgar have agreed not to operate any chain or pyramid marketing program, or to make misrepresentations about earnings, government approval, or other matters in connection with marketing or investment programs. These prohibitions also apply to participants eligible to recruit other participants who receive actual notice of the Order.
In addition, the Order requires Mentor and Firouzgar, and their successors and assigns, for a period of five years, to provide a copy of the Order to each of their current and future officers, employees, agents, representatives, and other specified persons. The Order gives Mentor and Firouzgar the option of instead delivering this notification letter to participants who become eligible to recruit other participants into any marketing program during this five-year period.
If you have any questions or would like a copy of the Order, you can contact us at [telephone number].
Very truly yours,