UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. EDWARD E. EPSTEIN, ELECTRONIC FILING ACADEMY, INC., and ELECTRONIC FILING ASSOCIATES, LTD., Defendants. CV- Plaintiff, Federal Trade Commission ("FTC" or "Commission"), having filed its complaint for permanent injunction and other equitable relief in this matter pursuant to Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), and having moved ex parte for a temporary restraining order and for an order to show cause why a preliminary injunction should not be granted pursuant to Rule 65(b) of the Federal Rules of Civil Procedure, and the Court having considered the pleadings, declarations, exhibits and memorandum of law filed in support thereof, it is the finding of this Court that: 1. This Court has jurisdiction of the subject matter of this case, and there is good cause to believe that it will have jurisdiction of all parties hereto; 2. There is good cause to believe that the defendants Edward E. Epstein, Electronic Filing Academy, Inc., and Electronic Filing Associates, Ltd. ("defendants") have engaged and are likely to engage in acts and practices that violate Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and that the FTC is therefore likely to prevail on the merits of this action; 3. There is good cause to believe that immediate and irreparable damage to the Court's ability to grant effective final relief for consumers in the form of monetary restitution will occur from the sale, transfer, or other disposition or concealment by defendants of their assets or corporate records unless defendants are immediately restrained and enjoined by this Order on an ex parte basis. There is thus good cause for relieving the FTC of the duty to provide defendants with prior notice of the FTC's motion. 4. Weighing the equities and considering plaintiff's likelihood of ultimate success, a temporary restraining order with asset freeze and other equitable relief is in the public interest; and 5. No security is required of any agency of the United States for issuance of a restraining order. Fed.R.Civ.P. 65(c). ORDER For purposes of this Order the following definitions shall apply: 1. "Business venture" means any written or oral business arrangement, however denominated, whether or not covered by the Franchise Rule, which consists of the payment of any consideration for: (a) the right or means to offer, sell, or distribute goods or services (whether or not identified by a trademark, service mark, trade name, advertising, or other commercial symbol); and (b) more than nominal assistance to any person or entity in connection with or incident to the establishment, maintenance, or operation of a new business or the entry by an existing business into a new line or type of business. 2. "Financial institution" shall mean any bank, savings and loan institution, credit union, financial institution, brokerage house, escrow agent, money market or mutual fund, telephone or other common carrier, storage company, trustee or any other person, partnership, corporation, or other legal entity maintaining or having control of any records, accounts or other assets, owned directly or indirectly, of record or beneficially, by any defendants, including accounts or other assets which any of the defendants may control by virtue of being signatories on said accounts. 3. "Asset" shall mean any legal or equitable interest in, right to, or claim to, any real and personal property, including but not limited to chattels, goods, instruments, equipment, fixtures, general intangibles, effects, leaseholds, mail or other deliveries, inventory, checks, notes, accounts, credits, receivables, and all cash, wherever located. 4. "Document" shall mean any written, typed, printed, transcribed, taped, recorded, filmed, punched, computer-stored, or graphic matter of every type and description. I. IT IS THEREFORE ORDERED that defendants, in connection with the offering for sale or sale of any business venture, are hereby restrained and enjoined from making, or assisting in the making of, expressly or by implication, orally or in writing, any statement or representation of material fact that is false or misleading, including but not limited to, any false representation about: (1) the income, profits, or sales volume likely to be achieved; (2) the income, profits, or sales volume achieved by other business venture purchasers; (3) the nature and extent of the market demand for any product or service to be sold by any business venture purchasers; (4) the value of any product or service to be sold by any business venture purchasers; (5) the authenticity of any reference purporting to be a business venture purchaser; and (6) the typicality of the experiences of any reference purporting to be a business venture purchaser. II. IT IS FURTHER ORDERED that defendants, in connection with the offering for sale or sale of any business opportunity to offer for sale medical or dental electronic claim processing services, are hereby restrained and enjoined from failing to provide to each prospective purchaser during the initial contact a retainable copy of the Affirmative Disclosure Statement set forth in Appendix A ("Disclosure Statement"). The disclosures contained in the Disclosure Statement shall be updated every two months and shall be set forth in a separate document that contains no other information and be made in a clear and conspicuous manner. For purposes of the Disclosure Statement, (1) the number of purchasers shall include the total of all individuals who have purchased medical or dental electronic claim processing business opportunities from Electronic Filing Associates, Ltd. or Electronic Filing Academy, Inc. as of a date four months prior to the date of disclosure, and (2) the number of purchasers processing claims shall be determined by the number of claims processed during the month preceeding the date of disclosure. III. IT IS FURTHER ORDERED that defendants shall immediately provide a copy of this Order to each affiliate, subsidiary, division, sales entity, officer, director, employee, independent contractor, agent, attorney, and representative, and shall, within twenty-one (21) days from the date of entry of this Order, provide plaintiff with a sworn statement that defendants have complied with this provision of the Order, which statement shall include the names and addresses of each such person or entity who received a copy of the Order. IV. IT IS FURTHER ORDERED that defendants are hereby restrained and enjoined from: A. Failing to create and maintain books, records, and accounts which, in reasonable detail, accurately, fairly, and completely reflect the incomes, disbursements, transactions and use of monies by defendants. B. Failing to notify counsel for the FTC (on a weekly basis) of the receipt of any funds subsequent to the date of entry of this Order, and failing to identify each such receipt by the name, address, and telephone number of the payer. C. Destroying, erasing, mutilating, concealing, altering, transferring or otherwise disposing of, in any manner, directly or indirectly, any contracts, accounting data, correspondence, advertisements, computer tapes, disks, or other computerized records, books, written or printed records, handwritten notes, telephone logs, verification tapes and any other audio tapes, telephone scripts, receipt books, invoices, postal receipts, ledgers, personal and business cancelled checks and check registers, bank statements, appointment books, copies of federal, state or local business or personal income or property tax returns, and other documents or records of any kind that relate to the business practices or business or personal finances of any defendant. V. IT IS FURTHER ORDERED that defendants are hereby restrained and enjoined from directly or indirectly transferring, encumbering, dissipating, incurring charges or cash advances on any credit card, or otherwise disposing of any funds, property, or other assets of any kind, wherever located, that are (a) owned or controlled by any defendant, in whole or in part; (b) in the actual or constructive possession of any defendant; (c) held by an agent of any defendant as a retainer for the agent's provision of services to any defendant; or (d) owned, controlled by, in the actual or constructive possession of, or otherwise held for the benefit of, any entity directly or indirectly owned, managed, or controlled by any defendant, except upon good cause shown and as ordered by the Court. The assets affected by this Paragraph shall include both existing assets and assets acquired after the effective date of this Order VI. IT IS FURTHER ORDERED that defendants shall, within three (3) business days from entry of this Order, prepare and deliver to counsel for the Commission a complete schedule, sworn and attested to, that (1) identifies the nature, location, and dollar value, estimated if necessary, of each asset and piece of property with an estimated value of $1,000 or more that is owned directly or indirectly, of record or beneficially, by said defendants, or their spouses; (2) identifies all encumbrances on each such asset or piece of property; (3) lists any transfer or assignment of any asset or piece of property with an estimated value of $1,000 or more, since January 1, 1996, including the value of the asset, the name of the transferee or assignee, and the type and amount of consideration paid for the asset; and (4) identifies all credit accounts by creditor name, account number, and account balance. Said schedule shall include assets held in foreign as well as domestic accounts or locations. VII. IT IS FURTHER ORDERED that any financial institution having custody or control of any record, account or other asset owned or controlled by any defendant shall: A. Hold and retain within its control and prohibit the withdrawal, removal, assignment, transfer, pledge, encumbrance, disbursement, dissipation, conversion, liquidation, sale, or other disposal of any asset except as directed by further order of the Court. B. Deny defendants access to any safe deposit box that is titled in the name of Edward E. Epstein, Electronic Filing Academy, Inc., and Electronic Filing Associates, Ltd., or their affiliates or subsidiaries, either individually or jointly. VIII. IT IS FURTHER ORDERED that within three (3) business days of the date of service of this Order, any financial institution having custody or control of any record, account or other asset owned or controlled by any defendant, or that at any time since January 1, 1996, maintained or had custody or control of any such record, account, or asset, shall: A. Serve on counsel for the Commission, 1961 Stout St., Suite 1523, Denver, Colorado 80294, a certified statement setting forth, with respect to each such record, account or other asset, the account number and signatories of and balance in each such account, or a description of the nature and value of each such asset, or a description of the nature of each such record, as of the close of business of the day on which this Order is served, or, if the record, account or other asset has been closed or removed, as of the date closed or removed. B. Identify any safe deposit box that is either titled in the name, individually or jointly, of any defendant, or is otherwise subject to access by any defendant. IX. IT IS FURTHER ORDERED that copies of this Order may be served by first class mail, overnight delivery, facsimile or personally upon any financial institution that may be in possession of any records, assets, property, or property right of any defendant, or that may be subject to any provision of this Order. For purposes of service on financial institutions, actual notice of this Order shall include notice by facsimile transmission of Paragraphs VII, VIII, and IX of this Order, provided that such notice is followed within five (5) business days by delivery of a complete copy of this Order. X. IT IS FURTHER ORDERED that the defendants shall allow the Commission's representatives, agents, and assistants immediate access to the defendants' business premises, branch offices, and storage facilities owned or controlled by any defendant, including but not limited to 1940 E. Thunderbird Road, Phoenix, Arizona. The purpose of this access shall be to inspect and copy any documents relevant to this action and to inventory defendants' assets. The defendants, to the extent they are in possession of documents relevant to this action, shall provide the Commission with any necessary means of access to these documents including, without limitation, keys and combinations to locks, computer access codes, and storage area access information. The Commission's representatives may remove documents from defendants' business premises so they may be inspected, inventoried, and copied. The Commission's representatives shall return materials so removed within seven (7) business days of completing said inventory and copying. In no event shall the Commission's representatives retain the materials longer than ten (10) business days. The defendants, their agents, employees, salespersons, accountants and attorneys are hereby enjoined and restrained from interfering in any way with the Commission's right of access described herein. XI. IT IS FURTHER ORDERED that, pursuant to Section 604 of the Fair Credit Reporting Act, 15 U.S.C. § 1681b, any consumer reporting agency may furnish the Commission with a consumer report concerning any defendant. XII. IT IS FURTHER ORDERED that in anticipation of the preliminary injunction hearing in this matter or for purposes relating to the identification of assets and records, the Commission is granted leave to conduct expedited discovery in this matter. The Commission may depose witnesses at any time after the date of this Order upon two (2) business days notice. The defendants shall respond to any interrogatories and requests for admissions within five (5) business days after service of the discovery request. The expedited discovery allowed by this Paragraph shall not limit, but shall be in addition to, any discovery provided for in the Federal Rules of Civil Procedure. XIII. IT IS FURTHER ORDERED that Paragraphs I-V and X of this Order are binding upon the defendants' officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise. XIV. IT IS FURTHER ORDERED that the Temporary Restraining Order granted herein expires ten (10) days after entry unless, within such time, the Order for good cause shown is extended for an additional period not to exceed ten (10) days, or unless it is extended with the consent of the parties. XV. IT IS FURTHER ORDERED that each of the defendants shall appear before this Court on the ______ day of ________________________, 1998, at ____________o'clock____.m. at the United States Courthouse, Room ___________, to show cause, if any there be, why this Court should not enter a preliminary injunction, pending final ruling on the Complaint, against said defendants enjoining them from further violations of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), continuing the freeze of their assets and imposing such additional relief as may be appropriate. XVI. IT IS FURTHER ORDERED that the defendants shall serve affidavits, memoranda, and other evidence on which they intend to rely not less than three (3) business days before the preliminary injunction hearing in this matter. Defendants shall serve copies of all such materials on counsel for the Commission by delivery to 1961 Stout St., Suite 1523, Denver, Colorado 80294, prior to 4:45 p.m. of the day they are due. The Commission may file responsive pleadings, materials, affidavits, or memoranda by the last business day prior to the hearing on the FTC's request for a preliminary injunction. XVII. IT IS FURTHER ORDERED, pursuant to Federal Rule of Civil Procedure 4(c)(2), that copies of this Order and the initial pleadings and papers filed in this matter, including the complaint and summons, may be served by employees of the Commission, by employees of any state or other federal law enforcement agency, and by agents of any process servers retained by the Commission, upon any office of the defendants, the individual defendant, any financial or brokerage institution, or any person or entity that may be in possession of any assets, property, or property rights of defendants. XVIII. IT IS FURTHER ORDERED that this Court retains jurisdiction of this matter for all purposes. DATED this ____day of ________________________, 1998, at ________. __________________________________ APPENDIX A AFFIRMATIVE DISCLOSURE STATEMENT You should be aware that since its inception, Electronic Filing Academy, Inc., and its predecessors ("EFA"), have signed Licensing Agreements with numerous clients. The overall number of such purchasers and the number of those purchasers who are processing at least 500 claims per month, are as follows:
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