UNITED STATES DISTRICT COURT
FEDERAL TRADE COMMISSION, Plaintiff,
CREDITMART FINANCIAL STRATEGIES, INC., and MAURICE VERRELLI, individually and as an officer of said corporation, Defendants.
STIPULATED ORDER FOR PERMANENT INJUNCTION, CONSUMER REDRESS, AND OTHER EQUITABLE RELIEF
Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), has filed its complaint for permanent injunction and other relief pursuant to 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., charging defendants CreditMart Financial Strategies, Inc. ("CFS"), and Maurice Verrelli with violating Section 5 of the FTC Act, and the FTC's Telemarketing Sales Rule ("TSR").
The parties have agreed to the entry of this Stipulated Order for Permanent Injunction ("Order") by this Court to resolve all matters of dispute between them in this action.
NOW, THEREFORE, plaintiff Federal Trade Commission and defendants CFS and Verrelli having requested the Court to enter this Order,
IT IS HEREBY ORDERED, ADJUDGED AND DECREED as follows:
1. This Court has jurisdiction of the subject matter of this case and of the parties consenting hereto;
2. Venue is proper as to all parties in the Western District of Washington;
3. The activities of defendants are in or affecting commerce, as defined in the FTC Act, 15 U.S.C. § 44;
4. The Complaint states a claim upon which relief may be granted against defendants under Sections 5 and 19 of the FTC Act, 15 U.S.C. §§ 45(a) and 57b, and the TSR, 16 C.F.R. Part 310;
5. Defendants waive all rights to seek appellate review or otherwise challenge or contest the validity of this Order, and further waive and release any claim defendants may have against the Commission, its employees, and agents; and
6. This Order does not constitute and shall not be interpreted to constitute an admission by defendants that they have engaged in violations of the FTC Act or the TSR.
1. "Defendants" means CFS and Maurice Verrelli, their successors and assigns, and their agents, employees, officers, and servants, and those persons in active concert or participation with them who receive actual notice of this order by personal service or otherwise.
2. "Consumer" means a purchaser, customer, subscriber, or natural person.
IT IS THEREFORE ORDERED that defendants CFS and Maurice Verrelli are permanently restrained and enjoined from engaging in, receiving any remuneration of any kind whatsoever from, or holding any ownership interest, share, or stock in, or serving as an officer, director, or trustee of any business entity that in whole or in part is engaged in, the telemarketing of credit related products or services, including but not limited to credit card loss protection plans.
PROHIBITED BUSINESS PRACTICES
IT IS FURTHER ORDERED that defendants are hereby permanently restrained and enjoined from:
A. Failing to comply with the TSR, 16 C.F.R. Part 310, or as the TSR may hereafter be amended;
B. Misrepresenting any affiliation with any consumer's credit card issuer or any other third party;
C. Misrepresenting that consumers have purchased or agreed to purchase goods or services from defendants, and therefore owe money to defendants;
D. Making any material misrepresentation about a consumer's credit-related rights or obligations under law;
E. Misrepresenting that any consumer has been pre-approved for or is likely to obtain an extension of credit; and
F. Misrepresenting any other fact material to a consumer's purchasing decision.
IT IS FURTHER ORDERED that defendants are hereby permanently restrained and enjoined from providing to any person, except agents of the plaintiff, or other law enforcement authorities, the name, address, telephone number, or credit card or bank account number of any consumer who provided such information to or did business with any defendant; provided, however, that defendants may provide such information if required to do so by Court Order.
IT IS FURTHER ORDERED that, in the event defendants or defendants' agents tape-record any conversation with a consumer to verify or confirm that a consumer is agreeing to purchase any of defendants' products or services, defendants are permanently restrained and enjoined from accepting or processing such purchases unless the tape-recording meets the following criteria:
A. After obtaining permission from the consumer to tape-record the conversation, the tape recording shall reflect the entirety of the conversation;
B. The tape recording must clearly reflect the consumer's agreement to tape-record the call;
C. The tape recording must include clear, complete, and understandable disclosures of all material terms of the purchase, and the consumer's express agreement to such terms. The material terms disclosed in the tape-recorded conversation shall be consistent with any information previously disclosed to the consumer. Material terms include, but are not limited to:
This Part of this Order shall not affect any obligation to comply with any federal, state, or local law regarding the tape-recording of telephone conversations.
IT IS FURTHER ORDERED that defendants CFS and Verrelli shall pay to the Commission as full satisfaction of all monetary claims asserted by plaintiff in the Complaint the sum of $9,186,838.00. In lieu of the foregoing monetary amount, which shall be suspended subject to the conditions set forth in Part VI of this Order, and based on the sworn representations in the financial statements of defendants Verrelli and CFS as provided for in Part VI of this Order, defendants CFS and Verrelli shall pay to the FTC $100,000. Payment to the FTC by defendants Verrelli and CFS shall be made as follows:
A. $ 5,500 upon approval of this Order by the Commission and within five (5) days of entry by the Court;
B. $ 94,500 payable in 18 monthly payments of $5250 plus accrued interest at 5.15% per annum. At any time, and without penalty, defendants may pay the balance due, make more frequent payments or make larger payments than scheduled;
C. To ensure payment of the above $94,500, defendant Verrelli shall execute a promissory note in such amount in favor of the Federal Trade Commission. Such note, which is attached hereto as Attachment B, shall be secured by certain collateral described therein and attached hereto as Attachment C, and the FTC is permitted to perfect a security interest in such collateral as permitted by law. In the event such security interest is found to be defective, after reasonable notice to Verrelli, Verrelli agrees to cooperate with plaintiff to cure any deficiencies in perfecting said security interest. Defendant Verrelli agrees that, as of the date of the signing of this Order, he shall not further encumber the security except with the express prior written permission of the staff of the Commission. Plaintiff agrees to release said security interest upon payment of the amounts set forth in this Section.
D. The Commission may apply any or all funds received from defendants pursuant to this Order, and any interest received thereon, to a consumer redress program and to related administrative expenses; provided, however, that 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, or shall be used to educate consumers affected by the practices set forth in the Commission's Complaint in this matter. The Commission shall have full and sole discretion to:
E. Defendants expressly waive their rights to litigate the issue of disgorgement. Defendants acknowledge and agree that all money paid pursuant to this Order is irrevocably paid to the Commission for purposes of settlement between plaintiff and the defendants;
F. Defendants CFS and Verrelli shall provide the Commission, or its agent, within thirty (30) days of such a request, the name, last known address, telephone number, date of purchase, credit card or bank account information, and the complete file record, including computer records and correspondence, of each consumer who purchased defendants' credit card protection service or who defendants caused to be charged for that service during the time period between July 1998 and the date this Order is entered, as well as any further information plaintiff deems necessary to effecting a consumer redress program; and
G. Within forty-five (45) days of the entry of this Order, in addition to the above, defendants Verrelli and CFS shall provide refunds to consumers who have contacted defendants, the FTC, or other law enforcement agency since July, 1998, and requested refunds. Defendants CFS and Verrelli shall maintain a record of the name, address, and telephone number of each consumer who received a refund.
IT IS FURTHER ORDERED that the Court's approval of this Order is expressly premised upon the truthfulness, accuracy, and completeness of the financial statements provided to counsel for plaintiff by defendants CFS and Verrelli. If, at any time following entry of this Order, the Commission obtains information indicating that any of defendants' representations on their financial statements concerning their assets, income, liabilities, or net worth were fraudulent, materially misleading, inaccurate, or incomplete, the Commission may, upon motion to the Court, request that the Order herein be reopened for the purpose of requiring additional consumer redress; provided, however, that in all other respects this Order shall remain in full force and effect unless otherwise ordered by this Court; and provided further, that proceedings instituted under this Part 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 plaintiff may initiate to enforce this Order.
A finding of material misrepresentation or omission as to the financial statement of any defendant will render immediately due and payable the entire amount of the suspended judgment herein entered against said defendant, provided that the Federal Trade Commission will not seek an amount in excess of said judgment.
IT IS FURTHER ORDERED that defendants, in accordance with 31 U.S.C. § 7701, shall furnish to the FTC their respective taxpayer identifying numbers (social security number, social insurance number, employer identification number, or Revenue Canada identification number), which shall be used for purposes of collecting and reporting on any delinquent amount arising out of such persons' relationship with the government.
IT IS FURTHER ORDERED that, in connection with the promotion, offering for sale, or sale of any good or service to consumers through any activity subject to the TSR, defendants shall create and maintain procedures to ensure compliance by their employees, telemarketers, and agents with this Order, and the TSR.
IT IS FURTHER ORDERED that, for a period of five (5) years from the date of entry of this Order, defendants, in connection with any business engaged in telemarketing, or in assisting others engaged in such business, are hereby restrained and enjoined from failing to create, and from failing to retain for a period of three (3) years following the date of such creation, unless otherwise specified:
A. Books, records and accounts that, in reasonable detail, accurately and fairly reflect the cost of goods or services sold, revenues generated, and the disbursement of such revenues;
B. Records accurately reflecting: the name, address, and telephone number of each person employed in any capacity by such business, including as an independent contractor; that person's job or position; the date upon which the person commenced work; and the date and reason for the person's termination, if applicable. The businesses subject to this Part shall retain such records for any terminated employee for a period of two (2) years following the date of termination;
C. Records containing the names, addresses, phone numbers, dollar amounts paid, quantity of items or services purchased or provided, and description of items or services purchased or provided for all consumers to whom such business has sold or provided any goods or services;
D. Records that reflect, for every consumer complaint or refund request, whether received directly or indirectly or through any third party:
E. Copies of all sales scripts, training materials, advertisements, or other marketing materials utilized; provided that copies of all sales scripts, training materials, advertisements, or other marketing materials utilized shall be retained for (3) years after the last date of dissemination of any such materials.
IT IS FURTHER ORDERED that, in order that compliance with the provisions of this Order may be monitored:
A. For a period of five (5) years from the date of entry of this Order, defendants shall notify the Commission of the following:
B. One hundred eighty (180) days after the date of entry of this Order, defendants shall provide a written report to the FTC, sworn to under penalty of perjury, setting forth in detail the manner and form in which defendants have complied and are complying with this Order. This report shall include but not be limited to:
C. Upon written request by a representative of the Commission, each defendant shall submit additional written reports (under oath, if requested) and produce documents on fifteen (15) days' notice with respect to any conduct subject to this Order;
D. For the purposes of this Order, defendants shall, unless otherwise directed by the Commission's authorized representatives, mail all written notifications to the Commission to:
E. For the purposes of this Part, "employment" includes the performance of services as an employee, consultant, or independent contractor; and "employers" include any individual or entity for whom any defendant performs services as an employee, consultant, or independent contractor; and
F. For purposes of the compliance reporting required by this Part, the Commission is authorized to communicate directly with defendants.
IT IS FURTHER ORDERED that the Commission is authorized to monitor defendants' compliance with this Order by all lawful means, including but not limited to the following means:
A. The Commission is authorized, without further leave of court, to obtain discovery from any person in the manner provided by Chapter V of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 26 - 37, including the use of compulsory process pursuant to Fed. R. Civ. P. 45, for the purpose of monitoring and investigating defendants' compliance with any provision of this Order;
B. The Commission is authorized to use representatives posing as consumers or suppliers to defendants, defendants' employees, or any other entity managed or controlled in whole or in part by any defendant, without the necessity of identification or prior notice; and
C. Nothing in this Order shall limit the Commission's lawful use of compulsory process, pursuant to Sections 9 and 20 of the FTC Act, 15 U.S.C. §§ 49 and 57b-1, to investigate whether defendants have violated any provision of this Order, Section 5 of the FTC Act, 15 U.S.C. § 45, or the Telemarketing Sales Rule.
IT IS FURTHER ORDERED that, for a period of five (5) years from the date of entry of this Order, for the purpose of further determining compliance with this Order, defendants shall permit representatives of the Commission, within three (3) business days of receipt of written notice from the Commission:
A. Access during normal business hours to any office, or facility storing documents, of any business where (1) any defendant is the majority owner of the business or directly or indirectly manages or controls the business, and (2) the business is engaged in telemarketing, or in assisting others engaged in such business. In providing such access, defendants shall permit representatives of the Commission to inspect and copy all documents relevant to any matter contained in this Order; and shall permit Commission representatives to remove documents relevant to any matter contained in this Order for a period not to exceed five (5) business days so that the documents may be inspected, inventoried, and copied; and
B. To interview the officers, directors, and employees, including all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, of any business to which Paragraph A of this Part applies, concerning matters relating to compliance with the terms of this Order. The person interviewed may have counsel present.
Provided that, upon application of the Commission and for good cause shown, the Court may enter an ex parte order granting immediate access to defendants' business premises for the purposes of inspecting and copying all documents relevant to any matter contained in this Order.
IT IS FURTHER ORDERED that, for a period of five (5) years from the date of entry of this Order, defendants shall:
A. Provide a copy of this Order to, and obtain a signed and dated acknowledgment of receipt of same from, each officer or director, each individual serving in a management capacity, all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, immediately upon employing or retaining any such persons, for any business where (1) any defendant is the majority owner of the business or directly or indirectly manages or controls the business, and (2) the business is engaged in telemarketing, or in assisting others engaged in such business; and
B. Maintain for a period of three (3) years after creation, and upon reasonable notice, make available to representatives of the Commission, the original signed and dated acknowledgments of the receipt of copies of this Order, as required in Paragraph A of this Part.
IT IS FURTHER ORDERED that within five (5) business days after receipt by defendants of this Order as entered by the Court, defendants shall submit to the Commission a truthful sworn statement, in the form shown on Attachment A, that shall acknowledge receipt of this Order.
IT IS FURTHER ORDERED that this Court will retain jurisdiction of this matter for the purpose of enabling any of the parties to this Order to apply to the Court at any time for such further orders or directives as may be necessary or appropriate for the interpretation or modification of this Order, for the enforcement of compliance therewith or the punishment of violations thereof.
SO ORDERED, this ______ day of __________, 1999.
UNITED STATES DISTRICT JUDGE
The parties, by their respective counsel, hereby consent to the terms and conditions of the Consent Decree as set forth above and consent to the entry thereof. Defendants waive any rights that may arise under the Equal Access to Justice Act, 28 U.S.C. § 2412, amended by Pub. L. 104-121, 110 Stat. 847, 863-64 (1996).
UNITED STATES DISTRICT COURT
AFFIDAVIT OF MAURICE VERRELLI
I, Maurice Verrelli, being duly sworn, hereby states and affirms as follows:
1. My name is Maurice Verrelli. My current residence address is _____________________________________________________. I am a citizen of Canada and am over the age of eighteen. I have personal knowledge of the facts set forth in this Affidavit.
2. I am a defendant in FTC v. Creditmart Financial Strategies, Inc., et al. (United States District Court for the Western District of Washington).
3. On , I received a copy of the Consent Decree, which was signed by the Honorable and entered by the Court on . A true and correct copy of the Order I received is appended to this Affidavit.
I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct. Executed on , at .
State of ____________________, City of ____________________
Subscribed and sworn to before me this _____ day of _________, 199___.
My Commission Expires:
FOR VALUE RECEIVED, the undersigned, Creditmart Financial Strategies, Inc. ("CFS") and Maurice Verrelli promise to pay to the Federal Trade Commission (together with its assigns "Holder") at such place as the Holder may designate in writing, in lawful money of the United States of America, the principal sum of $94,500.00 , together with interest on the outstanding principal balance from time to time at the rate of Five and 15/100 percent (5.15%) per annum.
This Note shall be paid in eighteen (18) equal monthly installments of principal in the amount of $5,250.00 each plus accrued interest. The first such payment shall be due and payable on the last day of the month following the month in which the Court enters the Stipulated Order and Permanent Injunction in FTC v. Creditmart Financial Strategies Inc., Civ. No. , and subsequent payments shall be made on the last day of every month thereafter until this Note is paid in full. The Maker and any endorser or guarantor hereof shall have the right to prepay this Note at any time in whole or in part without premium or penalty.
The Maker and any endorsers waive the benefit of their homestead exemption, presentment, notice of dishonor and protest; agree that any extension of the time of payment of all or any part of this Note may be made before, at, or after maturity by agreement with the Holder without notice to and without releasing the liability of any other party to this Note.
This Note is secured by those assets of CFS and Maurice Verrelli which are listed on Attachment C. CFS and Maurice Verrelli hereby grant Holder a security interest in such assets.
WITNESS the following signatures and seals:
Creditmart Financial Strategies, Inc. Maurice Verrelli
COLLATERAL SECURING PROMISSORY NOTE