IN THE UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. WINDERMERE BIG WIN INTERNATIONAL, INC., MARATHON AWARD CENTER, INC., SUNSHINE FORTUITY, INC., ERNEST LEVY, a/k/a ERNIE LEVY, ALAN SILVERSTEIN, SELVANAYAGAM PARARAJASINGAM, MICHAEL LEVY, and GEORGE OLA, Defendants. Civil Action No. COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), for its Complaint, alleges as follows: 1. The FTC brings this 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 preliminary and permanent 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 Rule"), 16 C.F.R. Part 310. JURISDICTION AND VENUE 2. This Court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345, and 15 U.S.C. §§ 45(a), 53(b), 57b, 6102(c), and 6105(b). 3. Venue in the United States District Court for the Northern District of Illinois is proper under 15 U.S.C. § 53(b) and 28 U.S.C. § 1391(b), (c), and (d). PLAINTIFF 4. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. The Commission enforces the FTC Act, 15 U.S.C. § 41 et seq., and the Telemarketing Sales Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive telemarketing acts or practices. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act and the Telemarketing Sales 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 and 6105(b). DEFENDANTS 5. Windermere Big Win International, Inc. ("Windermere") is incorporated in Ontario, Canada. Its office and principal place of business is at 397 Dundas Street East, Toronto, Ontario M5A 2A7. Windermere has transacted business in the Northern District of Illinois and throughout the United States. 6. Marathon Award Center, Inc. ("Marathon") is incorporated in Ontario, Canada. Its office and principal place of business is at 2425 Eglinton Avenue East, Suite 209, Scarborough, Ontario M1K 5G8. Marathon has transacted business in the Northern District of Illinois and throughout the United States. 7. Sunshine Fortuity, Inc. ("Sunshine") is incorporated in Ontario, Canada. Its office and principal place of business is at 4002 Sheperd Avenue East, Suite 328, Scarborough, Ontario M1S 1S6. Sunshine has transacted business in the Northern District of Illinois and throughout the United States. 8. Ernest Levy, a/k/a Ernie Levy, is one of the owners and principals of Windermere, Marathon, and Sunshine. At all times relevant to this Complaint, acting alone or in concert with others, he has participated directly in, or has had authority to control the acts and practices of Windermere, Marathon and Sunshine, including the acts and practices set forth in this Complaint. 9. Alan Silverstein is one of the owners and principals of Windermere, Marathon, and Sunshine. At all times relevant to this Complaint, acting alone or in concert with others, he has participated directly in, or has had authority to control the acts and practices of Windermere, Marathon and Sunshine, including the acts and practices set forth in this Complaint. 10. Selvanayagam Pararajasingam is one of the owners and principals of Windermere, Marathon, and Sunshine. At all times relevant to this Complaint, acting alone or in concert with others, he has participated directly in, or has had authority to control the acts and practices of Windermere, Marathon and Sunshine, including the acts and practices set forth in this Complaint. 11. Michael Levy is a principal of Windermere, Marathon, and Sunshine. He is the son of Ernest Levy, a/k/a Ernie Levy. He is responsible for managing the Marathon office. At all times relevant to this Complaint, acting alone or in concert with others, he has participated directly in, or has had authority to control the acts and practices of Windermere, Marathon and Sunshine, including the acts and practices set forth in this Complaint. 12. George Ola is a principal of Windermere, Marathon, and Sunshine. He is responsible for maintaining the computer systems for Windermere, Marathon, and Sunshine. At all times relevant to this Complaint, acting alone or in concert with others, he has participated directly in, or has had authority to control the acts and practices of Windermere, Marathon and Sunshine, including the acts and practices set forth in this Complaint. COMMERCE 13. At all times relevant to this Complaint, defendants' course of business, including the acts and practices alleged herein, has been and is in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS' BUSINESS ACTIVITIES 14. Since at least 1994 and continuing thereafter, defendants have deceptively and illegally telemarketed chances and interests in foreign lottery tickets to United States residents. They have targeted the elderly, contacting them by telephone to participate in foreign lotteries (e.g., Canadian) by purchasing lottery tickets. Defendants have solicited consumers to purchase individual tickets and pools or group purchases in which the consumer buys a share in a ticket or series of tickets. Defendants usually refer to these packages as "memberships." The memberships range in price from $29 to thousands of dollars, depending upon how many individual plays and group plays are purchased, as well as upon how many weeks worth of tickets the consumer purchases. 15. During telephone solicitations, defendants make false and misleading representations to induce consumers to purchase lottery tickets. Among other things, defendants represent that the consumer has been specially selected as one of a small group to play for a large prize pool; that the consumer's odds of winning a large prize or jackpot are guaranteed, practically guaranteed, or otherwise very good; and that the consumer's chances of winning are enhanced by purchasing through Windermere, Marathon, or Sunshine. These claims are enhanced by statements such as, for example, that purchasing defendants' services is a "once in a lifetime chance" to win large sums of money, that "this is not a losing chance," and that the defendants employ experts who are able to choose the "highest frequency" numbers or who use scientific methods for choosing winning numbers. In some cases, the defendants also falsely claim that they are registered or sponsored by the Canadian government to sell the lottery tickets and that it is legal for them to sell and for U.S. consumers to purchase Canadian lottery tickets. In other cases the defendants fail to disclose to consumers that the sale and trafficking in foreign lotteries is a crime in the United States. 16. Contrary to defendants' representations, the odds of winning anything in the foreign lotteries are small, defendants do not have special systems which enhance the consumers' odds of winning, consumers are not specially selected as one of a small group to play for a large prize, and it is illegal for defendants to sell foreign lottery tickets to U.S. consumers and for U.S. consumers to purchase foreign lottery tickets from defendants or from anyone else. 17. The defendants also fail to disclose that only a small portion of the money consumers pay to defendants for the purchase of lottery tickets is used for the actual purchase of tickets for the consumers. In fact, generally less than seven percent of the money consumers pay to defendants for the purchase of lottery tickets is used for the purchase of the tickets. 18. Many of the lottery tickets sold to consumers by defendants are purchased through charges to the consumer's VISA or American Express. Defendants do not have a merchant account through which they can process these credit card transactions. Defendants pay other companies that have merchant accounts to process these credit card transactions for them. Defendants' use of other businesses' merchant accounts to process their credit card transactions is not authorized by VISA or American Express. VIOLATIONS OF SECTION 5 OF THE FTC ACT 19. Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), prohibits unfair or deceptive acts or practices in or affecting commerce. 20. Misrepresentations or omissions of material fact constitute deceptive acts or practices prohibited by Section 5(a) of the FTC Act. COUNT ONE 21. In numerous instances, in connection with telemarketing foreign lottery tickets, defendants have represented, expressly or by implication, that the consumer is likely to win a large prize or jackpot in the Canadian lottery or other foreign lottery if the consumer purchases lottery tickets from defendants. 22. In truth and in fact, the consumer is not likely to win a large prize or jackpot in the Canadian lottery or other foreign lottery if the consumer purchases lottery tickets from defendants. 23. Therefore, the representation set forth in Paragraph 21 is false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT TWO 24. The sale and trafficking in foreign lotteries is a violation of federal criminal law, including laws prohibiting the importing and transmitting of lottery materials by mail and otherwise, 18 U.S.C. §§ 1301 and 1302, and anti-racketeering laws relating to gambling, 18 U.S.C. §§ 1952, 1953, and 1084. 25. In numerous instances, in connection with telemarketing foreign lottery tickets, defendants have failed to disclose that the sale and trafficking in foreign lotteries is a crime in the United States. 26. Therefore, defendants' failure to disclose this material fact is deceptive, and violates Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT THREE 27. In numerous instances, in connections with telemarketing foreign lottery tickets, defendants have represented, expressly or by implication, that it is legal for the defendants to sell foreign lottery tickets to consumers in the United States and for consumers in the United States to purchase foreign lottery tickets. 28. In truth and in fact, it is not legal for the defendants to sell foreign lottery tickets to consumers in the United States and for the consumers in the United States to purchase foreign lottery tickets. 29. Therefore, the representations set forth in Paragraph 27 are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT FOUR 30. In numerous instances, in connection with telemarketing foreign lottery tickets, defendants have represented, expressly or by implication, that the consumer's money will be used to purchase lottery tickets for the consumer. 31. The defendants fail to disclose that only a small portion of the money that the consumer pays to the defendants for the purchase of lottery tickets is used for the actual purchase of lottery tickets for the consumer. 32. In light of the representations set forth in Paragraph 30, defendants' failure to disclose this material fact is deceptive, and violates Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). VIOLATIONS OF THE TELEMARKETING SALES RULE 33. In the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. § 6101, et seq., Congress directed the FTC to prescribe rules prohibiting deceptive telemarketing acts or practices. On August 16, 1995, the Commission promulgated the Telemarketing Sales 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. 34. Defendants are "telemarketers" or "sellers" engaged in "telemarketing" as those terms are defined in the Rule, 16 C.F.R. § 310.2(r), (t) and (u). 35. The Rule requires sellers and telemarketers to disclose all material restrictions, limitations, or conditions to purchase, receive, or use the goods or services that are the subject of the sales offer. 16 C.F.R. § 310.3(a)(1)(ii). 36. The Rule also prohibits sellers and telemarketers 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). 37. Except as expressly permitted by the applicable credit card system, it is a deceptive telemarketing act or practice and a violation of the Rule for: "(2) Any person to employ, solicit, or otherwise cause a merchant . . . to present to or to deposit into the credit card system for payment, a credit card sales draft generated by a telemarketing transaction that is not the result of a telemarketing transaction between the cardholder and the merchant, or (3) Any person to obtain access to the credit card system through the use of a business relationship or an affiliation with a merchant, when such access is not authorized by the merchant application or the applicable credit card system." 16 C.F.R. § 310.3(c)(2) and (3). 38. 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 Sales Rule constitute 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 FIVE 39. In numerous instances, in connection with telemarketing foreign lottery tickets, defendants have made false or misleading statements to induce the purchase of lottery tickets that include, but are not limited to the following:
40. Defendants have thereby violated Section 310.3(a)(4) of the Rule, 16 C.F.R. § 310.3(a)(4). COUNT SIX 41. In numerous instances, in connection with telemarketing foreign lottery tickets, defendants have failed to disclose that the sale and trafficking in foreign lotteries is a crime in the United States. Defendants have thereby violated Section 310.3(a)(1)(ii) of the rule, 16 C.F.R. § 310.3(a)(1)(ii). COUNT SEVEN 42. In numerous instances, and without the express permission of the applicable credit card system, defendants have caused the merchant, who has a written contract with a credit card system, to process credit card transactions, or an employee, representative or agent of such a merchant, to present or deposit into the credit card system for payment, credit card sales drafts generated by telemarketing credit card transactions that are not the result of telemarketing credit card transactions between the cardholder and the merchant. In so doing, defendants have used a business relationship or affiliation with the merchant to obtain access to the credit card system, when such access was not authorized by the merchant agreement or the applicable credit card system. 43. Defendants have thereby violated Section 310.3(c)(2)-(3) of the Rule, 16 C.F.R. § 310.3(c)(2)-(3). CONSUMER INJURY 44. 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 45. 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. 46. 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 Sales Rule, including the rescission and reformation of contracts and the refund of monies. 47. 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, the Federal Trade Commission requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), and pursuant to its own equitable powers:
Dated: , 1998 Respectfully submitted, DEBRA A. VALENTINE KAREN D. DODGE |