| DEBRA A. VALENTINE General Counsel CHARLES A. HARWOOD TRACY S. THORLEIFSON MONICA TAIT ATTORNEYS FOR PLAINTIFF UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. MITCHELL D. GOLD, individually and as an officer or director of
U.S. Marketing, Inc., and North American Charitable Services, Inc.; Defendants. Civil No. C98- COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF Plaintiff, the Federal Trade Commission ("Commission"), for its complaint alleges as follows: 1. The Commission brings this action under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), to obtain preliminary and permanent injunctive relief against the defendants to prevent them from engaging in deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and to obtain other equitable relief, including rescission, restitution and disgorgement as is necessary to redress injury to consumers and the public interest resulting from defendants’ violations of the FTC Act. JURISDICTION AND VENUE 2. Subject matter jurisdiction is conferred upon this Court by 15 U.S.C. §§ 45(a) and 53(b) and by 28 U.S.C. §§ 1331, 1337(a), and 1345. 3. Venue in the Central District of California is proper under 15 U.S.C. § 53(b) and 28 U.S.C. § 1391(b) and (c). THE PARTIES 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 enforces Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits deceptive acts or practices in or affecting commerce. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act, and to secure such equitable relief as is appropriate in each case, including consumer redress. 15 U.S.C. § 53(b). 5. Defendant Mitchell D. Gold is an officer or director of U.S. Marketing, Inc. ("USM") and North American Charitable Services, Inc. ("NACS"). Individually or in concert with others, at all times material to this complaint, Mitchell Gold has formulated, directed, controlled, or participated in the acts and practices of defendants USM and NACS as alleged herein. He has transacted business in the Central District of California. Defendant Mitchell Gold is married to defendant Patricia Cooley Gold, and all actions conducted by him were for the benefit of the marital community. 6. Defendant Patricia Cooley Gold is a manager or director of USM and NACS. Individually or in concert with others, at all times material to this complaint, Patricia Gold has formulated, directed, controlled, or participated in the acts and practices of defendants USM and NACS as alleged herein. She has transacted business in the Central District of California. Defendant Patricia Gold is married to defendant Mitchell Gold, and all actions conducted by her were for the benefit of the marital community. 7. Defendant Herbert Gold is an officer or director of USM. Individually or in concert with others, at all times material to this complaint, Herbert Gold has formulated, directed, controlled or participated in the acts and practices of defendant USM. He has transacted business in the Central District of California. Defendant Herbert Gold is married to defendant Celia Gold, and all actions conducted by him were for the benefit of the marital community. 8. Defendant Celia Gold is a manager or director of USM. Individually or in concert with others, at all times material to this complaint, Celia Gold has formulated, directed, controlled, or participated in the acts and practices of defendant USM. She has transacted business in the Central District of California. Defendant Celia Gold is married to defendant Herbert Gold, and all actions conducted by her were for the benefit of the marital community. 9. Defendant Jonathan Philip (“J.P.”) Cohen is an officer or director of USM and NACS. Individually or in concert with others, at all times material to this complaint, Cohen has formulated, directed, controlled, or participated in the acts and practices of defendants USM and NACS. He has transacted business in the Central District of California. 10. Defendant Steven John Chinarian is a manager, officer or director of USM and is president of NACS. Individually or in concert with others, at all times material to this complaint, Chinarian has formulated, directed, controlled, or participated in the acts and practices of defendants USM and NACS. He has transacted business in the Central District of California. 11. U.S. Marketing, Inc., is a for-profit Nevada corporation registered with the State of California as Nevada U.S. Marketing. Its principal business location is 2701 South Main Street, Suite B, Santa Ana, California. Since 1997, defendant NACS has assumed the business operations of USM. USM has conducted business in the Central District of California and elsewhere throughout the United States. 12. North American Charitable Services, Inc., is a for-profit California corporation. Its principal business location is 2701 South Main Street, Suite B, Santa Ana, California. Since 1997, NACS has operated as a successor to USM. NACS conducts business in the Central District of California and elsewhere throughout the United States. COMMERCE 13. At all times relevant to this complaint, defendants have maintained a substantial course of conduct in or affecting commerce, as “commerce” is defined in Section 4 of the FTC, 15 U.S.C. § 44. DEFENDANTS’ COURSE OF CONDUCT 14. Since at least 1994, defendants have operated as professional fundraisers, contracting with nonprofit organizations for the right to solicit donations on their behalf. In addition to directly soliciting the public, defendants also operate through a network of fundraising agents who solicit donations on behalf of defendants’ nonprofit clients. Directly and through their fundraising agents, defendants have routinely made material misrepresentations to induce consumers to donate to defendants’ nonprofit clients. These nonprofit clients include, but are not limited to, the American Deputy Sheriffs’ Association ("ADSA"), the Fire Fighters Association of America (“FFAA”), the Foundation for Disabled Firefighters ("FDFF"), Disabled Peace Officers of America (“DPOA”), Retired and Disabled Police Officers of America ("RDPOA"), Adolescent Aids Foundation (“AAF”), Handicapped Children’s Services of America ("HCSA"), Nation’s Missing Children Organization ("NMCO"), Regular American Veterans ("RAV"), American Veteran’s Relief Fund (“AVRF”), and Help Hospitalized Children’s Fund ("HHCF"). 15. Defendants’ contracts with their nonprofit clients authorize defendants to act as the nonprofit’s agent with respect to fundraising matters. The nonprofits authorize defendants to hire other fundraisers to solicit on behalf of the nonprofit, to register the nonprofit in each state where fundraising will occur, to establish and control bank accounts and receive nonprofit funds, and to handle consumer and regulatory inquiries. Defendants undertake these activities in the name of each individual nonprofit client. For some nonprofit clients, defendants agree to print and distribute a publication. Defendants and their affiliated fundraisers sell advertising space in the publication to businesses. 16. The nonprofit contracts require that defendants use telephone scripts and printed materials approved by the nonprofits to solicit consumers. Defendants actively participate in creating such scripts and materials. In numerous instances, defendants and their fundraising agents have not used nonprofit-approved scripts and printed materials. These unapproved scripts and printed materials used by defendants and their fundraising agents frequently misrepresent the program activities of the nonprofits. Whether or not the nonprofits have specifically approved the telephone scripts and printed materials, defendants routinely fail to ascertain the truthfulness of the claims made in the scripts and printed materials about the program services of the nonprofits. 17. After agreeing to raise funds for a nonprofit organization, defendants subcontract the authority to solicit on behalf of the nonprofit to their fundraising agents. The fundraiser subcontract, although ostensibly between the nonprofit and the affiliated fundraiser, is created and negotiated by defendants on the nonprofit’s behalf. Defendants have employed more than 70 fundraising agents throughout the country to solicit for their nonprofit clients. In addition to fundraising conducted by their subcontractors, defendants have operated several of their own telephone solicitation rooms, mostly throughout California and in Las Vegas, Nevada. All of these fundraising agents solicit consumers for donations or solicit businesses to purchase advertising space in a publication. 18. Defendants provide their fundraising agents with a complete turnkey operation -- from an array of different nonprofit organizations for which to solicit, to the telephone script and the brochures and invoices sent to consumers. All the subcontractors must do is provide the solicitors, telephone lines and a means to collect the donations. Defendants’ own 800 number is pre-printed on the solicitation materials provided to consumers so defendants receive most of the inquiries and complaints concerning the fundraising calls made by their subcontractors. Donor checks collected by the subcontractors are forwarded to defendants for deposit in accounts that are titled in the nonprofits’ names, but controlled by defendants. From these accounts, defendants pay the subcontractors the contracted percentage of the donation, usually around 80% of the total collected. 19. Defendants do not screen, monitor or review the solicitation practices of their subcontractors. A single mention in the standard fundraising contract admonishes the fundraiser not to misrepresent and to obey all state laws, but defendants do not terminate subcontractors who they know or should know violate this provision. Nor do defendants take other steps to ensure that misrepresentations do not occur. 20. While soliciting donations for police or fire fighter-related nonprofits, defendants’ fundraisers frequently identify themselves falsely as former or current firefighters or police officers calling on behalf of fire or law enforcement groups. The solicitors also routinely misrepresent that contributions will directly benefit the prospective donor’s local law enforcement agency, police officers, fire department or firefighters 21. Regardless of the mission of the nonprofit organization, solicitors routinely misrepresent that donated funds will be used in the donor’s community. These misrepresentations can be express, such as that donated funds will go to help hospitalized children or veterans in a particular local hospital, or implied, such as by the fundraiser doing business under names like the “Massachusetts Vietnam Veterans Aid Foundation,” or providing donors with a local address where they can mail their contribution. 22. Defendants’ solicitors also misrepresent the purposes for which donations will be used. For example, in soliciting for FFAA, and later for FDFF, solicitors have claimed that donations will pay for children to go to burn camps in the local area or assist a local burn unit, when in fact, neither FFAA nor FDFF has paid to send children to these camps, nor have they typically supported local burn units. In other instances, solicitors seeking donations for ADSA have falsely claimed that contributions will go to purchase bullet proof vests for deputy sheriffs in the donor’s home county, even when no such donation is likely to occur because the county itself provides protective equipment to its officers. At other times, solicitors have seized on fundraising opportunities created by local tragedies. For example, when there were a series of fires in Southern California, defendants’ solicitors told California donors that their contributions would directly benefit the firefighters and the families whose homes were lost due to fire, when in fact, they did not. In addition to misrepresenting the program benefits that a consumer’s donation will support, defendants also misrepresent that most or all of the donation will be used in a specific way, such as to fund a particular charitable program. 23. Defendants also allow their solicitors to solicit funds on behalf of nonprofit organizations after their contractual authorization to do so has expired. For example, USM continued to solicit donations from consumers on behalf of FFAA even though the director of FFAA had instructed USM to cease solicitations several months before. 24. Some of defendants’ solicitors seeking business donations or advertising purchases misrepresent benefits to the advertiser, promising, for example, that copies of the respective publication will be distributed locally when, if a publication is printed at all, it is not widely distributed. 25. Generous individuals and businesses rely on the false promises of benefits to their local communities and donate in response to defendants’ fundraising pleas, believing that their donation will support the programs described to them. In fact, the small portion of the donation that makes its way to the organization -- typically less than 10% of the total amount raised -- goes to the coffers of national organizations which often do not undertake the programs described to prospective donors or which are not active in the donors’ locale. Nonprofit organizations that do undertake charitable endeavors in the donor’s community also suffer from these deceptive tactics, as individuals and businesses with limited disposable income have fewer dollars available to support these local programs. DEFENDANTS’ VIOLATIONS OF THE FTC ACT 26. Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), prohibits deceptive acts and practices in or affecting commerce. COUNT ONE MISREPRESENTATION OF CALLER IDENTITY 27. In numerous instances, in connection with soliciting contributions from prospective donors, defendants, directly or through their fundraising agents, represent, expressly or by implication, that the caller is a former or current member of a law enforcement agency or fire department. 28. In truth and in fact, the caller is not a former or current member of a law enforcement agency or fire department, but is rather a paid telephone solicitor. 29. Therefore, the representation described in Paragraph 27 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 MISREPRESENTATION OF LOCAL BENEFIT 30. In numerous instances, in connection with soliciting contributions from prospective donors, defendants, directly or through their fundraising agents, represent, expressly or by implication, that donors’ contributions will directly benefit persons or programs in the donors’ state or local area, or will be earmarked for use in the donors’ community. 31. In truth and in fact, in numerous instances, none of the donors’ contributions directly benefit persons or programs in the donors’ state or local area, or are specifically earmarked for use in the donors’ community. 32. Therefore, the representations described in Paragraph 30 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 THREE MISREPRESENTATION OF PROGRAM BENEFIT 33. In numerous instances, in connection with soliciting contributions from prospective donors, defendants, directly or through their fundraising agents, represent, expressly or by implication, that donors’ contributions will be used to fund or support a particular charitable program. Such representations include, but are not limited to claims that donated funds will be used to:
34. In truth and in fact, in numerous instances, donors’ contributions are not used to fund or support the particular charitable programs represented by defendants and are not used to:
35. Therefore, the representations described in Paragraph 33 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 MISREPRESENTATION THAT MOST OF DONATION SUPPORTS PARTICULAR PROGRAMS 36. In numerous instances, in connection with soliciting contributions from prospective donors, defendants, directly or through their fundraising agents, have represented, expressly or by implication, that most of the consumer’s donation will be used to fund the program services described to the prospective donor. 37. In truth and in fact, in numerous instances, most of the consumer's donation is not used to fund the program services described to the prospective donor. 38. Therefore, the representation described in Paragraph 36 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 MISREPRESENTATIONS ABOUT ADVERTISING 39. In numerous instances, in connection with the offering for sale and sale of advertisements, defendants, directly or through their fundraising agents, have represented, expressly or by implication, that:
40. In truth and in fact, in numerous instances,
41. Therefore, the representations described in Paragraph 39 are false and misleading and constitutes deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT SIX MEANS AND INSTRUMENTALITIES 42. In numerous instances, in connection with soliciting contributions from prospective donors, defendants Mitchell D. Gold, Patricia Cooley Gold, Herbert Gold, Jonathan Philip Cohen, Steven John Chinarian, U.S. Marketing Inc., and North American Charitable Services, Inc., individually or in concert with others, have provided their fundraising agents with the means and instrumentalities to deceive potential donors, as described in Paragraphs 27-41 above. The means and instrumentalities these defendants have provided include, but are not limited to:
43. By providing the means and instrumentalities to others for the commission of deceptive acts and practices as described in Paragraph 42, these defendants have violated Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT SEVEN FAILURE TO SUBSTANTIATE CLAIMS 44. By disseminating scripts and other written materials containing the representations set forth in Paragraphs 30, 33 and 36 to prospective donors and to fundraising agents for use in soliciting donations, defendants have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated such representations, at the time the representations were made. 45. In truth and in fact, defendants did not possess and rely upon a reasonable basis that substantiated such representations, at the times the representations were made. 46. Therefore, defendants’ representation as alleged in Paragraph 44 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). INJURY TO THE PUBLIC INTEREST 47. Consumers, small businesses and nonprofit organizations throughout the United States have suffered injury as a result of defendants’ violations of Section 5(a) of the FTC Act. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers, small businesses and nonprofit organizations, and harm the public interest. THIS COURT’S POWER TO GRANT RELIEF 48. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to issue a permanent injunction against defendants’ violations of the FTC Act and, in the exercise of its equitable jurisdiction, to order such ancillary relief as preliminary injunction, restitution, disgorgement of profits resulting from defendants’ unlawful acts or practices, and other remedial measures. PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court, as authorized by 15 U.S.C. § 13(b) and pursuant to its own equitable powers:
DATED: _____________________________, 1998. Respectfully submitted, DEBRA A. VALENTINE CHARLES A. HARWOOD TRACY S. THORLEIFSON By: |