JAY SHAFFER
Acting General Counsel
STEPHEN GURWITZ (SG 7874)
MONICA E. TAIT (MT 7678)
Federal Trade Commission
Pennsylvania Ave. and Sixth St., N.W.
Room 200
Washington, D.C. 20580
(202) 326-3272 or -3505

ROBIN EICHEN
Federal Trade Commission
150 William Street, Suite 1300
New York, NY 10038
(212) 264-1207

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

FEDERAL TRADE COMMISSION,

Plaintiff

vs.

METROPOLITAN COMMUNICATIONS CORP., COLUMBIA COMMUNICATIONS SERVICES CORP., NATIONWIDE DIGITAL DATA CORP., STEPHENS SINCLAIR, LTD., MEEHAN MARKETING GROUP, INC., DONALD JACKLER, JOAN ORTH, MICHAEL FLAHERTY, SHELDON WEAVER, DAVID WESTON, AND GLENN MORGENSTERN,

Defendants

Civ.

 

COMPLAINT FOR INJUNCTION AND OTHER EQUITABLE RELIEF

Plaintiff, the Federal Trade Commission ("Commission"), by its undersigned attorneys, alleges as follows:

JURISDICTION AND VENUE

1. This is an action under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. 53(b), to secure a permanent injunction and other equitable relief, including rescission, restitution and disgorgement, against defendants for violations of Section 5 of the FTC Act, 15 U.S.C. 45(a), which prohibits unfair or deceptive acts or practices. This Court has subject matter jurisdiction over plaintiff's claims pursuant to 28 U.S.C. 1331(a), 1337(a), and 1345, and 15 U.S.C. 45(a) and 53(b).

2. Venue in this district is proper under 28 U.S.C. 1391(b) and (c) and 15 U.S.C. 53(b).

THE PARTIES AND DEFENDANTS' BUSINESS

3. The Commission is an independent agency of the United States government created by statute (15 U.S.C. 41 et seq.). The Commission is charged with enforcing Section 5(a) of the FTC Act, 15 U.S.C. 45(a), and is authorized under Section 13(b) of the FTC Act, 15 U.S.C. 53(b), to initiate court proceedings to enjoin violations of the FTC Act and to secure such equitable relief as may be appropriate in each case.

4. Defendant Metropolitan Communications Corp. ("Metropolitan") is a corporation organized, existing and doing business under the laws of New York. Metropolitan's principal place of business is 333 7th Avenue, New York, New York. During relevant times, Metropolitan has also maintained offices at other locations including: 575 Madison Ave., New York, NY; 24151 Becard Dr., Laguna Niguel, CA; 1990 Westwood Blvd., Los Angeles, CA; 701 S.E. 6th Ave, Del Ray Beach, FL; 17025 West Dixie Hwy., No. Miami Beach, Florida, and other locations. Metropolitan offers application preparation services to consumers in connection with the Federal Communications Commission's ("FCC's") Specialized Mobile Radio ("SMR") licensing program. Metropolitan transacts or has transacted business in this district. Metropolitan has also used the corporate name Metro Media Advertising Associates, Inc., to transact its business.

5. Defendant Columbia Communications Services Corp., is a corporation organized, existing and doing business under the laws of New York. Columbia's principal place of business is 20 Exchange Place, 32nd Floor, New York, NY. Columbia has also maintained offices at other locations including: 14 East 60th Street, New York, NY; 575 Madison Avenue, New York, NY; 255 No. El Cielo Road, Suite 163, Palm Springs, CA; 24151 Becard Dr., Laguna Niguel, CA; 1990 Westwood Blvd., Los Angeles, CA; and 1834 No. Pine Island Rd., Plantation, FL, as well as in Charlotte, NC, and other locations. Columbia offers application preparation services to consumers in connection with the FCC's SMR licensing program. Other corporate names used by Columbia include C.C.S.C., Inc. and License Application Centers, Inc. Columbia transacts or has transacted business in this district.

6. Nationwide Digital Data Corp. is a corporation organized, existing and doing business under the laws of New York. Nationwide's principal place of business is 333 7th Ave., New York, NY. Nationwide offers management contracts to consumers who purchase SMR licenses through Columbia and Metropolitan. Nationwide transacts or has transacted business in this district.

7. Stephens Sinclair, Ltd. is a corporation organized, existing and doing business under the laws of New York. Sinclair's principal place of business is 333 7th Ave., New York, NY. Sinclair, in conjunction with Nationwide, sells partnership investments in SMR systems. Sinclair transacts or has transacted business in this district.

8. Meehan Marketing Group, Inc. ("MMG") is a corporation organized, existing and doing business under the laws of Florida. MMG offers to consumers Metropolitan's and Columbia's application preparation services for the FCC in connection with SMR licensing, and offers Sinclair's partnership investments in SMR systems. MMG's principal place of business is 1175 NE 125th St., Suite 320, No. Miami, FL. MMG solicits customers on behalf of Columbia or Metropolitan. It transacts or has transacted business in this district.

9. Donald Jackler is President of Columbia Communications and Metropolitan Communications. Individually or in concert with others, he directs, controls, formulates, or participates in the acts and practices of some or all of the corporate defendants, including the acts and practices complained of below. He transacts or has transacted business in this District.

10. Joan Orth is Vice President of Sales for Metropolitan Communications. Individually or in concert with others, she directs, controls, formulates, or participates in the acts and practices of some or all of the corporate defendants, including the acts and practices complained of below. She transacts or has transacted business in this District.

11. Michael Flaherty is President of and Director of Acquisitions for Nationwide. Individually or in concert with others, he directs, controls, formulates, or participates in the acts and practices of some or all of the corporate defendants, including the acts and practices complained of below. He transacts or has transacted business in this District.

12. Sheldon Weaver is the Manager and Partnership Relations representative of Nationwide. Individually or in concert with others, he directs, controls, formulates, or participates in the acts and practices of some or all of the corporate defendants, including the acts and practices complained of below. He transacts or has transacted business in this District.

13. David Weston manages proposed defendant MMG and has appeared in an infomercial as a spokesperson touting Columbia or Metropolitan's investments in SMR licenses. Individually or in concert with others, he directs, controls, formulates, or participates in the acts and practices of some or all of the corporate defendants, including the acts and practices complained of below. He transacts or has transacted business in this District.

14. Glenn Morgenstern also operates out of MMG, selling license application and preparation services on behalf of Columbia or Metropolitan. Individually or in concert with others, he directs, controls, formulates, or participates in the acts and practices of some or all of the corporate defendants, including the acts and practices complained of below. He transacts or has transacted business in this District.

15. SMR refers to a set of radio frequencies (also called "channels") licensed by the Federal Communications Commission. These frequencies are currently used primarily to transmit and receive dispatch radio messages; for example, cab drivers and police cars ("mobile units") often communicate with their dispatchers and with other cars via SMR frequencies. The dispatcher has an equipment station housing the hardware necessary for communications to take place over the licensed frequency(ies). When certain equipment is installed at the station, SMR frequencies may also be used to connect the mobile units to the telephone lines, thus enabling the mobile units to make and receive telephone calls.

16. Since at least 1992, and continuing thereafter, Metropolitan, Columbia, MMG, Jackler, Orth, Flaherty, Weston, and Morgenstern ("Application Defendants") have maintained a substantial course of trade in the sale of application preparation and filing services to consumers in connection with the FCC's SMR licensing program. Application Defendants offer and sell their SMR license application services to consumers across the country through television infomercials, radio advertisements, written promotional materials, and telephone sales presentations. To obtain a license for an SMR frequency or channel, an applicant must submit a form to the FCC (Form 574) indicating the longitude and latitude of the station or radio tower the applicant intends to broadcast and receive from. Application Defendants represent that, using their services, customers will receive a valuable SMR license from the FCC. Application Defendants represent that the owner of an SMR license obtained by using Application Defendants' services will be able to easily and profitably lease the license to another party called a "systems operator," who will provide all the equipment and funds necessary to make the system operational at no cost to the licenseholder and who will use the license to offer mobile telephone service to the public. Application Defendants represent that the systems operator will successfully be able to obtain subscribers for SMR mobile telephone service using the consumer's license obtained through Application Defendants, and that the systems operator will pay the consumer license holder a fee or royalty in exchange for the lease. Application Defendants further represent that an SMR license obtained using their services will become part of a block of ten or twenty licenses, all obtained by Application Defendants for different consumers, which will be linked together to form a system which will successfully obtain mobile telephone subscribers. Finally, Application Defendants represent that the SMR licenses they obtain for consumers are as valuable as cellular telephone licenses, and will provide service comparable to or better than that currently available to cellular mobile telephone users. The cost of Application Defendants' services is approximately $7,000 per application. Many consumers have purchased more than one application. A person may obtain an SMR license, like those promoted by Application Defendants, directly from the FCC for approximately $200.

17. Since at least 1993, and continuing thereafter, Sinclair, Nationwide, MMG, Orth, Flaherty, and Weaver ("Partnership Defendants") have maintained a substantial course of trade in the sale of investments in SMR systems. Partnership Defendants offer and sell their services to consumers across the country through television infomercials, written promotional materials, and telephone sales presentations. Partnership Defendants offer units of general partnerships to the public. Partnership Defendants represent that their general partnerships are engaged in joint ventures with Partnership Defendants Nationwide and Sinclair to operate SMR telephone systems comprising 20 channels in various cities, including San Antonio, Texas. They represent that Nationwide obtained the right to operate the SMR channels through management agreements it has made with license holders. Partnership Defendants represent that the systems in which they are offering investments are a serious, viable, and competitive alternative to cellular phone systems in the areas targeted, and that they will successfully provide service comparable to or better than that currently available to cellular mobile telephone users in that area. Partnership Defendants further represent that an investment in their partnership systems is an excellent investment likely to yield over $2,500 per year in income per partnership unit. The cost of an investment with Partnership Defendants is approximately $8,000 per partnership unit.

18. Typical and illustrative of representations with respect to an investment in SMR application preparation services are these statements made by Application Defendants and their agents:

a."[S]pecialized mobile radio is used as an alternative to cellular telephones. The difference is that it costs the end user 30 to 50 percent less to make their phone calls. . . . [T]hey can make their calls from their car or their briefcase or wherever, you know, their tractor just the same as they would with a cellular mobile telephone. The only difference is that they're going to save the money on it, and they're going to be able to do a lot of things that they can't do with cellular telephones."

b."[W]e're only applying for licenses in areas where there is already a systems operator who has his tower up and operating and who's looking for more licenses."

c."[E]very day we have systems operators calling us, because they know we're putting together a nation-wide network, and they need additional licenses to make more money. It's as simple as that."

d."They're going to want our licenses. They're going to throw bushel baskets of money at us, and the great thing is, each one of us owns and controls our own license 100 percent."

e."See, one of the things that makes this such an attractive opportunity is that by law, in any new licensing area where -- newer licenses are being given, you nor I nor General Motors can own more than one channel in any given area until the licenses have been awarded. You can only own that one channel."

f."At Metropolitan Communications Corp. we believe that an ever-increasing share of mobile telephone revenues could shift from cellular to the SMR frequencies, due to the fact that cellular services cannot compete on a cost basis with SMR."

g."In order for them to use [your channel] and the system, they have to pay you to use that. That is your air wave. You own it. You can sell it down the road if you want. The government can't take it away from you . . . . It's yours forever."

h."This is purely passive. Everything is set up . . . . So basically what it boils down to is that we not only make applications to [sic] you, we ensure the fact that you'll make money."

19. Typical and illustrative of representations with respect to an investment in partnership interests in SMR systems are these statements made by Partnership Defendants and their agents:

a."We're going after the business users. We have every bit as good a voice quality, we have a more diverse product, and we have a product that will cost you significantly less to use than our one competitor, which is cellular. . . . Based on what I've just told you, do you think we can be competitive in the marketplace?"

b."Now, here's the question for you. If we have a better product [than cellular] for the business user, and we strongly believe we do, surely a much more cost-efficient product, do you think out of that 1.4 million population [in Cincinnati] we can get 1,400 subscribers the first year?"

c."The technology is available now to provide a competitive alternative to cellular systems."

d. "If you want to determine what you're making, interest on money . . . you divide $8,750, which would be the unit purchasing price, into $2,520, the annual dividend, and you'd get .288 percent profit. . . . That means that you're making better than 28 percent return on money. So in these economic times, when you're getting 3 or 4 percent in that bank or CD, and you get maybe 5 or 6 percent, maybe, on a municipal bond, if you could get 28 percent return on money, that would be outstanding, wouldn't it?"

e."The rate of return . . . looks like over a 5 year period is about 211 percent."

20. In connection with the offering and sale of investments in SMR license application and filing services and SMR systems, defendants have engaged in numerous violations of 5(a) of the FTC Act, as set forth below.

DEFENDANTS' VIOLATIONS OF THE FTC ACT

21. Section 5(a) of the FTC Act, 15 U.S.C. 45(a), prohibits unfair or deceptive acts and practices in or affecting commerce.

22. As set forth below, defendants, individually or in concert with others, have misrepresented and deceptively failed to disclose material facts, in violation of Section 5(a) of the FTC Act, in connection with the offering for sale and sale of investments in SMR license application and filing services and SMR systems.

Count I

23. Paragraphs 1-22 are incorporated herein by reference.

24. In connection with the offering for sale and sale of SMR license application and filing services, defendants Metropolitan, Columbia, MMG, Jackler, Orth, Flaherty, Weston, and Morgenstern have made the following false representations, directly or by implication:

a. That purchasers of these defendants' license application services are likely to earn income of $4,000 per year or more within eighteen months of the start of operation of their license. In fact, purchasers are not likely to earn as much as $4,000 per year in income from these licenses during this time frame.

b. That a single individual or entity may own a license for only one SMR channel in any one geographical area. In fact, an individual or entity may own a license for more than one SMR license in one geographical area. Indeed, some individuals and entities own licenses for more than 100 SMR channels in one geographical area.

c. That the only way a current holder of an SMR license or a current provider of SMR services can acquire additional SMR frequencies is to lease them from other licenseholders, such as these defendants' clients. In fact, a current holder of an SMR license or provider of SMR services may, in many instances, apply for and receive permission to use additional SMR frequencies, such as those offered by these defendants, directly from the Federal Communications Commission and need not lease them from other license holders.

d. That the SMR licenses for which they are applying are highly valuable and are likely to be worth many thousands of dollars. In fact, most of the SMR licenses for which they are applying are not highly valuable and are not likely to be worth many thousands of dollars.

e. That the purchase of these defendants' SMR license application and filing services is an excellent, low risk investment. In fact, the purchase of these defendants' SMR license application and filing services is not an excellent, low risk investment.

25. These defendants' false representations as set forth in paragraph 24 constitute unfair or deceptive acts or practices prohibited by Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

Count II

26. Paragraphs 1-22 are incorporated herein by reference.

27. In connection with the offering for sale and sale of investments in SMR operating systems, defendants Sinclair, Nationwide, MMG, Orth, Flaherty, and Weaver have made the following false representations, directly or by implication:

a. That it is highly likely that each 20 channel SMR operating system these defendants propose to operate will be a successful, economically viable competitor to existing cellular phone systems for mobile telephone customers. In fact, it is not highly likely that the 20 channel SMR operating system these defendants propose to operate will be a successful, economically viable competitor to existing cellular phone systems for mobile telephone customers. Indeed, because the technological capabilities of these defendants' proposed SMR systems are inferior to the capabilities of current cellular systems in several important respects, it is highly unlikely that these defendants' proposed systems will be able to compete successfully with existing providers of cellular mobile telephone service for customers.

b. That it is highly likely that each share in the partnerships offered by these defendants will yield to its purchaser over $2,500 per year in annual income. In fact, it is not highly likely that a share in the partnerships offered by these defendants will yield more $2,500 per year in annual income to its purchaser.

c. That an investment in the partnerships offered by these defendants is an excellent investment. In fact, an investment in the partnerships offered by these defendants is not an excellent investment.

28. In connection with the offering for sale and sale of investments in SMR systems, defendants Sinclair, Nationwide, MMG, Jackler, Orth, Flaherty, and Weaver have failed to disclose that the SMR license management agreements upon which the proposed systems are based may violate FCC precedent interpreting its statutes and regulations concerning the real party in interest in and the transfer of control of an SMR license and that the consequences of such violation could be, among other things, revocation of the SMR licenses used by these systems. The failure to disclose these facts, in light of representations made concerning investments in these defendants' SMR systems, is deceptive.

29. These defendants' false representations and failures to disclose as set forth in paragraphs 27-28 constitute unfair or deceptive acts or practices prohibited by Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

JOINT AND SEVERAL LIABILITY

30. Paragraphs 1-29 are incorporated herein by reference.

31. By and through the acts and practices described in Paragraphs 4-19, defendants Metropolitan, Columbia, MMG, Sinclair, Nationwide, Jackler, Orth, Flaherty, Weaver, Weston, and Morgenstern have operated and functioned as a single business enterprise with each of the other defendants in commission of the violations of Section 5(a) of the FTC Act described in Counts I and II above.

32. Because defendants Metropolitan, Columbia, MMG, Sinclair, Nationwide, Jackler, Orth, Flaherty, Weaver, Weston, and Morgenstern functioned as a single business enterprise with the other defendants, they are each jointly and severally liable for the acts and practices of the other defendants involved in the business enterprise. The aforementioned acts and practices of defendants Metropolitan, Columbia, MMG, Sinclair, Nationwide, Jackler, Orth, Flaherty, Weaver, Weston, and Morgenstern thus violate Section 5 (a) of the FTC Act, 15 U.S.C. 45 (a).

CONSUMER INJURY

33. Consumers have in fact been injured and will continue to be injured by defendants' violations of Section 5(a) of the FTC Act. Because of defendants' unlawful practices, it is highly likely that consumers will lose all or part of their investments.

THIS COURT'S POWER TO GRANT RELIEF

34. Section 13(b) of the FTC Act empowers this Court to issue injunctive and other relief against violations of the FTC Act and, in the exercise of its equitable jurisdiction, to award redress to remedy the injury to consumers, order disgorgement of monies resulting from defendants' unlawful acts or practices, and issue other ancillary equitable relief.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff requests that this Court:

(1) Enjoin defendants permanently, preliminarily and temporarily from violating Section 5(a) of the FTC Act in connection with the advertising, offering for sale, sale, or other promotion of their investments in SMR licenses and SMR systems, or any other investments, or assisting in the making of deceptive written or oral statements similar to those alleged herein;

(2) Award such relief as the Court finds necessary to redress injury to defendants' customers resulting from defendants' violations of Section 5(a) of the FTC Act, including, but not limited to, rescission of contracts or refund of money, disgorgement of unlawfully obtained monies, freezing of assets and the appointment of an equity receiver;

(3) Award plaintiff the cost of bringing this action as well as such other and additional equitable relief as the Court may determine to be just and proper.

Dated: , 1994

JAY SHAFFER
Acting General Counsel

Respectfully Submitted

____________________________

STEPHEN GURWITZ (SG 7874)
MONICA E. TAIT (MT 7678)
Federal Trade Commission
6th St. and Penn. Ave., N.W.
Washington, D.C. 20580
(202) 326-3272 or -3505

Attorneys for Plaintiff