UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

FEDERAL TRADE COMMISSION,

Plaintiff,

v.

G. ANDREW WATSON, individually and as an officer of defendant corporation, and MIDWEST MANAGEMENT ASSOCIATES, INC.a corporation

Defendants.

Civil Action No.

COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF

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

1. The Commission 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 Section 410(b) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(b), to obtain preliminary and permanent injunctive relief, restitution, rescission, disgorgement and other equitable relief for defendants’ deceptive acts or practices in connection with the sale and offering for sale of credit repair services in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a), and the Credit Repair Organizations Act , 15 U.S.C. 1679 et seq.

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. 53(b), 57b and 1679h(b).

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

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 is charged, inter alia, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C. 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission also enforces the Credit Repair Organizations Act. 15 U.S.C. 1679h(a). The Commission is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act and the Credit Repair Organizations Act in order to secure such equitable relief, including consumer redress, as may be appropriate in each case. 15 U.S.C. 53(b), 57b, and 1679h(b).

5. Defendant G. Andrew Watson at all times relevant to the complaint was an officer of defendant Midwest. Individually or in concert with others he formulated, directed, and controlled the acts and practices of corporate defendant as herein set forth. At all times relevant to this complaint, he resided and transacted business in this district.

6. Defendant Midwest Management Associates, Inc. ("Midwest") is a corporation organized, existing and doing business under and by virtue of the laws of the State of Illinois. Midwest’s principal office and place of business is 53 West Jackson Blvd., Chicago, Illinois 60604. At all times relevant to this complaint, Midwest transacted business in this district.

COMMERCE

7. At all times material to this complaint, defendants’ course of business, including the acts and practices alleged herein, have been in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. 44.

DEFENDANTS' COURSE OF CONDUCT

8. Since at least 1993, defendants have advertised, promoted, offered for sale, and sold credit repair services to consumers using the United States mail and telephones.

9. Defendants have offered services to remove derogatory information from, or improve, consumers’ credit histories, credit records, and credit ratings. Consumers have contacted defendants by telephone and have been told by defendants’ representatives that defendants can remove bankruptcies, liens, judgments, charge offs, late payments, repossessions, and other negative information from consumers’ credit reports, even where such information is accurate and not obsolete.

10. Typical and illustrative of defendants’ claims about their credit repair services are the following:

a. "CREDIT REPORTS CLEARED LEGALLY: Clear Bankruptcies, Late Payment & Anything Else From Your Credit Report Legally & Affordably." (Newspaper Classified Advertisement)

b. "CREDIT REPORTS CLEARED LEGALLY Late Payments- Bankruptcy- Tax Liens- Delinquent Student Loans Whatever the negative for whatever the reason WE GET IT DONE Affordable/ 100% Money Back Guarantee." (emphasis in original) (Promotional Flyer)

c. "You see there is a law called the Fair Credit Reporting Act that says information on your credit reports must be accurate and verifiable or else it must be deleted. We can use that law to force the credit bureaus to delete negative information from your credit report if they can’t get proof from the creditors that it is true . . . . The point is that it is very difficult for a creditor to verify dispute items. So if you know how to force credit bureaus to perform a true verification you have a very good chance of having the negative information permanently removed from your credit reports. We know how to force the credit bureaus to perform a true verification and get the negative information permanently removed from your credit reports." (emphasis in original) (Promotional Letter)

d. “This law [FCRA] states that any information reported by the credit bureaus must be one hundred percent accurate and it must be verifiable, otherwise it must be deleted. In virtually every case the information provided by the credit bureaus is not one hundred percent accurate and it is rarely verifiable. Therefore, our company has been successful in forcing the credit bureaus to delete all negative information from your credit report.” (Recorded Telephone Message)

e. “[I]t’s an eight hundred dollar fee. You put the two hundred down, some people put more down, then you can pay the balance in payments over six months. If you pay it all at one time, you pay - make one payment at the first meeting of seven hundred dollars and you save a hundred dollars that way.” (Defendants’ Agent)

f. “This law [FCRA] states that any information reported by the credit bureaus must be accurate and it must be verifiable otherwise it must be deleted. In a large number of cases the information reported by the credit bureaus is not accurate and it is not verifiable therefore, our company has been successful in causing the credit bureaus to delete late payments, bankruptcies, judgments, tax liens, repossessions and much other negative information from our clients’ credit reports.” (Recorded Telephone Message)

g. “When the reports are issued they go to your home. You make a copy, mail or fax a copy back to us. Again, we challenge it. We continue to do that until we’re able to get everything removed.” (Defendants’ Agent)

h. “[W]e have been successful with our clients in all manners of disputes including bankruptcies, judgments, tax liens, and late payments. The simple fact remains that the bureaus are unwilling or unable to invest in adequately investigating the information that appears in their databases. It doesn’t matter what the disputed entry is, the bureaus will delete the information if they are not willing to invest in the investigation.” (Promotional Letter)

11. Before providing any of the promised services, defendants’ representatives request and obtain at least partial payment for these services. Consumers have agreed to purchase defendants’ services based on these representations. Defendants have charged $850 or more for these services.

DEFENDANTS’ VIOLATIONS OF THE CREDIT REPAIR ORGANIZATIONS ACT

12. The Credit Repair Organizations Act, signed by the President on September 30, 1996, took effect on April 1, 1997, and has since that date remained in full force and effect.

13. Defendants are "credit repair organizations" as that term is defined in the Credit Repair Organizations Act, 15 U.S.C. 1679a(3).

14. The purposes of the Credit Repair Organizations Act, according to Congress, are:

(1) to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and (2) to protect the public from unfair or deceptive advertising and business practices by credit repair organizations. 15 U.S.C. 1679(b).

15. Section 404(b) of the Credit Repair Organizations Act prohibits credit repair organizations from charging or receiving any money or other valuable consideration for services which the credit repair organization has agreed to perform before such service is fully performed. 15 U.S.C. 1679b(b).

16. Section 404(a) (3) of the Credit Repair Organizations Act prohibits all persons from making or using any untrue or misleading representation of the services of the credit repair organization. 15 U.S.C. 1679b(a)(3).

17. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. 57(d)(3), and Section 410(b)(1) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(b)(1), any violation of any requirement or prohibition of the Credit Repair Organizations Act constitutes an unfair and deceptive act or practice in commerce in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

COUNT ONE

18. In connection with the performance of services for consumers by a credit repair organization, as that term is defined in Section 403(3) of the Credit Repair Organizations Act, 15 U.S.C. 1679a(3), defendants have charged or received money or other valuable consideration for the performance of services that the credit repair organization has agreed to perform before such service was fully performed. Defendants have thereby violated Section 404(b) of the Credit Repair Organizations Act, 15 U.S.C. 1679b(b).

COUNT TWO

19. In connection with the performance of services for consumers by a credit repair organization, as that term is defined in Section 403(3) of the Credit Repair Organizations Act, 15 U.S.C. 1679a(3), defendants have made untrue or misleading statements to induce consumers to purchase their services, including, but not limited to, the representation that defendants can improve substantially most consumers’ credit reports or profiles by permanently removing bankruptcies, liens, judgments, charge-offs, late payments, repossessions, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete.

20. In truth and fact, defendants cannot improve substantially most consumers’ credit reports or profiles by permanently removing bankruptcies, liens, judgments, charge-offs, late payments, repossessions, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete.

21. Defendants have thereby violated Section 404(a)(3) of the Credit Repair Organizations Act, 15 U.S.C. 1679b(a)(3).

DEFENDANTS' VIOLATIONS OF SECTION 5 OF THE FTC ACT

22. Section 5(a) of the FTC Act, 15 U.S.C. 45(a), provides that “unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful.”

23. Misrepresentations of material fact constitute unfair or deceptive acts or practices prohibited by Section 5(a) of the FTC Act.

COUNT THREE

24. In connection with the advertising, marketing, promotion, offering for sale, or sale of credit repair services, defendants have made untrue or misleading statements to induce consumers to purchase their services, including, but not limited to, the representation that defendants can improve substantially most consumers’ credit reports or profiles by permanently removing bankruptcies, liens, judgments, charge-offs, late payments, repossessions, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete.

25. In truth and fact, defendants cannot improve substantially most consumers’ credit reports or profiles by permanently removing bankruptcies, liens, judgments, charge-offs, late payments, repossessions, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete.

26. Therefore, the representation set forth in paragraph 24 is false and misleading and constitutes a deceptive act or practice in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

CONSUMER INJURY

27. Consumers have suffered or are likely to suffer substantial monetary loss as a result of defendants’ unlawful acts or practices. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers and harm the public interest.

THIS COURT'S POWER TO GRANT RELIEF

28. Sections 13(b) and 19 of the FTC Act, 15 U.S.C. 53(b) and 57b, and Section 410(b) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(b), empower this Court to issue a permanent injunction against defendants’ violations of the Credit Repair Organizations Act and the FTC Act and, in the exercise of its equitable jurisdiction, to order such ancillary relief as preliminary injunction, rescission, restitution, disgorgement of profits resulting from defendants’ unlawful acts or practices, and other remedial measures.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. 53(b) and 57b, and Section 410(b) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(b), and pursuant to its own equitable powers:

(a) Award plaintiff such preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of consumer injury during the pendency of this action and to preserve the possibility of effective final relief;

(b) Permanently enjoin defendants from violating the FTC Act and the Credit Repair Organizations Act;

(c) Award such relief as the Court finds necessary to redress injury to consumers resulting from the defendants’ violations of the FTC Act and the Credit Repair Organizations Act, including but not limited to, rescission of contracts, the refund of monies paid, and the disgorgement of ill-gotten monies; and

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

Respectfully Submitted,

DEBRA VALENTINE
General Counsel

DATED: ____________________________________________

MARY ELIZABETH TORTORICE
EVAN SIEGEL
Federal Trade Commission
55 East Monroe Street, Suite 1860
Chicago, IL 60603
(312) 960-5634/960-5601