DEBRA VALENTINE
General Counsel

STEPHEN L. COHEN
MICHAEL DONOHUE
Federal Trade Commission
6th & Pennsylvania Ave., NW
Washington, DC 20580
202-326-3222; 326-3563

MONICA TAIT (CA BAR # 157311)
Local Counsel
Federal Trade Commission
10877 Wilshire Blvd. #700
Los Angeles, California 90024
(310) 824-4343

Attorneys for Plaintiff
FEDERAL TRADE COMMISSION

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

FEDERAL TRADE COMMISSION, Plaintiff,

v.

INTERACTIVE AUDIOTEXT SERVICES, INC.,
AMERICAN BILLING & COLLECTION, INC.,
also doing business as ABC Services,

U.S. INTERSTATE DISTRIBUTING, INC.,

FRANK MONTELIONE,
individually and as an officer of the above companies,

RUSSEL LEVENTHAL,
individually and as an officer of
Interactive Audiotext Services and
U.S. Interstate Distributing,

STUART LEVENTHAL,
individually and as an officer of
American Billing & Collection, and

JOHN O. COOPER,
individually and as an office of
Interactive Audiotext Services, Defendants.

CIVIL NO.

COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF

DATE:

TIME:

Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), for its Complaint alleges:

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 Telephone Disclosure and Dispute Resolution Act of 1992 ("TDDRA"), 15 U.S.C.  5701 et seq., to obtain preliminary and permanent injunctive relief, restitution, disgorgement, and other equitable relief for defendants' unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C.  45(a), and the FTC's 900-Number Rule, 16 C.F.R. Part 308.

JURISDICTION AND VENUE

2. Subject matter jurisdiction is conferred upon this Court by 15 U.S.C. 45(a), 53(b), 57b, 5711, and 28 U.S.C.  1331, 1337(a), and 1345.

3. Venue in this district 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 unfair or deceptive acts or practices in or affecting commerce. The FTC also enforces the 900-Number Rule, which regulates the advertising, operation, billing, and collection of pay-per-call and other audiotext services accessed by dialing 900 and 800 numbers. The 900-Number Rule also prohibits charging for information conveyed during a call to an 800-number without a valid presubscription arrangement. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act, and the 900-Number Rule, to secure such equitable relief as is appropriate in each case, including restitution for injured consumers. 15 U.S.C. 53(b), 57b, and 5711(c).

5. Defendant Interactive Audiotext Services, Inc. ("IAS") is a California corporation having its office and principal place of business at 9000 Sunset Boulevard, Suite 606, Los Angeles, CA 90069. IAS transacts or has transacted business in this district.

6. Defendant American Billing & Collection, Inc. ("ABC"), which also does business as ABC Services, is a California corporation having its office and principal place of business at 9000 Sunset Boulevard, Suite 606, Los Angeles, CA 90069. ABC transacts or has transacted business in this district.

7. Defendant U.S. Interstate Distributing, Inc. ("USID") is a California corporation having its office and principal place of business at 9000 Sunset Boulevard, Suite 606, Los Angeles, CA 90069. USID transacts or has transacted business in this district.

8. Defendant Frank Montelione ("Montelione") is the secretary, chief financial officer, and a director of IAS. Montelione is also the chief financial officer and a director of USID. Montelione is also vice president of ABC. Montelione's principal place of business is 9000 Sunset Boulevard, Suite 606, Los Angeles, CA 90069. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of IAS, USID, and ABC, including the acts and practices set forth in this complaint. Montelione transacts or has transacted business in this district.

9. Defendant Russel Leventhal ("R. Leventhal") is the chief operating officer and a director of IAS. He is also the chief executive officer, secretary, and a director of USID. R. Leventhal's principal place of business is 9000 Sunset Boulevard, Suite 606, Los Angeles, CA 90069. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of IAS and USID, including the acts and practices set forth in this complaint. R. Leventhal transacts or has transacted business in this district.

10. Defendant Stuart Leventhal ("S. Leventhal") is the president of ABC. S. Leventhal's principal place of business is 9000 Sunset Boulevard, Suite 606, Los Angeles, CA 90069. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of ABC, including the acts and practices set forth in this complaint. S. Leventhal transacts or has transacted business in this district.

11. Defendant John O. Cooper ("Cooper") is the president of IAS. Cooper's principal place of business is 9000 Sunset Boulevard, Suite 606, Los Angeles, CA 90069. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of IAS, including the acts and practices set forth in this complaint. Cooper transacts or has transacted business in this district.

COMMERCE

12. At all times material 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 PRACTICES

13. Since at least 1996, defendants have advertised, offered, and sold "audiotext" services. Audiotext services are information or entertainment programs provided over the telephone and accessed by consumers by dialing various 800, 900, 500, and international telephone numbers.

14. When consumers call defendants' 800 numbers, they hear a recorded message offering them an opportunity to purchase defendants' audiotext services by either having the charges for the services billed to their credit or debit card account, having their checking account debited, or having defendants bill them directly. In order to identify the telephone number from which the call has been placed, defendants utilize equipment that performs "automatic number identification" (ANI), a system similar to "caller ID," that performs this task. From the ANI, defendants obtain the name and address of the line subscriber. This technology, however, does not identify the caller. Once defendants approve the caller's payment option, defendants give the caller access to their audiotext services, consummating the transaction for the purchase of defendants' audiotext services.

15. In numerous instances, defendants have sent bills for audiotext services to a consumer whose telephone number was identified by ANI as the originating telephone number from which a call to purchase defendants' audiotext services was placed. However, ANI provides no means for defendants to determine whether the consumer who owns the originating telephone number is the same as the caller who purchased defendants' audiotext services.

16. In fact, in numerous instances, where defendants have billed the telephone number from which such calls have been placed, the party billed is not the caller who purchased and received defendants' audiotext services. Thus, defendants have attempted to collect for such services from the party whose telephone was used to access defendants' audiotext services rather than from the purchaser of such services. As part of their collection efforts, defendants send consumers bills that state that the purchase of defendants' audiotext services was "AUTHORIZED through your credit card."

17. In some instances, when consumers call defendants' 800 or 900 numbers, they hear a recorded message directing them to call either a telephone number that begins with "011" or a "500" number. These messages do not disclose that, by connecting to the specified number, consumers are immediately purchasing defendants' audiotext services for which they accrue charges ranging from approximately $1.82 to $5.00 per minute.

18. In numerous instances, when consumers call defendants' 900 numbers, they are connected directly to defendants' live adult chat lines without defendants' first disclosing the cost of the services, giving the caller an opportunity to disconnect without charge, and without telling the caller that anyone under the age of 18 must have a parent's permission to complete the call.

19. Because defendants offer such services through 800 numbers, and because 800 numbers cannot reasonably be blocked by consumers, in numerous instances, minors and other unauthorized persons have accessed defendants' adult entertainment services.

VIOLATIONS OF SECTION 5 OF THE FTC ACT

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

COUNT I

21. In numerous instances, defendants represent, expressly or by implication, that, because a consumer's telephone was used to access defendants' 800-number audiotext services, he or she is legally obligated to pay defendants for such services whether or not such consumer purchased defendants' audiotext services.

22. In truth and in fact, in numerous instances, the consumer is not legally obligated to pay defendants for audiotext services accessed by dialing defendants' 800 numbers.

23. Therefore, defendants' representation as alleged in Paragraph 21, is false and deceptive, and violates Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

COUNT II

24. Through statements such as, "Your initial access to these services or programs was AUTHORIZED through your credit card," and other representations not specifically set forth herein, defendants represent that the consumer to whom ABC sends bills has authorized charges for audiotext services accessed by dialing defendants' 800 numbers.

25. In truth and in fact, in numerous instances, the consumer to whom defendants sends bills has not authorized charges for audiotext services accessed by dialing defendants' 800 numbers.

26. Therefore, defendants' representation, as alleged in Paragraph 24, is false and deceptive, and violates Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

COUNT III

27. In numerous instances, when a consumer calls defendants' 800 and 900 numbers, the consumer is solicited to access defendants' audiotext services by dialing a number beginning with either "011" or "500". These solicitations include statements such as: "This adults-only service is free, except for normal international long distance rates" or "Regular long distance rates apply."

28. By calling these numbers, a consumer purchases audiotext services from defendants by paying international long distance rates often in excess of $4.00 per minute. A portion of the revenues from these international calls is paid to defendants by the overseas telephone carrier, and thus, for each minute that a consumer stays on the line, defendants' revenue for the service increases.

29. In view of defendants' representations, as set forth above in paragraph 27, and the facts stated in paragraph 28, the actual amount that a consumer can reasonably expect to pay for calls to defendants' audiotext services is material to a consumer's decision to place such calls.

30. Therefore, defendants' failure to disclose the actual amount that a consumer can reasonably expect to pay for calls to defendants' audiotext services is deceptive, and violates Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

COUNT IV

31. In numerous instances, in connection with defendants' sale of audiotext services provided over 800 and other toll-free numbers, defendants bill and attempt to collect from consumers whose telephones may have been used to call such toll-free numbers to access and purchase defendants' audiotext services, but who did not themselves access and purchase defendants' audiotext services.

32. Consumers cannot reasonably block telephone calls to 800 and other toll-free numbers. Therefore, consumers cannot reasonably avoid defendants' billing and collection efforts for 800-number-accessed audiotext services purchased by others while using those consumers' telephones.

33. Defendants' practice of billing and attempting to collect from consumers whose telephones were used to access and purchase defendants' audiotext services by dialing defendants' 800 and other toll-free numbers, but who themselves have not purchased defendants' audiotext services, causes substantial injury to consumers that is not outweighed by countervailing benefits to consumers or competition.

34. Therefore, defendants practice, as alleged above, is unfair and violates Section 5(a) of the FTC Act, 15 U.S.C.  45(a).

COMMON ENTERPRISE

35. Defendants IAS, ABC, USID, Montelione, S. Leventhal, R. Leventhal, and Cooper have operated and functioned as a single business enterprise in commission of the violations of Section 5(a) of the FTC Act described above in paragraphs 21 through 34.

36. Because each of the defendants functioned as a single business enterprise with the other defendants in the commission of the deceptive acts and practices alleged above, they have each violated Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

DEFENDANTS' VIOLATIONS OF THE 900-NUMBER RULE

37. The Commission's 900-Number Rule, 16 C.F.R. Part 308, became effective on November 1, 1993, and implements the requirements of the TDDRA, 15 U.S.C.  5701 et seq. The 900-Number Rule establishes requirements for advertising and operating pay-per-call services, requiring, inter alia, that a provider of a pay-per-call service include cost and other disclosures both in advertisements and in an introductory message to the services. The 900-Number Rule also establishes procedures for billing and collecting charges for pay-per-call services. In addition, the 900-Number Rule prohibits any person from using an 800 number in a manner that would result in: a charge to the calling party for completing the call; connecting or transferring the calling party to a pay-per-call service; a charge to the calling party for information conveyed during the call unless the calling party pays by credit card or has previously agreed to be billed for the information; or a collect call back to the calling party.

38. At all times relevant to this Complaint, the acts and practices of defendants, as alleged herein, have included the advertising, promotion, marketing, offering for sale, sale of, billing for, and collection of 800 and 900-number services.

39. Defendants IAS, USID, Montelione, R. Leventhal, and Cooper are "providers of pay-per-call services" and/or "service bureaus," as those terms are defined in  308.2(g) and (i), respectively, 16 C.F.R.  308.2(g) and (i).

COUNT V

40. In their 800-number audio programs, and programs operated by others, that solicit calls to pay-per-call services (i.e., 900 numbers), defendants IAS, Montelione, R. Leventhal, and Cooper have knowingly failed to disclose the fees associated with the pay-per-call services.

41. Section 308.3(h) of the 900-Number Rule requires that any telephone message that solicits calls to a pay-per-call service must disclose the cost of the call in a slow and deliberate manner.

42. Therefore, defendants' failure to include in their telephone solicitation message a disclosure of the cost of their pay-per-call service constitutes a violation of the 900-Number Rule, 16 C.F.R. 308.3(h).

COUNT VI

43. Sections 308.5(i) and 308.2(e) of the 900-Number Rule prohibit using an 800 number in a manner that would result in the calling party being charged for information conveyed during the call unless the service provider has established a presubscription arrangement with the calling party by either:

a. obtaining from the calling party a credit card or charge card number, along with authorization to bill that number, if the credit or charge card is subject to the dispute resolution requirements of the Fair Credit Billing Act and the Truth in Lending Act; or
 
2. (a) clearly and conspicuously disclosing all material terms and conditions associated with the use of the service, including the service provider's name and address, a business telephone number which the consumer may use to obtain additional information or to register a complaint, and the rates for the service;
 
(b) agreeing to notify the consumer of any future rate changes;
 
(c) obtaining the consumer's agreement to utilize the service on the terms and conditions disclosed by the service provider; and
 
(d) requiring the use of an identification number or other means to prevent unauthorized access to the service by nonsubscribers.

44. In numerous instances, defendants either bill consumers directly, charge consumers' debit cards, or debit consumers' checking accounts for audiotext services accessed through 800 numbers, and, therefore, have used an 800 number in a manner that resulted in the calling party being charged for information during the call without having established a presubscription arrangement with the calling party by either:

a. obtaining from the calling party a credit card or charge card number, along with authorization to bill that number, if the credit or charge card is subject to the dispute resolution requirements of the Fair Credit Billing Act and the Truth in Lending Act; or
 
2. (a) clearly and conspicuously disclosing all material terms and conditions associated with the use of the service, including the service provider's name and address, a business telephone number which the consumer may use to obtain additional information or to register a complaint, and the rates for the service;
 
(b) agreeing to notify the consumer of any future rate changes;
 
(c) obtaining the consumer's agreement to utilize the service on the terms and conditions disclosed by the service provider; and
 
(d) requiring the use of an identification number or other means to prevent unauthorized access to the service by nonsubscribers.

45. Therefore, defendants' practices, as alleged in Paragraph 43, violate the 900-Number Rule, 16 C.F.R.  308.5(i).

COUNT VII

46. In numerous instances, defendants IAS, USID, Montelione, R. Leventhal, and Cooper knowingly connect callers to their 900-number services without providing a preamble message, as that term is described in  308.5(a) of the 900-Number Rule, 16 C.F.R.  308.5(a).

47. Therefore, the practice of defendants IAS, USID, Montelione, R. Leventhal, and Cooper, as alleged in Paragraph 46, violates the 900-Number Rule, 16 C.F.R.  308.5(a).

CONSUMER INJURY

48. 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

49. 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 Commission.

50. Section 19 of the FTC Act, 15 U.S.C. 57b, and Section 5711 of TDDRA, 15 U.S.C.  5711, 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 900-Number Rule, including the refund of money.

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, and pursuant to its own equitable powers:

1. 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;
 
2. Permanently enjoin the defendants from violating the FTC Act, and the 900-Number Rule, as alleged herein;
 
3. Award such relief as the Court finds necessary to redress injury to consumers resulting from the defendants' violations of the FTC Act, and the 900-Number Rule, including but not limited to, the refund of monies paid, and the disgorgement of ill-gotten monies; and
 
4. 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,

Stephen L. Cohen
Michael Donohue
Monica Tait
Attorneys for Plaintiff
Federal Trade Commission

Date: