| DEBRA A. VALENTINE General Counsel STEPHEN GURWITZ JOHN JACOBS UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. MICHAEL MARCOVSKY, SHELDON ALTFELD, CABLE MARKETING AND MANAGEMENT, INC., MY PET TELEVISION NETWORK, INC., and THE PET CHANNEL, Defendants CIV. NO. 98-___-____ COMPLAINT FOR INJUNCTION AND OTHER RELIEF Plaintiff, the Federal Trade Commission (“Commission”), by its undersigned attorneys, 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 secure a permanent injunction and other equitable relief, including rescission, restitution, and disgorgement, against defendants for engaging in unfair and deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). JURISDICTION AND VENUE 2. This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345, and 15 U.S.C. §§ 45(a) and 53(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. The Commission is an independent agency of the United States government created by the FTC Act, 15 U.S.C. §§ 41-58. The Commission enforces Section 5(a) the FTC Act, 15 U.S.C. §45(a), which prohibits unfair and deceptive acts or practices in 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 redress for injured consumers. 15 U.S.C. § 53(b). 5. Defendant Michael Marcovsky is the President, Chairman of the Board and the Chief Executive Officer of My Pet Television Network, and was until mid-1997, the President of Olympic Entertainment Group, d/b/a Children’s Cable Network. Individually or in concert with others, defendant Marcovsky directed, controlled, formulated, or participated in the acts and practices complained of below. He resides, transacts or has transacted business in this District. 6. Defendant Sheldon Altfeld is the President and Chief Executive Officer of defendant Cable Marketing and Management, Inc., and Vice President of Network Operations for My Pet TV. Individually or in concert with others, defendant Altfeld directed, controlled, formulated, or participated in the acts and practices complained of below. He resides, transacts or has transacted business in this District. 7. Defendant Cable Marketing & Management, Inc. (“CMMI”) is a corporation with its principal place of business at 11500 West Olympic Boulevard, Suite 400, Los Angeles, California. CMMI is a “cable marketing and management company” allegedly hired by investors in Children’s Cable Network to manage their investment. CMMI transacts or has transacted business in this District. 8. Defendant My Pet Television Network, Inc. (“My Pet TV”) is a Nevada corporation with its principal places of business at 11500 West Olympic Boulevard, Suite 400, Los Angeles, California; 7115 Macapa Drive, Los Angeles, California; and 11288 Ventura Boulevard, Suite 811, Studio City, California. My Pet TV is “a new television network dedicated to providing pet and animal themed programming.” My Pet TV has received funds from investors as a consequence of the acts and practices complained of below. My Pet TV transacts or has transacted business in this District. 9. Defendant The Pet Channel (“TPC”) is a Delaware corporation with its principal places of business at 11500 West Olympic Boulevard, Suite 400, Los Angeles, California and 7115 Macapa Drive, Los Angeles, California. TPC owns 80% of defendant My Pet TV. TPC has received funds from investors as a consequence of the acts and practices complained of below. TPC transacts or has transacted business in this District. DEFENDANTS’ COURSE OF CONDUCT 10. Since at least 1996 and continuing thereafter, defendant Marcovsky and his agents maintained a substantial course of trade in the offering and sale to consumers of investments in cable television networks. Initially, defendant Marcovsky and his agents sold, via telemarketing, an investment in general partnerships, or “affiliates”, which were to own and operate a cable television network named Children’s Cable Network (“Children’s Cable”), which was to broadcast non-violent, educational children’s programs. 11. Children’s Cable’s agents sold interests in 33 separate general partnerships, raising at least $16.5 million from investors. Of that $16.5 million, Children’s Cable took a total of $3.3 million in license fees and their telemarketing agents received $10.7 million. The remaining $2.5 million was allocated as “working capital” for the general partnerships. 12. Each general partnership consisted of 50 members; each partnership unit cost $10,000. According to the general partnership agreement, of the $500,000 raised through the sale of partnership units, Children’s Cable’s telemarketing agents took $325,000 for sales commissions and promotional fees and Children’s Cable retained an additional $100,000 for television program licensing fees. The remaining $75,000 was designated as working capital for the general partnerships. The investors who purchased general partnership interests believed that all these funds were to be used for the operations of their general partnership. 13. Pursuant to the general partnership agreement, each general partnership had “exclusive” rights to a Children’s Cable “territory.” The general partnerships were expected to purchase broadcast time on “leased access” cable channels to show Children’s Cable programs. The general partnerships were obligated to pay Children’s Cable for the rights to show these programs. The general partnerships were to obtain revenue, and thus a return on their investment, solely through the sale of advertising to be shown during the programs. 14. Pursuant to the general partnership agreement, the general partnerships selected defendant CMMI to manage the day- to-day operations of the general partnerships. CMMI received $70,000 of the working capital for each general partnership (a total of $2.3 million), with the remaining $5,000 staying with the individual general partnerships. As the general partnerships’ manager, CMMI was supposed to arrange for airtime, sell advertising, and perform routine administrative functions. Pursuant to the general partnership agreement, all matters which were not ministerial functions were to be submitted to the partners for a vote, including “transferring an equity interest owned by the partnership (majority vote required)”. 15. The general partnership agreement further stated that each partner had the right to vote on all matters concerning the partnership. In addition, each general partnership was to designate two investors, called “Managing Partners” who would act as a liaison with the management company. In many cases, managing partners had no meaningful role, if any, in managing their partnerships, and were not consulted on management decisions as required by the general partnership agreement. 16. Starting in or about April 1997 and continuing throughout 1997, defendants Altfeld and CMMI transferred working capital obtained from the general partnerships to defendant Marcovsky and defendants My Pet TV and TPC to purchase 51% of My Pet TV for the general partnerships. In total, at least $650,000 was transferred by defendants Altfeld and CMMI. 17. Starting in or about June 1997, defendants Altfeld and CMMI represented to the general partners that all general partnerships, through their Managing Partners, agreed to this transfer, and that the transfer would benefit each general partnership. 18. Starting in or about July 1997, defendants Altfeld and CMMI justified the transfer of the working capital to My Pet TV as a way to salvage the money the investors had put into Children’s Cable. In November 1997, defendants Altfeld and CMMI admitted that “(b)y the end of June (1997)it became apparent that the original concept was seriously flawed and simply did not work” because advertising was impossible to sell for leased access channels. 19. In December 1997, defendant Marcovsky represented that four hours per week of My Pet TV programs would be broadcast starting February 1998 on Oasis TV, a cable television network. 20. In March and May 1998, defendant My Pet TV represented that it “currently airs select programming” on Oasis TV. 21. Defendants’ course of trade is in or affecting commerce, within the meaning of Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS’ VIOLATIONS OF THE FTC ACT COUNT I 22. Defendants falsely represented, expressly or by implication, that all of the general partnerships’ working capital would be used for Children’s Cable Network. In fact, all of the general partnerships’ working capital was not used for Children’s Cable Network. Indeed, defendants transferred at least $650,000 of the general partnerships’ working capital to defendant My Pet TV. 23. Defendants falsely represented, expressly or by implication, that each general partnership approved the transfer of its working capital for a 51% interest in My Pet TV. In fact, each general partnership did not approve the transfer of its working capital for a 51% interest in My Pet TV. 24. Defendants falsely represented, expressly or by implication, in December 1997 that My Pet TV planned to broadcast its programming on Oasis TV in February 1998. In fact, in December 1997, My Pet TV did not plan to broadcast its programming on Oasis TV in February 1998. 25. Defendants falsely represented, expressly or by implication, in March 1998 and again in May 1998, that My Pet TV was broadcasting its programming on Oasis TV. In fact, My Pet TV was not broadcasting its programming on Oasis TV in March 1998 or May 1998. Further, My Pet TV never broadcast its programming on Oasis TV. 26. Therefore, defendants’ representations as set forth in paragraphs 22-25, constitute deceptive acts or practices in violation of the FTC Act, 15 U.S.C. § 45(a). COUNT II 27. Defendants transferred at least $650,000 of the general partnerships’ working capital to My Pet TV without the authorization or consent of the investors, in contravention of the general partnership agreement. 28. This transfer caused substantial injury to the general partnerships that could not have reasonably been avoided and is not outweighed by countervailing benefits to consumers or to competition. 29. Therefore, defendants’ practice, as alleged above, constitutes an unfair act or practice in violation of the FTC Act, 15 U.S.C. § 45(a). COMMON ENTERPRISE 30. Defendants Marcovsky, Altfeld, CMMI, My Pet TV and TPC have operated a common business enterprise while engaging in the unfair or deceptive acts and practices alleged above and are therefore jointly and severally liable for said acts and practices. CONSUMER INJURY 31. Defendants’ violations of Section 5(a) of the FTC Act have injured and will continue to injure consumers. Because of defendants’ unfair and deceptive acts and practices, consumers are likely to lose money and suffer substantial financial injury, absent injunctive relief. THIS COURT’S POWER TO GRANT RELIEF 32. 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, to order disgorgement of monies resulting from defendants’ unlawful acts or practices, and to order other ancillary equitable relief. PRAYER FOR RELIEF WHEREFORE, plaintiff requests that this Court:
DATED:
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