RA'OUF M. ABDULLAH
ANN I. JONES
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
FEDERAL TRADE COMMISSION, Plaintiff,
SWEET SONG CORPORATION, in its own name and d/b/a WINDSOR & WHITE TRADING CO. and d/b/a PACIFIC WELLINGTON ASSOCIATES; TSAVORITE SWORD CORPORATION, in its own name and d/b/a PACIFIC WELLINGTON ASSOCIATES; RON HUDSON, INC., in its own name and d/b/a PACIFIC WELLINGTON ASSOCIATES; HARI JIWAN SINGH KHALSA, a/k/a STEPHEN JON OXENHANDLER, a/k/a BOB THOMAS; SIRI RAM SINGH KHALSA a/k/a WILLIAM TAYLOR, a/k/a PHILLIP ANDERSON; Defendants.
COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF
Plaintiff, the Federal Trade Commission ("FTC"), by its undersigned attorneys, alleges as follows:
1. This is an 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 Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6101 et seq., to secure injunctive and other equitable relief, including rescission, restitution and disgorgement, against defendants' deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a) and the Telemarketing Sales Rule ("TSR" or "Rule"), 16 C.F.R. Part 310, promulgated August 23, 1995, which went into effect on December 31, 1995.
JURISDICTION AND VENUE
2. This Court has subject matter jurisdiction over plaintiff's claim pursuant to 28 U.S.C. §§ 1331, 1337(a) and 1345, and 15 U.S.C. §§ 45(a), 53(b), 57b(a), 6102(c) and 6105.
3. Venue in the Central District of California of the United States District Court is proper under 28 U.S.C. §§ 1391(b) and (c) and 15 U.S.C. § 53(b).
4. Plaintiff FTC is an independent agency of the United States Government. 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, and the TSR, which prohibits deceptive or abusive telemarketing acts or practices. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), authorizes the FTC to initiate federal district court proceedings to enjoin any provision of law enforced by the FTC, and to secure such equitable relief as may be appropriate in each case, including restitution and disgorgement. Section 19(a) of the Act, 15 U.S.C. § 57b(a), authorizes the FTC to seek consumer redress against persons who violate, inter alia, rules such as the TSR.
5. Defendant Sweet Song Corporation ("Sweet Song") is a California corporation with its principal office located at 10680 West Pico Boulevard, Suite 330, Los Angeles, California, 90064. It markets gemstones as investments to consumers. Sweet Song has registered a fictitious business name, Windsor & White Trading Company ("W&W"), under which it does business. Sweet Song also does business as Pacific Wellington Associates ("PWA"). Sweet Song conducts business in this district.
6. Defendant Ron Hudson, Inc. ("Hudson"), is a Nevada corporation doing business as PWA. It lists its principal place of business as 289 South Robertson Boulevard, Suite 549, Beverly Hills, California, 90211. Hudson markets gemstones as investments to consumers. Hudson conducts business in this district.
7. Defendant Tsavorite Sword Corporation ("Tsavorite") is a Nevada corporation that also has its principal office located at 10680 West Pico Boulevard, Suite 330, Los Angeles, California, 90064. Tsavorite markets gemstones as investments to consumers. Tsavorite uses PWA as a trade name. Tsavorite conducts business in this district.
8. The corporate defendants operate as a joint venture or common enterprise. They share a trade name, a business location, telephone lines, promotional materials, sales scripts and employees. Defendants Sweet Song and Tsavorite have the same owner, incorporator, director, and share at least one officer.
9. Defendant Hari Jiwan Singh Khalsa ("Hari Khalsa"), a/k/a Stephen Jon Oxenhandler and a/k/a Bob Thomas, is the owner incorporator, director and an officer of defendants Sweet Song and Tsavorite. Individually or in concert with others, he directs, controls, formulates and participates in the acts or practices of the corporate defendants. Defendant Hari Khalsa resides and conducts business in this district.
10. Siri Ram Singh Khalsa ("Siri Khalsa"), a/k/a William Taylor and a/k/a Phillip Anderson, is a salesperson for W&W and PWA. Since at least April 1993, he has participated in the deceptive acts or practices complained of below. Siri Khalsa resides and conducts business in this district.
DEFENDANTS BUSINESS PRACTICES
11. Since at least 1993 and continuing thereafter, defendants have maintained a substantial course of trade in the offer and sale of gemstones as investments to consumers. Defendants market their gemstones to consumers throughout the United States by unsolicited telephone sales presentations and by mailed written promotional materials.
12. In the typical transaction, defendants contact consumers by placing unsolicited telephone calls to them offering information on purported excellent, low-risk gemstone investments. Defendants determine that prospective customers have the financial capacity to participate in large investments during the initial qualification telephone call, and send promotional materials to qualified prospects through the mail.
13. The defendants promotional materials contain representations that defendants gemstones are low risk, profitable and highly liquid investments. Some of their promotional materials also describe bullion, rare coins and precious metals as investment products offered by defendants.
14. Defendants make follow-up sales calls to the prospects, after allowing time for the promotional materials to arrive. During the sales calls, defendants typically make the following representations to induce consumers to purchase gemstones:
15. Defendants gemstones are customarily shipped to consumers with two third-party identification reports. The reports verify the gemstones physical attributes such as the size, weight, color and gem type. The reports do not provide dollar appraisals of the gemstones values.
16. Although defendants tell consumers that the consumers gemstone portfolio is a long-term investment, they represent that they will rebroker or liquidate consumers gemstones after a minimum period of eighteen (18) months, and that they routinely rebroker consumers gemstones. Defendants assure consumers that rebrokering or liquidating gemstones through them is easy and will result in substantial profits for consumers.
17. To create a sense of urgency in the minds of consumers, defendants claim that the proffered gemstones will be sold quickly to another client if the consumer does not commit to purchase immediately. Once the consumer succumbs, defendants arrange for an overnight courier to pick up the payment.
18. After they induce consumers to purchase gemstones, defendants contact them on a regular basis, giving the consumers an "update" on the financial appreciation of the consumers "gemstone portfolios." Defendants typically represent that consumers gemstones have appreciated between two and four percent per month.
19. During the update calls and at other times, defendants commonly solicit their customers to purchase additional gemstones. In some cases, defendants persuade consumers to trade in previously purchased gemstones either for different gemstones or for a credit, in the amount of the gemstones "update value," toward the purchases of more expensive gemstones.
20. Before the end of the minimum eighteen (18) month holding period that defendants require before they will liquidate gemstones, or once consumers stop purchasing additional gemstones, defendants typically cease contact with consumers and refuse to liquidate the consumers gemstones.
21. Defendants, individually or in concert with others, have used the above representations, or other representations similar to those described above, to induce consumers to purchase gemstones as investments.
22. Defendants course of trade is in or affecting commerce, within the meaning of Section 4 of the FTC Act.
DEFENDANTS VIOLATIONS OF SECTION FIVE OF THE FTC ACT
23. Defendants represent, expressly or by implication, that they sell their gemstones at or close to the prices at which consumers could sell the gemstones in the gemstone market. In fact, defendants do not sell their gemstones at or close to the prices at which consumers could sell the gemstones in the gemstone market. Defendants typically sell their gemstones at prices that are a multiple of the prices at which consumers could sell their gemstones in the gemstone market.
24. Defendants represent, expressly or by implication, that the gemstones they sell to the public are excellent, low risk investments. In fact, the gemstones defendants sell to the public are not excellent, low risk investments. Due to defendants inflated prices, there is a substantial likelihood that defendants customers will realize a loss when they seek to liquidate their gemstones.
25. Defendants represent, expressly or by implication, that the gemstones they sold to consumers have appreciated in value since the time of purchase. In fact, in many instances, the gemstones defendants have sold to consumers have not appreciated in value since the time of purchase. In most instances where defendants gemstones have appreciated at all since the time of purchase, they have appreciated at a rate much lower than defendants have represented.
26. Defendants represent, expressly or by implication, that their customers can easily rebroker or liquidate their gemstones through defendants. In fact, in many instances, defendants customers cannot easily rebroker or liquidate their gemstones through defendants.
27. Therefore, defendants representations as set forth in paragraphs 23-26 above, are false and misleading and constitute violations of Section 5(a) of the FTC Act.
THE TELEMARKETING SALES RULE
28. Defendants are "sellers" or "telemarketers" engaged in "telemarketing" of "investment opportunities" as those terms are defined in the TSR, 16 C.F.R. §§ 310.2(j), (r), (t) and (u) (August 23, 1995).
29. The TSR prohibits, inter alia, sellers and telemarketers from misrepresenting, expressly or by implication, any material aspect of an investment opportunity including, but not limited to, risk, liquidity, earnings potential or profitability. 16 C.F.R. § 310(a)(2)(vi).
30. Pursuant to Section 3(c) of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6102(c), and Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), violations of the TSR constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
DEFENDANTS VIOLATIONS OF THE TSR
31. In the course of telemarketing gemstones as an investment opportunity to consumers, defendants represent that:
32. In fact, defendants representations are false because:
33. Therefore, defendants representations as set forth in paragraph 31 above, are misrepresentations of material aspects of an investment opportunity and constitute violations of Section 310.3(a)(2)(vi) of the TSR, 16 C.F.R. § 310.3(a)(2)(vi) (August 23, 1995).
34. Consumers have in fact been injured by defendants' violations of law as cited above. For the reasons set forth above, consumers have suffered and will continue to suffer severe financial injury unless defendants' ongoing unlawful practices are enjoined.
THIS COURT'S POWER TO GRANT RELIEF
35. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to issue a permanent injunction against defendants for violations of any provision of law enforced by the FTC, including Section 5(a) of the FTC Act and violations of the TSR. This Court is further empowered thereby, in the exercise of its equitable jurisdiction, to award redress to remedy the injury to consumers, order disgorgement of profits resulting from defendants' unlawful acts or practices, and issue other ancillary equitable relief.
36. Section 19(b) of the FTC Act, 15 U.S.C. § 57b(b), and Section 6(b) of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6105(b), 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 TSR, including the rescission and reformation of contracts, and the refund of money.
PRAYER FOR RELIEF
WHEREFORE, plaintiff requests that this Court:
(1) Award plaintiff all temporary and preliminary injunctive and ancillary relief that 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, including, but not limited to, temporary and preliminary injunctions, appointment of a receiver, and an order freezing each defendants assets;
(2) Enjoin defendants permanently from violating Section 5(a) of the FTC Act, including such violations that occur in connection with the marketing of gemstones as investment;
(3) Award plaintiff such relief as the Court finds necessary to redress injury to investors resulting from defendants violations of Section 5(a) of the FTC Act and the TSR, including, but not limited to, the rescission of contracts or refund of money, and the disgorgement of unlawfully obtained monies; and
(4) Award plaintiff the cost of bringing this action, as well as such additional equitable relief as the Court may determine to be just and proper.
Attorneys for Plaintiff