JOHN ANDREW SINGER
Md. Fed. Dist. Bar Number 3822

TARA M. FLYNN
D.C. Bar Number 442355
Attorneys
Federal Trade Commission
6th Street and Pennsylvania Avenue, N.W.
Washington, DC 20580
(202) 326-3234 or (202) 326-3710 (ph.)
(202) 326-3395 (fax)

JOHN JACOBS
CA Bar Number 134154
Designated Local Counsel
Federal Trade Commission
10877 Wilshire Blvd., Ste. 700
Los Angeles, CA 90024
(310) 824-4360 or 824-4343 (ph.)
(310) 824-4380 (fax)

ATTORNEYS FOR PLAINTIFF
FEDERAL TRADE COMMISSION

UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION

FEDERAL TRADE COMMISSION, Plaintiff,

v.

FUTURENET, INC., et al., Defendants.

CIVIL NO. 98-1113 GHK (BQRx)

(PROPOSED) STIPULATED FINAL JUDGMENT AND ORDER
FOR A PERMANENT INJUNCTION AS TO DEFENDANT
LAWRENCE STEPHEN HUFF

Plaintiff Federal Trade Commission ("Commission") filed its Complaint and Application for a Temporary Restraining Order and other equitable relief on February 17, 1998. The Court granted plaintiff's Application on February 23, 1998. Defendants filed an ex parte Emergency Application to Modify the Temporary Restraining Order on March 2, 1998, and, following a hearing, the Court modified the terms of its Temporary Restraining Order on March 6, 1998. On April 20, 1998, the Court entered a Stipulated Final Judgment and Order for a Permanent Injunction as to Defendants FutureNet, FutureNet Online, Lobato and Setlin. On May 22, 1998, the Court entered a Stipulated Preliminary Injunction as to Defendants Depew, Huff and Soto.

The Complaint charged defendants FUTURENET, INC., FUTURENET ONLINE, INC., ROBERT DEPEW, LARRY S. HUFF, CHRIS LOBATO, ALAN J. SETLIN, AND DAVID SOTO with violations of Section 5 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C.  45. Plaintiff Commission and defendant HUFF, represented by the attorney whose name appears hereafter, have agreed to entry of this Stipulated Final Judgment and Order for Permanent Injunction ("Order") by the Court to resolve all matters in dispute in this action, without admission of liability, and without trial or adjudication of any issue of law or fact herein.

FINDINGS

1. This Court has jurisdiction of the subject matter of this case and over defendant HUFF.

2. The Complaint states claims upon which relief may be granted against defendant HUFF, under Sections 5 and 13(b) of the FTC Act, as amended, 15 U.S.C.  45 and 52(b).

3. Entry of this Order is in the public interest.

4. Defendant HUFF enters into this Order freely and without coercion and acknowledges that he understands the provisions of this Order and is prepared to abide by them.

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

6. The acts and practices of defendant HUFF were or are in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C.  44.

DEFINITIONS

For the purposes of this Order, the following definitions apply:

A. "Defendant HUFF" means LAWRENCE STEPHEN (aka LARRY S.) HUFF.

B. FUTURENET includes but is not limited to, FutureNet, Inc., FutureNet Online, Inc., all their subsidiaries, affiliates and divisions including, but not limited to, Future Electric Networks.

C. "Multi-level marketing program" means any marketing program in which participants pay money to the program promoter in return for which the participants obtain the right to (1) recruit additional participants, or to have additional participants placed by the promoter or any other person into the program participant's downline, tree, cooperative, income center, or other similar program grouping; (2) sell goods or services; and (3) receive payment or other compensation; provided that: (a) the payments received by each program participant are derived primarily from retail sales of goods or services, and not from recruiting additional participants nor having additional participants placed into the program participant's downline, tree, cooperative, income center, or other similar program grouping; and (b) the marketing program has instituted and enforces rules to ensure that it is not a plan in which participants earn profits primarily by the recruiting of additional participants rather than retail sales.

D. "Prohibited marketing scheme" means a pyramid sales scheme, Ponzi scheme, chain marketing scheme, or other marketing plan or program in which a person who participates under a condition that he or she make a payment, directly or indirectly, to receive the right, license or opportunity to derive income as a participant primarily from: (1) the recruitment of additional recruits by the participant, program promotor or others; or (2) non-retail sales made to or by such recruits.

E. "Retail Sales" means products and services sold by defendant HUFF, his successors, assigns, agents, servants, employees, and those persons in active concert or participation with defendant HUFF to third-party end users.

ORDER

I.

IT IS THEREFORE ORDERED that defendant HUFF, any entity that he now or may come to own, operate or control, his successors, assigns, agents, servants, employees and those persons in active concert with defendant HUFF who receive actual notice of this Order by personal service or otherwise, are permanently restrained and enjoined from engaging, participating or assisting in any manner or capacity whatsoever, directly, or in concert with others, or through any business entity or other device, in any multi-level marketing program or prohibited marketing scheme within the United States and anywhere else within the jurisdiction of the Commission. Participation in a multi-level marketing program or prohibited marketing scheme includes, but is not limited to, acting or serving as an officer, director, employee, agent, shareholder, or distributor of any multi-level marketing program or prohibited marketing scheme, or acting as an independent contractor on behalf of any multi-level marketing program or prohibited marketing scheme; provided, however, that defendant HUFF has up to six months after the date of this Order to divest all shares of FUTURENET that he owns or controls.

II.

IT IS FURTHER ORDERED that defendant HUFF, any entity that he now or may come to own, operate or control, his successors, assigns, agents, servants, employees and those persons in active any concert with defendant HUFF who receive actual notice of this Order by personal service or otherwise, in connection with the advertising, promoting, offering for sale, sale, or distribution of any good or service, are hereby permanently restrained and enjoined from:

A. Misrepresenting, expressly or by implication, the amount of sales any person actually can make;
 
B. Misrepresenting, expressly or by implication, the amount of sales a person actually made or can potentially make;
 
C. Making any specific earnings claims without also disclosing (1) the number of participants who make at least the same earnings and (2) the percentage of all such participants who earn the represented amount;
 
D. Misrepresenting, expressly or by implication, that defendant HUFF has received any type of approval or endorsement from the Commission for any good, service or sales program promoted or sold by him;
 
E. Misrepresenting any material fact.

III.

IT IS FURTHER ORDERED that defendant HUFF, any entity that he now or may come to own, operate or control, his successors, assigns, agents, servants, employees and those persons in active concert or participation with defendant HUFF who receive actual notice of this Order by personal service or otherwise, are hereby permanently restrained and enjoined from:

A. Offering the sale or resale of electrical power or other energy service unless defendant HUFF is registered or licensed by the appropriate state and local authorities or are otherwise authorized by applicable law and in compliance with the applicable state and local requirements relating to sellers and resellers of electrical power and other energy service; and
 
B. Failing to disclose to any prospective purchaser of electrical power or other energy service, as well as any prospective participant in any multi-level marketing program to sell or resell electrical power or other energy service, whether defendant HUFF has the authority and ability to sell or resell electrical power or other energy service in the jurisdiction in which the prospective purchaser resides on the date that defendant HUFF advertises, promotes, or offers for sale or resale electrical power or any other energy service.

Paragraph III should not be construed to restrict the applicability of the other provisions of this Order to the sale or resale of electrical power or other energy service.

IV.

IT IS FURTHER ORDERED that defendant HUFF, any entity that he now or may come to own, operate or control, his successors, assigns, agents, servants, employees and those persons in active concert or participation with defendant HUFF who receive actual notice of this Order by personal service or otherwise, in connection with the advertising, promoting, offering for sale, sale, or distribution of any good or service are permanently enjoined and restrained from:

A. Failing to take reasonable steps sufficient to monitor and ensure that all defendant HUFF's agents, representatives, employees, or independent contractors engaged in marketing or sales comply with Paragraphs I-III of this Order. Reasonable steps shall include, at a minimum, establishing and maintaining a compliance program which includes random, blind testing of the oral representations made by any representative or independent contractor; spot checking of consumers to ensure that no misrepresentations were made; and ascertaining the number and nature of any consumer complaints. Defendant HUFF shall, for a period of ten (10) years, submit to the Commission, on an annual basis, no later than fifteen (15) days of the anniversary of the date of entry of this Order, a summary report indicating the efforts of defendant HUFF to comply with the requirements of this Paragraph. These annual reports shall be submitted to the Commission's Associate Director for Marketing Practices at the address listed in Paragraph XV.
 
B. Failing to investigate and resolve promptly any consumer complaint received by defendant HUFF from any third party such as a consumer, government agency, or Better Business Bureau, regarding any sales promotion, or sale of any product or service, and to notify the consumer of the resolution of the complaint and the reason therefore.

V.

IT IS FURTHER ORDERED that the Court's approval of this Order is expressly premised upon the truthfulness, accuracy, and completeness of the financial statements from defendant HUFF produced pursuant to the requirements of the Court's February 23, 1998 Temporary Restraining Order, a declaration dated June 24, 1998 stating that defendant HUFF had "no assets outside the United States", a revised financial statement produced by defendant HUFF on or about August 3, 1998, and sworn deposition testimony provided to counsel for Plaintiff by defendant HUFF in August or September, 1998, as well as the financial verification statements required by Paragraph XII of this Order. If, upon motion by the Commission, this Court should find that defendant HUFF made a material misrepresentation or omission concerning his financial condition on or after February 23, 1998, the date the Court issued its Temporary Restraining Order in this action, then the Court shall enter a modified judgment holding that: (1) defendant HUFF is liable to the Commission in the amount of Twenty-One Million Dollars ($21,000,000.00) less all prior payments for consumer redress made by any defendants in this action; and (2) defendant HUFF must, within ten (10) days of the date of service of the modified judgment, provide to counsel for the Commission a completed financial disclosure statement attached hereto as Exhibit 1 and copies of defendant HUFF's federal and state tax returns for the two (2) years preceding the date of entry of the modified judgment. In the event, that upon motion by the Commission the Court modifies this judgment as described in the preceding sentence, then by the stipulation of the Commission and defendant HUFF, the Court finds that Twenty-One Million Dollars ($21,000,000.00) less all prior payments for consumer redress made by any defendants in this action will represent the recision amount to be due to consumers from defendant HUFF. The Commission, or any of its designees, may collect said modified judgment.

VI.

IT IS FURTHER ORDERED that the freeze of the defendants' assets, as modified in the Court's March 6, 1998 Order and the May 22, 1998 Stipulated Preliminary Injunction, shall be lifted.

VII.

IT IS FURTHER ORDERED that defendant HUFF, his successors and assigns, for a period of ten (10) years from the date of entry of this Order, when acting in an individual capacity, or in connection with any entity in which defendant HUFF has an ownership interest or is a director, officer (or comparable position with a non-corporate entity), or is a person who formulates policies or procedures, in connection with advertising, marketing, promoting, offering for sale, sale, or distribution of any product or service, is hereby restrained and enjoined from failing to create, maintain and make available to representatives of the Commission, upon reasonable notice:

A. Books, records and accounts which, in reasonable detail, accurately and fairly reflect the income, disbursements, transactions and use of monies;
 
B. Records accurately reflecting the name, address, and phone number of each employee, or independent contractor of defendant HUFF, that person's job title or position, the date upon which the person commenced work, and the date and reason for his or her termination, if applicable. Defendant HUFF shall retain such records for any terminated person for a period of two years following the date of termination;
 
C. Records containing the names, addresses, and phone numbers of all consumers to whom defendant HUFF has sold, invoiced, or shipped any products or services, whether on his behalf or that of any third party;
 
D. Records that, for every consumer complaint or refund request, whether received directly or indirectly or through any third party, reflect:
 
(1) the consumer's name, address, telephone number and the dollar amount paid by the consumer;
 
(2) the written complaint, if any, and the date of the complaint or refund request;
 
(3) the basis of the complaint and the nature and the result of any investigation conducted as to the validity of any complaint;
 
(4) each response by defendant HUFF and the date of the response;
 
(5) any final resolution and the date of the resolution; and
 
(6) in the event of a denial by defendant HUFF of a refund request, the reason for such denial, or if cured, the basis for determining that such complaint has been cured; and
 
E. Records relating to all ventures undertaken by defendant HUFF that involve any type of marketing program including, but not limited to, group or individual meetings, telemarketing, infomercials or other television or radio advertising, or direct mail, including but not limited to copies of all contracts or agreements between any defendant and any sales company, mailhouse, printer, information provider, telephone company, television or radio station, or other person through whom defendant HUFF advertises or promotes products or services, as well as copies of all advertisements or promotional materials utilized in such ventures.
 
F. Copies of all sales scripts, training materials, advertisements or other marketing materials utilized, provided that copies of all sales scripts, training materials, advertisements or other materials shall be retained by defendant HUFF for three (3) years after the last date of dissemination or use.

VIII.

IT IS FURTHER ORDERED that, for a period of ten (10) years from the date of entry of this Order, for purposes of determining or securing compliance with this Order, in connection with advertising, promoting, offering for sale, sale, or distribution of any product or service, defendant HUFF, any entity that he now or comes to own, operate or control, his successors, assigns, agents, servants, employees, and those persons in active concert or participation with defendant HUFF who receive actual notice of this Order by personal service or otherwise, shall permit representatives of the Commission upon reasonable written notice:

A. Access during normal office hours to any office or business facility in which documents relating to compliance with the terms of this Order are stored or held, to inspect and copy such documents; and
 
B. To interview current officers, directors, independent contractors, and employees of any entity directly or indirectly under defendant HUFF's control or under common control with him, relating to compliance with the terms of this Order without restraint or interference from defendant HUFF at a location reasonably convenient to the defendant and the person to be interviewed. The person interviewed may have counsel present.

Provided further, that plaintiff may otherwise monitor defendant HUFF's compliance with this Order by all lawful means available, including: (1) the use of investigators or other representatives of the Commission posing as consumers and suppliers of defendant HUFF, his employees or any entity which defendant HUFF owns, operates or controls, without the necessity of prior identification or notice; (2) without further leave of Court, to obtain discovery as provided by Rules 26-37 of the Federal Rules of Civil Procedure, including the use of compulsory process pursuant to Federal Rule of Civil Procedure 45; and (3) the use of compulsory process pursuant to Sections 9 and 20 of the FTC Act, 15 U.S.C. 49 and 57b-1, to investigate whether defendant HUFF has violated any provision of this Order or Section 5 of the FTC Act, 15 U.S.C. 45.

IX.

IT IS FURTHER ORDERED that defendant HUFF, for a period of ten (10) years from entry of this Order, shall give written notice to the Commission of his affiliation or employment with any business entity within twenty-one (21) days of the commencement of such affiliation or employment at the address listed in Paragraph XV. Such notice shall include the new business name and address, a statement of the nature of the business, and of his position and responsibilities with the business.

X.

IT IS FURTHER ORDERED that defendant HUFF, for a period of ten (10) years from the date of entry of this Order, shall, in order to enable the Commission to monitor compliance with the provisions of this Order, give written notice within twenty-one (21) days to the Commission, at the address listed in Paragraph XV, indicating any change in his residential address.

XI.

IT IS FURTHER ORDERED that defendant HUFF and his successors and assigns, for a period of ten (10) years from the date of entry of this Order, for the purposes of determining or securing compliance with this Order, when acting in an individual capacity, or in connection with any entity in which defendant HUFF has an ownership interest or is a director, officer (or comparable position with a non-corporate entity), or is a person who formulates policies or procedures, shall, within sixty (60) days of a written request from the Commission:

A. File with the Commission a statement containing the names of the media in or on which he, his agents, representatives, servants, employees, salespersons, independent contractors or those of any corporations, trusts, or persons or other entities managed or controlled in whole or in part by defendant HUFF, have placed advertisements, the months during which those advertisements were published or broadcast, the caller paid and/or toll-free telephone numbers utilized in furtherance of the sale of goods and services, and the local carriers and/or telephone service common carriers utilized in furtherance of any telemarketing activities; and
 
B. Produce any requested marketing materials used in the advertising, promoting, offering for sale, sale, or distribution of any product or service sold or offered for sale by defendant HUFF, his successors or assigns, agents, representatives, or affiliates.
 
XII.

IT IS FURTHER ORDERED that within ten (10) business days after notice of entry of this Order, defendant HUFF shall submit to the Commission a truthful sworn statement in the form of Exhibit 2 to this Order, that shall reaffirm and attest to the truthfulness, accuracy, and completeness of the information concerning his financial condition referenced in V herein.

XIII.

IT IS FURTHER ORDERED that defendant HUFF shall distribute a copy of this Order to:

A. For a period of ten (10) years from the date of entry of this Order, all of defendant HUFF's agents, servants, representatives and independent contractors, and those persons in active concert or participation with defendant HUFF, and defendant HUFF shall make his best efforts to obtain a signed and dated acknowledgment of receipt of the same;
B. For a period of ten (10) years from the date of entry of this Order, defendant HUFF, when acting in an individual capacity, or in connection with any entity in which defendant HUFF has an ownership interest or is a director, officer (or comparable position with a non-corporate entity) or is a person who formulates policies or procedures, to any future officer, director, managing agent, employee, or independent contractor of such corporation or non-corporate entity, and obtain a signed and dated acknowledgment of receipt of the same;
 
C. The Order must be distributed to those persons identified in subparagraph A not more than ten (10) days after the entry of this Order; and
 
D. For a period of ten (10) years from the date of this Order, retain, and upon reasonable notice make available to representatives of the Commission, the original signed and dated acknowledgments of receipts required by subparagraphs A and B.

XIV.

IT IS FURTHER ORDERED that the expiration of any requirement imposed by this Order shall not affect any other obligation arising under this Order. This Court shall retain jurisdiction of this matter for all purposes. Each party shall bear its own costs and attorney's fees.

XV.

IT IS FURTHER ORDERED that defendant HUFF shall submit any information, notifications, or reports required by this Order to: Associate Director for Marketing Practices, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580, or at such future address as the Commission may designate in writing to defendant HUFF.

XVI.

The parties hereby stipulate and agree, without further notice to any of them, to entry of the foregoing order, which shall constitute a final judgment in this action. Defendant HUFF hereby waives any claim he may have under the Equal Access to Justice Act, 28 U.S.C. 2412, amended by PL 104-121, 110 Stat. 847, 863-64 (1996), concerning the prosecution of this action to the date of this Order. Defendant HUFF further agrees to release the Receiver and the Monitor appointed by previous Orders of the Court, their staff, their attorneys, accountants, and consultants from any and all claims he may have against him or against his agents to the date of this Order, and to indemnify the Receiver and the Monitor against any claims that may be brought against either or both of them by any person or entity relating to the duties performed as Receiver or Monitor.

XVII.

IT IS FURTHER ORDERED that defendant HUFF shall execute, have notarized and return to the Commission at the address listed in Paragraph XV the acknowledgment of receipt of a date-stamped copy of this Order, attached as Exhibit 3 hereto, within five (5) days of his receipt of the a date-stamped copy of this Order.

Executed this ____ day of ________, 1998 by:

FEDERAL TRADE COMMISSION

By:
______________________________
John Andrew Singer
Tara M. Flynn

DEFENDANT LAWRENCE STEPHEN (aka LARRY S.) HUFF

_______________________________
Lawrence Stephen Huff, Individually

Approved as to form:

By:
_______________________________
Michael Roofian
Michael Roofian and Associates

There being no just cause for delay, this Stipulated Final Judgment and Order for a Permanent Injunction as to defendant LAWRENCE STEPHEN (aka LARRY S.) HUFF is hereby entered this ___ day of ________, 1998, and all previous temporary restraining orders and the preliminary injunction regarding defendant HUFF are lifted.

___________________________
George H. King
United States District Judge