| FEDERAL TRADE COMMISSION STEPHEN L. COHEN FEDERAL TRADE COMMISSION BARBARA CHUN CA Bar # 186907 ATTORNEYS FOR PLAINTIFF UNITED STATES DISTRICT COURT
FOR THE FEDERAL TRADE COMMISSION, Plaintiff, v. XPICS PUBLISHING, INC., a corporation, also d/b/a Xpics, xpics.com, sex museum.com, sexroulette.com, assawards.com, livesexstream.com, xxxsexphotos.com, and MARIO G. CARMONA, individually, also d/b/a Xpics, xpics.com, sex museum.com, sexroulette.com, assawards.com, livesexstream.com, xxxsexphotos.com, and as an officer of the corporation, and BRIAN M. SHUSTER, individually, also d/b/a Xpics, xpics.com, sex museum.com, sexroulette.com, assawards.com, livesexstream.com, xxxsexphotos.com, and as an officer of the corporation, Defendants. Civil Action No. Plaintiff, the Federal Trade Commission ("FTC" or "the Commission"), for its complaint alleges as follows: 1. The FTC brings this action under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), and the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., to secure preliminary and permanent injunctive relief, rescission of contracts, restitution, disgorgement, and other equitable relief for defendants' unfair or deceptive acts and practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and Section 226.12(e) of Regulation Z, 12 C.F.R. § 226.12(e), which implements the TILA. JURISDICTION AND VENUE 2. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345, and 15 U.S.C. §§ 45(a), 53(b), and 1607(c). 3. Venue in the United States District Court for the Central District of California is proper under 28 U.S.C. §§ 1391(b) and (c), and 15 U.S.C. §§ 53(b). PLAINTIFF 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 TILA and its implementing Regulation Z. A violation of the TILA is a violation of the FTC Act. 15 U.S.C. § 1607(c). The Commission is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act and the TILA, and to secure such equitable relief as may be appropriate in each case. 15 U.S.C.§§ 53(b), 56(a)(2), and 1607(c). DEFENDANTS 5. Defendant Xpics Publishing, Inc. ("Xpics") is a California corporation. Xpics was incorporated in 1996, and transacts business in the Central District of California. Xpics' address is 312 Doria Court, Suite 102, Zephyr Cove, Nevada 89448. Xpics also lists Post Office Box 41077, Los Angeles, California 90007 as an address. Xpics' address on file with the Better Business Bureau is 425 E. Colorado Blvd., Suite 710, Glendale, California 91205. 6. Defendant Mario Carmona ("Carmona") is an owner, director, president, and chief financial officer of Xpics. 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 set forth in this complaint. He resides and has transacted business within the Central District of California. 7. Defendant Brian Shuster ("Shuster") is an owner, director, and chief executive officer of Xpics. 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 set forth in this complaint. He resides and has transacted business within the Central District of California. 8. Collectively or individually, defendants Xpics Publishing, Carmona, and Shuster do business as Xpics; and on the Internet as "www.xpics.com"; "www.sexmuseum.com"; "www.assawards.com"; "www.livesexstream.com"; "www.sexroulette.com"; and on other sites on the Internet. COMMERCE 9. At all times relevant to this complaint, defendants have maintained a substantial course of trade, advertising, offering, offering for sale, and selling adult entertainment goods and services via the Internet in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFINITIONS 10. "World Wide Web" or "web" means a system used on the Internet for cross-referencing and retrieving information. A "web site" is a set of electronic documents, usually a home page and subordinate pages, readily viewable on a computer by anyone with access to the Web, standard software, and knowledge of the web site's location or address. 11. "Internet" means a worldwide system of linked computer networks that use a common protocol (TCP/IP) to deliver and receive information. The "Internet" includes, but is not limited to, the following forms of electronic communication: electronic mail, the World Wide Web, newsgroups, Internet Relay Chat, and file transfer protocols. 12. A "banner advertisement" or "ad banner" is an advertisement on a web site that links to the advertiser's web site. 13. "Browser" means a program that allows users to read hypertext documents on the World Wide Web, and navigate between the documents. Examples of browsers are Netscape Navigator, AOL, and Microsoft Internet Explorer. DEFENDANTS' BUSINESS PRACTICES 14. Since approximately March 1996, defendants have operated and promoted one or more World Wide Web sites offering adult entertainment goods and services, including the web sites located at "www.xpics.com," "www.sexmuseum.com," "www.sexroulette.com," "www.livesexstream.com," and "www.assawards.com" that promise consumers that they can view adult images for "free" at these Internet sites. 15. At one or more of the defendants' Internet sites, on one or more of defendants' banner advertisements, and through unsolicited commercial e-mail, defendants state that they offer adult images for viewing for "FREE," "100% Free," or "FREE, FREE, FREE." 16. When consumers arrive at any of defendants' Internet sites, defendants instruct consumers to provide a credit or debit card number and expiration date to verify they are of legal age to view adult images. Defendants do not disclose, however, that they will charge a monthly fee to the consumer's credit or debit card. Consequently, in numerous instances, as a result of consumers providing defendants with their credit or debit card information, defendants charge consumers a monthly fee for viewing adult images on defendants' Internet sites that defendants have advertised as free, and that consumers believe are free. 17. In numerous other instances, defendants state that consumers can obtain access to defendants' Internet sites for a free trial period, and avoid any charges by canceling a given number of days before the end of the free trial period. In fact, in numerous instances, defendants bill such consumers for a monthly access fee even though the consumers have submitted a cancellation request within the specified time period. 18. In numerous instances, defendants prevent consumers from accessing defendants' cancellation page by overriding the controls on the consumers' browser, or by redirecting consumers to irrelevant pages. In other instances, defendants prevent consumers who attempt to exit from defendants' Internet sites from immediately doing so. 19. In numerous instances, consumers who, in a timely manner, try to cancel their access to defendants' Internet sites are unable to do so. In some instances, consumers who attempt to cancel via defendants' Internet sites receive an "error" or "access denied" message. In other instances, consumers who attempt to cancel by telephone are unable to leave a message because defendants' voice-mail box is full and cannot receive additional messages, or because defendants do not respond to consumers' telephone calls. In other instances, defendants never respond to, or act on, consumers' requests to cancel via e-mail. 20. In numerous instances, defendants refuse to allow consumers to cancel without waiting a certain number of days, or waiting until consumers have had to view additional web sites owned or operated by defendants. 21. In numerous instances, after consumers have submitted a cancellation request, defendants send a reply message stating that the request has been "received" or that a consumer's access has been "canceled." Nevertheless, these consumers often receive additional charges on their credit and debit card statements from defendants. In other instances, consumers request cancellation, only to be charged by defendants for "upgraded" access privileges instead. 22. In numerous instances, consumers who are unsuccessful in canceling contact defendants by e-mail to ask why they were not canceled. Defendants send many of those consumers a reply e-mail from "@xpics.com," repeating instructions that the consumer has already followed. In numerous other instances, defendants send no reply at all. 23. In numerous instances, defendants do not credit consumers' accounts within seven (7) business days even though defendants have notified such consumers that their cancellation request has been received, or that their account has been canceled. 24. In numerous instances, defendants have failed to provide a current contact number for Xpics on consumers' credit or debit card statements. 25. In numerous instances, defendants charge consumers a monthly access fee even though those consumers never agreed to purchase defendants' goods or services. 26. In numerous instances, consumers are forced to contact their credit or debit card issuer to challenge defendants' charges that appear on the consumers' credit or debit card statements. On numerous occasions, card issuers have informed consumers that, because the Xpics' charge is "revolving" and will appear each month, the card issuers cannot stop the charges from appearing each succeeding month. 27. In numerous instances, defendants only credit consumers after a law enforcement agency or consumer protection organization has interceded on the consumers' behalf. VIOLATIONS OF SECTION 5 OF THE FTC ACT 28. 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 unlawful. Misrepresentations and omissions of material facts made to induce a reasonable consumer to purchase products or services, including the purchase of information, are deceptive acts or practices that are prohibited by Section 5(a) of the Act. COUNT I 29. In numerous instances, in the course of advertising, offering, offering for sale, or selling adult entertainment goods and services, defendants represent to consumers, directly or by implication, that consumers may access such goods and services for "free." 30. In truth and in fact, in numerous instances, defendants charge monthly fees to consumers for access to defendants' adult entertainment goods and services, and, therefore, consumers may not access such goods and services for free. 31. Therefore, defendants' representations, as set forth in paragraph 29, above, are false and deceptive, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT II 32. In numerous instances, in the course of advertising, offering, offering for sale, or selling adult entertainment goods and services, defendants represent to consumers, directly or by implication, that they are requesting consumers' credit card information only for age verification purposes. 33. In truth and in fact, in numerous instances, defendants are not requesting consumers' credit card information only for age verification purposes. Rather, defendants are requesting consumers' credit card information to bill for defendants' Web site services in addition to its use for age verification. 34. Therefore, defendants' representation, as set forth in paragraph 32, above, is false and deceptive, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT III 35. In numerous instances, in the course of advertising, offering, offering for sale, or selling adult entertainment goods and services, defendants represent to consumers, directly or by implication, that consumers who cancel in a timely manner and in accordance with defendants' procedures will not be charged any fees. 36. In truth and in fact, in numerous instances, defendants charge consumers a fee even though consumers have canceled in a timely manner and in accordance with defendants' procedures. 37. Therefore defendants' representations, as set forth in paragraph 35, above, are false and deceptive, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT IV 38. In numerous instances, in the course of advertising, offering, offering for sale, or selling adult entertainment goods and services, defendants represent, directly or by implication, to consumers who submit cancellation requests that those consumers' accounts for defendants' adult entertainment goods and services are, in fact, canceled. 39. In truth and in fact, even though defendants tell consumers their accounts for defendants' adult entertainment goods and services are canceled, in numerous instances, defendants bill those consumers' credit or debit cards for a monthly fee. 40. Therefore, defendants' representations, as set forth in paragraph 38, above, are false and deceptive, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT V 41. In numerous instances, in the course of advertising, offering, offering for sale, or selling adult entertainment goods and services, defendants represent, directly or by implication, to consumers who submit cancellation requests that those consumers' accounts for defendants' adult entertainment goods and services are, in fact, canceled. 42. In truth and in fact, instead of canceling such consumers' accounts, defendants instead "upgrade" them for an additional, more expensive fee. 43. Therefore, defendants' representations, as set forth in Paragraph 41, above, are false and deceptive, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT VI 44. In the course of advertising, offering, offering for sale, or selling plans by which consumers can access defendants' adult entertainment goods and services, defendants represent to consumers, directly or by implication, that the consumers may access the goods and services for free and may cancel access to defendants' goods and services without paying any fees. 45 In numerous instances, defendants have failed to disclose clearly and conspicuously to consumers:
46. In light of defendants' representations that consumers may view images on defendants' Internet sites for free and may cancel without paying any fees, as set forth in paragraph 44, above, defendants' failure to disclose clearly and conspicuously the material information set forth in Paragraph 45 is deceptive, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. THE TRUTH IN LENDING ACT 47. Section 166 of the TILA, 15 U.S.C. § 1666e, requires creditors to promptly credit a consumer's credit card account upon acceptance of the return of goods or forgiveness of the debt for services. Section 226.12(e) of Regulation Z, which implements Section 166 of the TILA, requires creditors to credit a consumer's credit card account within seven business days from accepting the return of property or forgiving a debt for services. 12 C.F.R. § 226.12(e). VIOLATIONS OF THE TRUTH IN LENDING ACT COUNT VII 48. Xpics is a creditor as that term is defined in Section 103(f) of the TILA, 15 U.S.C. § 1602(f), and Section 226.2(a)(17)(ii) of Regulation Z, 12 C.F.R. § 226.2(a)(17)(ii). 49. Since at least June 1996, in numerous instances, defendant Xpics has failed to credit promptly consumers' credit card accounts within seven (7) business days from accepting the return of property or forgiving a debt for services and, therefore, has violated Section 166 of the TILA, 15 U.S.C. § 1666e, and Section 226.12(e) of Regulation Z, 12 C.F.R. § 226.12(e). CONSUMER INJURY 50. Consumers throughout the United States and in foreign countries have suffered monetary losses as a result of the 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 51. 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 FTC. 52. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by defendants' law violations. PRAYER FOR RELIEF WHEREFORE, plaintiff requests that this Court, as authorized by Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), Section 108(c) of the TILA, 15 U.S.C. § 1607(c), and pursuant to its own equitable powers:
Dated: Respectfully submitted, Stephen L. Cohen LOCAL COUNSEL Barbara Chun |