|DEBRA A. VALENTINE
MICHAEL J. BLOOM (MB 7732)
UNITED STATES DISTRICT COURT
FEDERAL TRADE COMMISSION
WORLD INTERACTIVE GAMING CORP., a Delaware Corporation, JEFFREY BURTON, and LAWRENCE BLOCKER, d/b/a JAMES LAWRENCE AND ASSOCIATES, Defendants.
CIVIL ACTION NO.
COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF
Plaintiff, the Federal Trade Commission (Commission), by its undersigned attorneys, alleges as follows:
JURISDICTION AND VENUE
1. This is an action under Section 13(b) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 53(b), to secure injunctive and other equitable relief, including rescission, restitution, and disgorgement, against defendants for violations of Section 5 of the FTC Act, 15 U.S.C. § 45(a).
2. This Court has subject matter jurisdiction over plaintiffs claims 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 under 15 U.S.C. § 53(b).
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) of the FTC Act, which prohibits deceptive acts or practices in commerce. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act and secure such equitable relief as is appropriate in each case, including redress for injured consumers. 15 U.S.C. § 53 (b).
5. Defendant World Interactive Gaming Corp. ("World Interactive") is a Delaware corporation with its principal place of business located at 3330 Veterans Memorial Highway, Bohemia, New York 11716. Defendant World Interactive purports to be in the process of developing a full service Internet casino, Golden Chips Casino, that will be the first of a total of five Internet casinos the company will develop. Defendant World Interactive is currently engaged in soliciting a purported $3.5 million from consumers through a private placement offering. Defendant World Interactive has transacted business in the Eastern District of New York.
6. Defendant Jeffrey Burton is an officer, director, and a principal owner of defendant World Interactive. At all times material to this complaint, acting alone or in concert with others, he formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. He has transacted business in the Eastern District of New York.
7.Defendant Lawrence Blocker, d/b/a James Lawrence and Associates, is an officer, director, and a principal owner of defendant World Interactive. At all times material to this complaint, acting alone or in concert with others, he formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. He has transacted business in the Eastern District of New York.
DEFENDANTS COURSE OF CONDUCT
8. Since at least July 1997, and continuing thereafter, defendants have maintained a substantial course of trade in the offering and sale to consumers of investments in an Internet casino. Defendants profess to offer these investments through private placement offerings of convertible preferred stock in defendant World Interactive, the proceeds of which, defendants claim will be used to fund the development of Golden Chips Casino. Defendants and their agents offer and sell their investments to consumers across the country using telephone sales presentations and printed promotional materials.
9. Defendants typically begin with a cold call to a potential investor from someone purporting to be a secretary or assistant to a Vice-President of Marketing ("VP") at defendant World Interactive. The caller says he/she is not a stockbroker, but is calling from the corporate offices of defendant World Interactive, which is in the middle of a private offering, and asks if the potential investor would be interested in receiving more information about owning part of defendant World Interactives casino.
10. The caller asks the potential investor if he/she can make an investment decision alone, and if so, whether the potential investor is or can become "liquid" for up to $100,000. The caller asks what the person wants in an investment. Even if the answer is "safety" the caller continues with the sales pitch. The caller says most people buy several preferred stock units (at $10,000 each) but that there are very few units left. If the person shows interest, the caller says that a VP for Marketing will call shortly.
11. The next call to the consumer, often that same day, is from a purported VP of Marketing. The VP generally informs the consumer that the company is selling 350 units of convertible preferred stock in a private placement. Each unit of stock has 2,000 shares, at $5 per share, for a total cost per unit of $10,000. According to the VP, most consumers purchase 3 to 5 units a piece.
12. The VP informs the consumer that defendant World Interactive is currently operating its Internet casino, Golden Chips Casino, and that it is not yet taking live bets but will be in the near future -- typically, two to three months post-call.
13. Golden Chips Casino offers blackjack, slots, video poker, roulettes, craps, bingo, keno, Asian games, sports book (soccer, baseball, football, etc.), world lotto, and other games with progressive pools. The software offering these various games is described as top of the line and will enable defendant World Interactive to become a leader in Internet casinos.
14. According to the VP, the consumer is in line to get in on the ground floor of an investment whose profitability ranks with that of "Microsoft, Netscape, and Yahoo." The VP discusses generally the alleged profitability of land based casinos. The VP also makes claims about the alleged profits generated by a leading Internet sports betting concern. The VP uses all of these alleged facts to lead the consumer to the conclusion that defendant World Interactives casino can be as, if not more, profitable.
15. In the course of the sales pitch, the VP reiterates the claim found in defendant World Interactives private placement memo, that the casino industry is a $500 billion industry. The VP also informs the consumer that the large Las Vegas casinos purportedly generate $2-2.5 billion in revenue annually. The VP also informs the consumer that the stock prices for casinos are high, purportedly running from $46.47 per share for the MGM Grand casino to $103 per share for Griffin Gaming.
16. In the course of the sales pitch, the VP claims that defendant World Interactive should "easily do" $100 million revenue in its first year, which is a "conservative estimate." The VP also asserts that the company expects to make $500,000 in its first month of operation and should easily double every month its first year.
17. According to the VP, an investor in defendant World Interactive has three ways of achieving an astronomical return on his or her $10,000 investment. First, the VP explains, defendant World Interactive expects to take the company public within one year and, according to unnamed "Wall Street underwriters," the stock should easily exceed $40/share, or $80,000 per unit owned. The VP encourages the investor to hold onto his or her stock, however, because the second way for the investor to make money is through defendant World Interactives profit sharing plan. Specifically, according to the VP, defendant World Interactive will pay each investor a 20% fixed annual dividend, or $2,000 per unit starting in the first year. Finally, the VP adds, the third way for an investor to make money is through a profit sharing program where defendant World Interactive will pay preferred shareholders 25% of the profits, which would mean a $71,000 return per unit if the company makes the estimated $100 million in the first year. Thus, according to the VP, each holder of one unit can expect to make $150,000 or more in one year from each $10,000 unit they own.
18. The VP then asks if the consumer has liquid funds, stressing that time is a factor in this investment because there are few units left. The VP informs the consumer that until recently he was sending the placement memorandum out by regular mail but because there are so few units left, and demand for the investment is high, he is now sending it out by overnight mail. He sets a date to call back and follows up thereafter.
19. Defendants, individually or in concert with others, have used the above representations, or others similar to those described above, to induce the purchase of investments into their Internet gambling casino.
20. 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
21. Defendants have represented to consumers, expressly or by implication, that their purported Internet casino can expect to make approximately $100 million in its first year of operation. In fact, defendants Internet casino cannot expect to make approximately $100 million in its first year of operation.
22. Defendants have represented to consumers, expressly or by implication, that they can expect to make approximately $150,000 or more on their $10,000 investment within the first year of the casinos operation. In fact, consumers cannot expect to make approximately $150,000 or more on their $10,000 investment within the first year of the casinos operation.
23. Therefore, defendants' representations, as set forth in paragraphs 21-22, are false and misleading and constitute deceptive acts or practices in violation of the FTC Act, 15 U.S.C. § 45(a).
24. Defendants violations of Section 5(a) of the FTC act have injured, and will continue to injure, consumers. As a result of defendants deceptive acts or practices, it is highly likely that consumers will lose the money they have paid to defendants. For the reasons set forth above, consumers have suffered, and will continue to suffer, financial injury unless defendants unlawful practices are enjoined.
THIS COURTS POWER TO GRANT RELIEF
25. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to grant injunctive and other relief to prevent and remedy 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: , 1998