REASONS FOR SETTLEMENT
This statement accompanies the Consent Decree executed by defendants CDnow, Inc. and CDnow Online, Inc., in settlement of an action brought to recover penalties and other equitable relief from the defendants for engaging in acts or practices in violation of the Commission's Trade Regulation Rule Concerning Mail or Telephone Order Merchandise, 16 C.F.R. Part 435 ("Mail Order Rule").
Pursuant to Section 5(m)(3) of the Federal Trade Commission Act, as amended (15 U.S.C. § 45(m)(3)), the Commission hereby sets forth its reasons for settlement by entry of a Consent Decree and injunction:
On the basis of the allegations contained in the attached Complaint, the Commission believes that the payment of $300,000 in civil penalties by the defendants constitutes an appropriate amount upon which to base a settlement. However, based on the companies' poor financial condition, as represented in the SEC Form 10-K filed for the fiscal year ending December 31, 1999, and the SEC Form 10-Q for the quarter ending March 31, 2000, payment of the penalty amount is waived except for $100,000. The amount should assure compliance with the law by defendants and by others who engage in practices covered by the Mail Order Rule. Further, defendants are permanently enjoined from engaging in acts or practices that are prohibited by the Mail Order Rule. With the entry of such Consent Decree the time and expense of litigation will be avoided.
For the foregoing reasons, the Commission believes that the settlement by entry of the attached Consent Decree with CDnow, Inc. and CDnow Online, Inc. is justified and well within the public interest.