IN THE UNITED STATES DISTRICT COURT FEDERAL TRADE
COMMISSION and v. 1st
FINANCIAL SOLUTIONS, INC., an Illinois corporation; Civ. No. COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF Plaintiffs, the Federal Trade Commission ("FTC" or "the Commission") and the State of Illinois, by and through James E. Ryan, Attorney General of Illinois, for their complaint against 1st Financial Solutions, Inc., American Benefits Club, Inc., Rockwell Holdings, Inc., and John F. Boone (collectively, "Defendants"), allege: 1. The FTC brings this 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 ("Telemarketing Act"), 15 U.S.C. §§ 6101, et seq., to secure preliminary and permanent injunctive relief, restitution, rescission or reformation of contracts, disgorgement, and other equitable relief for Defendants' deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the FTC's Trade Regulation Rule entitled "Telemarketing Sales Rule" (the "Telemarketing Rule"), 16 C.F.R. Part 310. 2. The State of Illinois brings this action under Section 4(a) of the Telemarketing Act, 15 U.S.C. § 6301(a), to secure similar injunctive and equitable relief. 3. The State of Illinois, as part of the same case or controversy, also brings this action pursuant to the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq. (the "Consumer Fraud Act"), as well as the Credit Services Organizations Act, 815 ILCS 605/1, et seq., to secure preliminary and permanent injunctive relief, consumer restitution and other equitable relief, reimbursement of its costs and expenses, and civil penalties against Defendants for their deceptive acts and practices in violation of those statutes. JURISDICTION AND VENUE 4. This Court has subject matter jurisdiction pursuant to 15 U.S.C. §§ 45(a), 53(b), 57b, 6102(c), and 6105(b), and 28 U.S.C. §§ 1331, 1337(a), and 1345, and over the claims of the State of Illinois pursuant to 28 U.S.C. § 1367. 5. Venue in the Northern District of Illinois is proper under 15 U.S.C. § 53(b) and 28 U.S.C. § 1391(b) and (c). PLAINTIFFS 6. Plaintiff 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 Telemarketing Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive telemarketing acts or practices. The Commission is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act and the Telemarketing Rule, and to secure such equitable relief as may be appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b), 57b, 6102(c), and 6105(b). 7. Plaintiff the State of Illinois is one of the fifty sovereign states of the United States. James E. Ryan is the duly elected Attorney General acting for the State of Illinois and brings this action in his official capacity as its chief law enforcement officer. The chief law enforcement officer of a state is authorized to initiate federal district court proceedings to enjoin telemarketing that violates the Commission's Telemarketing Rule, and, in each such case, to obtain damages, restitution, and other compensation on behalf of residents of the state, and to obtain such further and other relief as the Court may deem appropriate. 15 U.S.C. § 6103(a). 8. The State of Illinois also brings this action because it is in the public interest pursuant to the Credit Services Organizations Act, 815 ILCS 605/1, et seq., and the Consumer Fraud Act, 815 ILCS 505/1, et seq., specifically pursuant to Section 7 of the Consumer Fraud Act, which provides in pertinent part:
DEFENDANTS 9. Defendant 1st Financial Solutions, Inc. ("1st Financial Solutions"), is an Illinois corporation with its principal place of business at 1014 Cedar, Park Ridge, Illinois 60068-1136. 1st Financial Solutions transacts or has transacted business in the Northern District of Illinois. 10. Defendant American Benefits Club, Inc. ("American Benefits Club"), is an Illinois corporation with its principal place of business at 1014 Cedar, Park Ridge, Illinois 60068-1136. American Benefits Club transacts or has transacted business in the Northern District of Illinois. 11. Defendant Rockwell Holdings, Inc. ("Rockwell Holdings"), is an Illinois corporation with its principal place of business at 1002 E. Algonquin Road, #102, Schaumburg, Illinois 60173. Rockwell Holdings transacts or has transacted business in the Northern District of Illinois. 12. Defendant John F. Boone is an officer, or has held himself out as an officer, of Rockwell Holdings, Inc. At all times material to this complaint, acting in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Rockwell Holdings, Inc. He transacts or has transacted business in the Northern District of Illinois. COMMERCE 13. At all times relevant to this complaint, Defendants have maintained a substantial course of trade in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44, and as defined in Section 1(f) of the Illinois Consumer Fraud Act, 815 ILCS 505/1(f). DEFENDANTS' COURSE OF CONDUCT 14. Since at least December 2000, Defendants 1st Financial Solutions, Inc., American Benefits Club, Inc., and Rockwell Holdings, Inc., doing business under their respective names and under various fictitious names including, but not limited to, "1st Freedom," "1st Choice Financial Solutions," "1st Choice Solutions," "Card Services," and "Merchant Banking Services Group," acting alone or in concert with others, have made unsolicited outbound telephone calls to consumers throughout the country and falsely offered to provide credit cards to those consumers who agreed to permit Defendants to debit their bank accounts in amounts ranging from $99.95 to $219.95. Defendants also state that the credit cards have no annual fee. 15. During the telephone calls to consumers, Defendants offer to provide consumers with benefit packages such as gasoline discount coupons and automobile clubs. 16. During the telephone calls to consumers, Defendants provide consumers with a toll-free telephone contact number, typically 1-800-950-1934. 17. During the telephone calls to consumers, Defendants request bank account information, including bank routing information. 18. Defendants routinely debit the bank accounts of consumers, who have provided bank account information and agreed to pay fees with bank account debits, in advance of providing those consumers with the VISA or MasterCard credit cards promised during the telephone calls. 19. Defendants debit consumer bank accounts using names such as Rockwell Holdings and Rockwell Holdings, Inc. Defendants are sometimes identified on consumers' account statements with an abbreviation of a corporation name plus the telephone number that Defendants provide to consumers during the initial sales call, e.g., RKW8009501934 ("Rockwell" 800-950-1934) and BFTCLB8009501934 ("Benefit Club" 800-950-1934). 20. Sometimes, while Defendants do not provide consumers with VISAs or MasterCards, they provide consumers with packets of materials that describe various benefits, such as discounts and automobile club memberships, that Defendants purport to provide and letters promising that the consumer's name and information has been submitted to another entity, such as one named "Merchant Banking Services Group," for processing. Representative of statements made to consumers in such letters is the following:
21. Defendants also provide some consumers with a packet of materials promising certificates for discounts on gasoline purchases, discounts on car rentals, and memberships in automobile clubs that purport to be provided by a distinct entity often named "The Shoppers Network." 22. Defendants occasionally provide consumers with cards, sometimes described as stored value cards, including but not limited to a card called an "ATTM" card that can only be used by a consumer if the consumer deposits in an account sufficient sums of money to pay for purchases made with the card. 23. Defendants do not provide consumers with, or arrange for consumers to receive, credit cards or other extensions of credit. 24. In addition, Defendants have continued to call consumers who have stated that they do not wish to receive calls from Defendants. THE TELEMARKETING RULE 25. In the Telemarketing Act, 15 U.S.C. §§ 6101, et seq., Congress directed the FTC to prescribe rules prohibiting deceptive and abusive telemarketing acts or practices. On August 16, 1995, the Commission promulgated the Telemarketing Rule, 16 C.F.R. Part 310, with a Statement of Basis and Purpose, 60 Fed. Reg. 43842 (Aug. 23, 1995). The Telemarketing Rule became effective December 31, 1995. 26. The Telemarketing Rule defines "seller" as "any person who, in connection with a telemarketing transaction, provides, offers to provide, or arranges for others to provide goods or services to the customer in exchange for consideration." 16 C.F.R. § 310.2(r). 27. The Telemarketing Rule defines "telemarketer" as "any person who, in connection with telemarketing, initiates or receives telephone calls from a customer." 16 C.F.R. § 310.2(t). 28. The Telemarketing Rule defines "telemarketing" as "a plan, program, or campaign which is conducted to induce the purchase of goods or services by use of one or more telephones and which involves more than one interstate telephone call." 16 C.F.R. § 310.2(u). 29. The Telemarketing Rule prohibits any seller or telemarketer from misrepresenting any material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer. 16 C.F.R. § 310.3(a)(2)(iii). 30. The Telemarketing Rule prohibits any seller or telemarketer from, inter alia, requesting or receiving payment of any fee or consideration in advance of obtaining or arranging a loan or other extension of credit when the seller or telemarketer has guaranteed or represented a high likelihood of success in obtaining or arranging a loan or other extension of credit. 16 C.F.R. § 310.4(a)(4). 31. The Telemarketing Rule also prohibits any seller or telemarketer from "making a false or misleading statement to induce a person to pay for goods or services." 16 C.F.R. § 310.3(a)(4). 32. The Telemarketing Rule prohibits any seller or telemarketer from "initiating an outbound telephone call to a person when that person previously has stated that he or she does not wish to receive an outbound telephone call made by or on behalf of the seller whose goods or services are being offered." 16 C.F.R. § 310.4(b)(1)(ii). 33. Pursuant to Section 3(c) of the Telemarketing 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 Telemarketing Rule 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). VIOLATIONS OF THE TELEMARKETING ACT AND TELEMARKETING RULE 34. Defendants are "sellers" or "telemarketers" engaged in "telemarketing," as those terms are defined in the Commission's Telemarketing Rule, 16 C.F.R. §§ 310.2(r), (t), and (u). COUNT I VIOLATIONS OF 16 C.F.R. § 310.3(a)(2)(iii) 35. In numerous instances, in connection with telemarketing offers to obtain extensions of credit for consumers, Defendants have represented, directly or by implication, that, after paying Defendants a fee, consumers will or are highly likely to receive an extension of credit in the form of major credit cards, such as VISA or MasterCard credit cards. 36. In truth and in fact, after paying Defendants a fee, consumers will not or are not highly likely to receive an extension of credit in the form of major credit cards, such as VISA or MasterCard credit cards. 37. Therefore, Defendants' representations, as alleged in Paragraph 35, are deceptive telemarketing acts or practices in violation of Section 310.3(a)(2)(iii) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(2)(iii). COUNT II VIOLATIONS OF 16
C.F.R. § 310.3(a)(4) 38. In numerous instances, in connection with telemarketing offers to obtain or arrange extensions of credit for consumers, Defendants have represented, directly or by implication, that, after paying Defendants a fee, consumers will or are highly likely to receive an extension of credit in the form of major credit cards, such as VISA or MasterCard credit cards. 39. In truth and in fact, after paying Defendants a fee, consumers will not or are not highly likely to receive an extension of credit in the form of major credit cards, such as VISA or MasterCard credit cards. 40. Therefore, Defendants' representations, as alleged in Paragraph 38, constitute false or misleading statements to induce a person to pay for goods or services, and are deceptive telemarketing acts or practices in violation of Section 310.3(a)(4) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(4). COUNT III VIOLATIONS OF 16
C.F.R. § 310.4(a)(4) 41. In numerous instances, in connection with telemarketing offers to obtain or arrange extensions of credit for consumers in the form of major credit cards, such as VISA or MasterCard credit cards, Defendants have requested or received payment of a fee or consideration in advance of obtaining or arranging an extension of credit for consumers in the form of major credit cards, such as VISA or MasterCard credit cards, when Defendants have guaranteed or represented a high likelihood of success in obtaining or arranging an extension of credit for such consumers. 42. Defendants have thereby violated Section 310.4(a)(4) of the Telemarketing Sales Rule, 16 C.F.R. § 310.4(a)(4). COUNT IV VIOLATIONS OF 16
C.F.R. § 310.4(b)(1)(ii) 43. In connection with telemarketing offers to obtain or arrange extensions of credit for consumers, Defendants have continued to initiate outbound calls to persons who have stated that they do not wish to receive an outbound telephone call made by or on behalf of Defendants. 44. Defendants have thereby violated Section 310.4(b)(1)(ii) of the Telemarketing Sales Rule, 16 C.F.R. § 310.4(b)(1)(ii). VIOLATIONS OF THE FEDERAL TRADE COMMISSION ACT 45. 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 hereby declared unlawful." COUNT V VIOLATIONS OF
SECTION 5 OF THE FTC ACT 46. In numerous instances, in connection with offers to obtain or arrange extensions of credit for consumers in the form of major credit cards, Defendants have represented, directly or by implication, that, after paying Defendants a fee, consumers will or are highly likely to receive an extension of credit in the form of major credit cards, such as VISA or MasterCard credit cards. 47. In truth and in fact, after paying Defendants a fee, consumers will not or are not highly likely to receive an extension of credit in the form of major credit cards, such as VISA or MasterCard credit cards. 48. Therefore, the representations set forth in Paragraph 46 are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). VIOLATIONS OF ILLINOIS STATE LAW COUNT VI VIOLATIONS OF THE
CREDIT SERVICES ORGANIZATIONS ACT 49. Section 3(d) of the Credit Services Organizations Act, 815 ILCS 605/3(d), defines "credit services organization" as follows:
ILCS 605/3(d). 50. Defendants, in connection with their telemarketing plan, offer to assist consumers in obtaining an extension of credit by representing that for an advance fee ranging from $99.95 to $219.95, consumers will receive a Visa or MasterCard with a $2,500.00 credit limit from Merchant Banking Services Group. Hence, Defendants operate as a "credit services organization" as defined by Section 3(d) of the Credit Services Organizations Act. 51. Section 9 of the Credit Services Organizations Act, 815 ILCS 605/9, requires that a credit services organization file a registration statement with the Illinois Secretary of State, Index Division. 52. Defendants have violated Section 9 of the Credit Services Organizations Act in that they have not filed registration statements with the Illinois Secretary of State, Index Division. See Certifications of Secretary of State, attached hereto as Exhibits A, B, C, and D. 53. Section 6 of the Credit Services Organizations Act, 815 ILCS 605/6, requires that a credit services organization provide consumers with a disclosure statement before the execution of a contract or before the receipt of money or other valuable consideration. 54. Defendants have violated Section 6 of the Credit Services Organizations Act in that they failed to provide consumers with a disclosure statement, prior to receipt of money or other valuable consideration. 55. Section 7 of the Credit Services Organizations Act, 815 ILCS 605/7, states in relevant part as follows:
815 ILCS 605/7. 56. Defendants have violated Section 7 of the Credit Services Organizations Act in that they failed to provide consumers with a contract which contains all of the information required by Section 7 of the Act. 57. Section 5(1) of the Credit Services Organizations Act, 815 ILCS 605/5(1), states in relevant part as follows:
815 ILCS 605/5(1) (emphasis added). 58. Defendants are required to obtain a surety bond since they charge a fee in advance of the consumer receiving an extension of credit. 59. Section 10 of the Credit Services Organizations Act, 815 ILCS 605/10, states in relevant part as follows:
815 ILCS 605/10. 60. Defendants have violated Section 10 of the Credit Services Organizations Act in that they have failed to obtain the required $100,000 surety bond and post a copy of such bond at the Illinois Secretary of State, Index Division. 61. Section 5(4) of the Credit Services Organizations Act, 815 ILCS 605/5, states in relevant part as follows:
815 ILCS 605/5(4). 62. The Defendants have violated Section 5(4) of the Credit Services Organizations Act in that they have made the following untrue or misleading statements:
63. Section 15 of the Credit Services Organizations Act, 815 ILCS 605/15, provides that a violation of the Credit Services Organizations Act is also a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq. COUNT VII VIOLATIONS OF THE ILLINOIS CONSUMER FRAUD AND DECEPTIVE BUSINESS PRACTICES ACT (By Plaintiff People of the State of Illinois) 64. Section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2, provides as follows:
815 ILCS 505/2. 65. At all times relevant hereto, but a least since December 2000, Defendants have engaged in the trade or commerce of telemarketing credit cards to consumers in the State of Illinois and elsewhere. 66. In the course of their trade or commerce, and in furtherance of Defendants' own business gains, Defendants have engaged in the following unfair or deceptive acts or practices in violation of Section 2 of the Consumer Fraud Act:
CONSUMER INJURY 67. Consumers throughout the United States have suffered, and continue to suffer, substantial monetary loss as a result of Defendants' unlawful acts and practices. In addition, Defendants have been unjustly enriched as a result of their unlawful acts and practices. Absent injunctive relief, Defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public. THIS COURT'S POWER TO GRANT RELIEF 68. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), authorizes this Court to issue a permanent injunction against Defendants' violations of the FTC Act and, in the exercise of its equitable jurisdiction, to order such ancillary relief as temporary and preliminary injunctions, consumer redress, rescission, restitution and disgorgement of profits resulting from Defendants' unlawful acts or practices, and other remedial measures. 69. Section 19 of the FTC Act, 15 U.S.C. § 57b, and Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), authorize the Court to grant to the FTC such relief as the Court finds necessary to redress injury to consumers or other persons resulting from Defendants' violations of the Telemarketing Rule, including the rescission and reformation of contracts and the refund of money. 70. Section 4(a) of the Telemarketing Act, 15 U.S.C. § 6103(a), authorizes this Court to grant to the State of Illinois, on behalf of its residents, injunctive and other equitable relief, including damages, restitution, other compensation, and such further and other relief the Court deems appropriate. 71. Section 7 of the Illinois Consumer Fraud Act authorizes this Court to grant civil penalties, injunctions, and other relief the Court deems appropriate. 72. Pursuant to 28 U.S.C. § 1367, this Court has supplemental jurisdiction to allow Plaintiff, the State of Illinois, to enforce its state law claims under the Illinois Credit Services Organizations Act, 815 ILCS 605/1, et seq., and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq., against Defendants in this Court. PRAYER FOR RELIEF WHEREFORE, Plaintiff Federal Trade Commission, pursuant to Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), and the Court's own equitable powers, and Plaintiff State of Illinois pursuant to the Illinois Credit Services Organizations Act, 815 ILCS 605/1, et seq., the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq., and the Court's own equitable powers, request that the Court:
Respectfully Submitted, WILLIAM E. KOVACIC JOHN C. HALLERUD Attorneys for Plaintiff ___________________________________ JANICE M. PARKER, Attorneys for Plaintiff |