Opinion
Case No.: 2:13-cv-00143-MMD-GWF
02-15-2013
Federal Trade Commission, Plaintiff, v. Ideal Financial Solutions, Inc., et al., Defendants.
DAVID SHONKA Acting General Counsel R. MICHAEL WALLER* MEGAN E. GRAY* Attorneys Federal Trade Commission DANIEL G. BOGDEN United States Attorney District of Nevada BLAINE T. WELSH Assistant United States Attorney Nevada Bar No. 4790 Attorneys for Plaintiff the Federal Trade Commission
DAVID SHONKA
Acting General Counsel
R. MICHAEL WALLER*
MEGAN E. GRAY*
Attorneys
Federal Trade Commission
DANIEL G. BOGDEN
United States Attorney
District of Nevada
BLAINE T. WELSH
Assistant United States Attorney
Nevada Bar No. 4790
Attorneys for Plaintiff the Federal Trade Commission
Preliminary Injunction with
Other Equitable Relief
Plaintiff Federal Trade Commission ("the Commission" or "the FTC"), pursuant to Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), filed a Complaint for a Permanent Injunction and Other Equitable Relief, including consumer redress, and has moved ex parte for a Preliminary Injunction and for an order to show cause why a preliminary injunction should not issue pursuant to Rule 65(b) of the Federal Rules of Civil Procedure. (See dkt. Nos. 1 and 2). After reviewing the Commission's filings and exhibits, the Court enters the Preliminary Injunction and Other Equitable Relief.
I. FINDINGS OF FACT
The Court, having considered the Complaint, the Commission's Ex Parte Application for a Preliminary Injunction and Order to Show Cause, declarations and exhibits, including supplemental declarations, the memorandum of points and authorities filed in support thereof, the Receiver's Report, and being otherwise advised, finds as follows:
1. This Court has jurisdiction over the subject matter of this case, and there is good cause to believe it will have jurisdiction over all parties hereto.
2. Venue is properly with this Court.
3. There is good cause to believe that Defendants Ideal Financial Solutions, Inc.; Ascot Crossing, LLC; Chandon Group, Inc.; Bracknell Shore, Ltd.; Fiscal Fitness, LLC; Avanix, LLC; Steven Sunyich; Christopher Sunyich; Michael Sunyich; Shawn Sunyich; Melissa Sunyich Gardner; and Kent Brown (collectively, "Defendants") have engaged in and are likely to engage in acts and practices that violate Section 5(a) of the FTC Act.
4. Section 13(b) of the FTC Act allows a district court to grant the Commission a Preliminary Injunction or a preliminary injunction "[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest." 15 U.S.C. § 53(b). Section 13(b), therefore, "places a lighter burden on the Commission than that imposed on private litigants by the traditional equity standard; the Commission need not show irreparable harm to obtain a preliminary injunction." FTC v. Warner Communications, Inc., 742 F.2d 1156, 1159 (9th Cir. 1984). Under this more lenient standard, "a court must (1) determine the likelihood that the Commission will ultimately succeed on the merits and (2) balance the equities." Id. at 1160.
5. There is good cause to believe that the Commission is likely to prevail on the merits of this action. The evidence set forth in the FTC's Memorandum in Support of its Ex Parte Motion for a Preliminary Injunction with Ancillary Equitable Relief and an Order to Show Cause Why a Preliminary Injunction Should Not Issue ("Memorandum"), and the accompanying declarations and exhibits, demonstrates that the Defendants have likely engaged in unfair and deceptive acts or practices in violation of Section 5 of the FTC Act by acquiring consumers' bank account or credit card information and debiting those consumers' bank accounts or billing their credit cards, without such consumers' authorization.
6. Section 5 defines an unfair practice as an act or practice that "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighted by countervailing benefits to consumers or to competition." 15 U.S.C. § 45(n).
7. Here, the Commission is likely to demonstrate that Defendants' unauthorized debiting of consumers' bank accounts and unauthorized billing of their credit cards constitutes an unfair trade practice. First, the Commission has demonstrated that Defendants' actions have likely caused substantial injury to consumers. Although the Commission alleges that consumers were unlawfully charged approximately $30, substantial injury in this context can include such small harms to large amounts of consumers. See FTC v. Pantron I Corp., 33 F.3d 1088, 1102 (9th Cir. 1994) ("Both the Commission and the courts have recognized that consumer injury is substantial when it is the aggregate of many small individual injuries."); FTC v. Inc21.com Corp., 745 F. Supp. 2d 975, 1004 (N.D. Cal. 2010). The Commission approximates Defendants to have unlawfully billed at least $24 million from consumers. Second, such harm was not avoidable by consumers, since the Commission alleges that consumers had not purchased any product from Defendants and had no reason to inquire into their bills. Id. (finding that purchases of products could not be reasonably avoided when consumers did not authorize or know about the purchases); FTC v. J.K. Publ'ns., Inc., 99 F. Supp. 2d 1176, 1203 (C.D. Cal. 2000) (noting that unauthorized billing is an unfair trade practice). Lastly, consumers appear not to have received any countervailing benefit for these charges. The evidence in the record demonstrates that the high percentage of "returns" (money refunded from unauthorized debiting of checking account) and "chargebacks" (money refunded from unauthorized charging of credit cards), as well as the dedicated call centers operated by Defendants only to staff consumer complaints about the charges, demonstrates that consumers received no benefit from the transactions.
8. In addition to the unauthorized transactions, the record demonstrates that Defendants likely engaged in unfair or deceptive trade practices by misrepresenting to consumers who inquired about the unauthorized charges that the consumers did in fact agree to purchase Defendants' "products." The products were billed as financial consulting services relating to payday loans, or insurance policies that protected against defaults of payday loans, or similar phony services connected to payday loans that consumers had applied for. With regards to the latter, a former call center employee of Defendant Ideal Financial testified that he would provide the financial program consultation service if a consumer requested it from the calls, but this would rarely happen. (See dkt. no. 3-3, Exh. 23, Decl. of Jeffrey Russell Stevens.) However, the high number of callers who would request reversals of the unauthorized transaction or who would call the number associated with the charge on their bill suggests that these consumers did not know about the service, did not intend to receive a benefit, or did not actually receive any benefit. The evidence raises a serious question as to whether any sizeable number of consumers actually signed up for and received Defendants' financial services in exchange for the charges. Consequently, Defendants' statements to consumers that they authorized such charges constitute misrepresentations that are likely to mislead consumers to believe that their payday loan inquiries resulted in purchases of Defendants' products.
9. There is good cause to believe that immediate and irreparable damage to this Court's ability to grant effective final relief for consumers, including monetary restitution, rescission, or refunds, will occur from the sale, transfer, or other disposition by Defendants of their Assets or company records, or those Assets and company records under their control, unless Defendants are immediately restrained and enjoined by order of this Court. The balance of the equities favors granting the Commission's request for a Preliminary Injunction because of Defendants' injurious conduct, as well as the potential for Defendants to dissipate consumer assets without a preliminary injunction and other equitable relief. In the absence of such an order, the harm to the public interest is clear. FTC v. World Wide Factors, Ltd., 882 F.2d 344, 346 (9th Cir. 1989) (citing United States v. Odessa Union Warehouse Co-op, 833 F.2d 172, 175-76 (9th Cir. 1987), and noting that harm to the public interest is presumed by the Commission's request to enjoin conduct that violates the FTC Act). There is thus good cause for an Asset freeze, a prohibition on certain activities, the continued appointment of a Receiver over the Receivership Entities, and ancillary relief. In sum, weighing the equities and considering the Commission's likelihood of ultimate success on the merits, a Preliminary Injunction with Asset freeze and other equitable relief is in the public interest.
10. The FTC is an independent agency of the United States of America. No security is required of any agency of the United States for the issuance of a Preliminary Injunction. Fed. R. Civ. P. 65(c).
II. DEFINITIONS
For the purposes of this Preliminary Injunction, the following definitions apply: "Asset" means any legal or equitable interest in, right to, or claim to any real or personal property, including, but not limited to, chattel, goods, instruments, equipment, fixtures, customer lists, lead lists, consumer financial information, general intangibles, effects, leaseholds, inventory, mail or other deliveries, checks, notes, accounts, credits, receivables, shares of stock, contracts, trusts, and all funds, cash and currency, or other assets, or any interest therein, wherever located.
"Corporate Defendants" means Ideal Financial Solutions, Inc.; Ascot Crossing, LLC; Chandon Group, Inc.; Bracknell Shore, Ltd.; Fiscal Fitness, LLC; Avanix, LLC and their successors and assigns.
"Defendants" means Ideal Financial Solutions, Inc.; Ascot Crossing, LLC; Chandon Group, Inc.; Bracknell Shore, Ltd.; Fiscal Fitness, LLC; Avanix, LLC; Steven Sunyich; Christopher Sunyich; Michael Sunyich; Shawn Sunyich; Melissa Sunyich Gardner; and Kent Brown.
"Document" is synonymous in meaning and equal in scope to the terms "document" and "electronically stored information," as described and used in Federal Rule of Civil Procedure 34(a)(1)(A).
Individual Defendants means Steven Sunyich, Christopher Sunyich, Michael Sunyich, Shawn Sunyich, Melissa Sunyich Gardner, and Kent Brown.
"Receivership Entities" means Corporate Defendants and any entities that are part of Defendants' common enterprise, including, but not limited to, Debt Elimination Systems, LLC; US Debt Relief, LLC; Money Mastery, LLC; US Debt Assistance Corp.; IWB Services (St. Kitts); Financial Fitness, LLC; Debt to Wealth, LLC (St. Kitts); Debt to Wealth, LLC (Nevada); Ideal Goodness, LLC; Dollars West, LLC; Fluidity, LLC; Newport Sails, LLC; Shaw Shank, LLC; Bunker Hillside, LLC; Funding Guarantee, LLC; Newline Cash, LLC; Wealth Fitness, LLC; and Zeal Funding Services, LLC. "Receiver" means the Receiver appointed under the applicable section of this Preliminary Injunction. The term "Receiver" also includes any deputy receivers or agents as may be named by the Receiver.
III. PROHIBITED BUSINESS ACTIVITIES
IT IS THEREFORE ORDERED that, in connection with the billing, invoicing, debiting, or accepting payment (collectively, "charging") for or the advertising, marketing, promotion, offering for sale, or sale of any products, goods, or services, Defendants, their successors, assigns, officers, agents, servants, employees, or attorneys, and any person or entity in active concert or participation with them who receives actual notice of this Order by personal service or otherwise, whether acting directly or through any entity, corporation, subsidiary, division, affiliate, or other device, are hereby preliminarily restrained and enjoined from:
A. Obtaining a consumer's bank account information or debiting a consumer's bank account without that consumer's express, informed consent;
B. Obtaining a consumer's credit card information or charging a consumer's credit card without that consumer's express, informed consent;
C. Failing to disclose or disclose adequately that Defendants will charge or debit a consumer when extending products or services to him; and
D. Making, or assisting others in the making of, expressly or by implication, any material misrepresentations, including but not limited to:
1. That Defendants use a consumer's authorization to further his payday loan application;
2. That Defendants use a consumer's authorization to help find him a loan;
3. That Defendants use a consumer's authorization to provide him with financial counseling or financial services;
4. That the consumer agreed:
a. to purchase Defendants' products or services, or5. That Defendants have or will provide a refund to the consumer.
b. to pay for Defendants' products or services; or
IV. ASSET FREEZE
IT IS FURTHER ORDERED that Defendants and Receivership Entities are hereby preliminarily restrained and enjoined from directly or indirectly:
A. Transferring, liquidating, converting, encumbering, pledging, loaning, selling, concealing, dissipating, disbursing, assigning, spending, withdrawing, granting a lien or security interest or other interest in, or otherwise disposing of any Asset that is:
1. Owned or controlled, directly or indirectly, by any Defendant or Receivership Entity in whole or in part, or held, in whole or in part for the benefit of any Defendant or Receivership Entity;
2. In the actual or constructive possession of any Defendant or Receivership Entity;
3. Owned, controlled by, or in the actual or constructive possession, or otherwise held for the benefit of, any corporation, partnership, asset protection trust, or other entity directly or indirectly owned, managed, or controlled by, or under common control with any Defendant or Receivership Entity or of which any Individual Defendant is an officer, director, member, or manager;
4. Held by, for, under the name of, or subject to access by any Defendant or Receivership Entity at any bank, savings and loan institution, broker-dealer, escrow agent, title company, insurance company, commodity trading company, payment processing company, precious metal dealer, independent sales organization, third party processor, payment gateway, or other financial institution or depository of any kind; or
5. Held in any account for which any Defendant or Receivership Entity is, or was on the date that the Temporary Restraining Order ("TRO") was signed or served, an authorized signator.
B. Opening or causing to be opened any safe deposit boxes titled in the name of any Defendant or Receivership Entity, or subject to access by any Defendant or Receivership Entity;
C. Incurring charges or cash advances on any credit card, debit card, or checking card issued in the name, singly or jointly, of any Defendant or Receivership Entity;
D. Obtaining a personal or secured loan;
E. Incurring liens or encumbrances on real property, personal property or other Assets in the name, singly or jointly, of any Defendant or Receivership Entity; and
F. Cashing any checks from consumers, clients, or customers of any Defendant or Receivership Entity.
The Assets affected by this Section shall include: (1) all Assets of Defendants and Receivership Entities existing as of the time the Temporary Restraining Order was entered; and (2) for Assets obtained after the time the Temporary Restraining Order was entered, those Assets of Defendants and Receivership Entities that are derived, directly or indirectly, from Defendants' and Receivership Entities' activities related to unauthorized debiting or charging or deceptive statements regarding consumers' authorizations regarding debits or charges as described in the Commission's Complaint or activities that are the subject of, or are prohibited by, the Temporary Restraining Order.
This Section does not prohibit transfers to the Receiver, as specifically required in the Section on Delivery of Receivership Property, nor does it prohibit the repatriation of foreign Assets, as specifically required in the Section on Repatriation of Foreign Assets of this Order.
V. FINANCIAL REPORTS AND ACCOUNTING
IT IS FURTHER ORDERED that each Defendant shall:
A. Unless already provided pursuant to the TRO entered on January 30, 2013, prepare and serve on counsel for the FTC and the Receiver, within three (3) business days after service of this Order, completed financial statements fully disclosing its finances and those of all corporations, limited liability companies, partnerships, trusts or other entities that it owns, controls, or is associated with in any capacity, jointly or individually, using the forms attached to this Order as Attachments A and B, accurate as of the date of service of this Order upon it;
B. Unless already provided pursuant to the TRO entered on January 30, 2013, prepare and serve on counsel for the FTC and the Receiver, within three (3) business days after service of this Order, copies of signed and completed federal and state income tax forms, including all schedules and attachments, for the three most recent filing years;
C. Unless already provided pursuant to the TRO entered on January 30, 2013, provide access to records and Documents held by financial institutions outside the territory of the United States by signing the Consent to Release of Financial Records (attached to this Order as Attachment C) immediately upon service of this Order upon it; and
D. Provide copies of such other financial statements as the Receiver or the FTC may request in order to monitor its compliance with the provisions of this Order.
VI. RETENTION OF ASSETS AND RECORDS BY FINANCIAL INSTITUTIONS AND THIRD PARTIES
IT IS FURTHER ORDERED that any financial or brokerage institution or depository, escrow agent, title company, commodity trading company, payment processing company, trust, entity or person that: (1) holds, controls, or maintains custody of any account or Asset owned or controlled by any Defendant or Receivership Entity; (2) holds, controls, or maintains custody of any Asset associated with credit or debit card charges, electronic fund transfers, or remotely created checks made by, or on behalf of, any Defendant or Receivership Entity; or (3) has held, controlled, or maintained any account or Asset of, or on behalf of, any Defendant or Receivership Entity at any time since January 1, 2010, shall, upon service of this Order:
A. Hold and retain within its control and prohibit any person or entity with control over such Assets from withdrawing, removing, assigning, transferring, pledging, encumbering, disbursing, dissipating, converting, selling, gifting, or otherwise disposing of any such Assets except:
1. As directed by further order of the Court; or
2. As directed in writing by the Receiver (regarding Assets held in the name of or for the benefit of a Receivership Entity);
B. Deny Defendants and Receivership Entities access to any safe deposit box titled in the name of any Defendant or Receivership Entity, individually or jointly, or subject to access by any Defendant or Receivership Entity, whether directly or indirectly;
C. Unless already provided pursuant to the TRO entered on January 30, 2013, provide counsel for the FTC and the Receiver, within three (3) business days after being served with a copy of this Order, a certified statement setting forth:
1. The identification number of each such account or Asset titled:
a. In the name, individually or jointly, of any Defendant or Receivership Entity;2. The balance of each such account, or a description of the nature and value of such Asset, as of the close of business on the day on which this Order is served, and, if the account or other Asset has been closed or removed, the date closed or removed, the total funds removed in order to close the account, and the name of the person or entity to whom such account or other Asset was remitted;
b. Held on behalf of, or for the benefit of, any Defendant or Receivership Entity;
c. Owned or controlled by any Defendant or Receivership Entity; or
d. Otherwise subject to access by any Defendant or Receivership Entity, directly or indirectly;
3. The identification of any safe deposit box that is either titled in the name of any Defendant or Receivership Entities, or is otherwise subject to access by any Defendant or Receivership Entities; and
4. If an account, safe deposit box, or other Asset has been closed or removed, the date closed or removed, the balance of any account or value of any Asset on such date, and the manner in which such account or Asset was closed or removed;
D. Provide counsel for the FTC and the Receiver, within three (3) business days after being served with a request, copies of all Documents pertaining to such account or Asset, including but not limited to originals or copies of account applications, account statements, signature cards, checks, drafts, deposit tickets, transfers to and from the accounts, all other debit and credit instruments or slips, currency transaction reports, 1099 forms, and safe deposit box logs, provided that such institution or custodian may charge a reasonable fee; and
E. Cooperate with all reasonable requests of the Receiver relating to this Order's implementation.
VII. REPATRIATION OF FOREIGN ASSETS
IT IS FURTHER ORDERED that, unless already provided pursuant to the TRO entered on January 29, 2013, within three (3) business days following the service of this Order, each Defendant shall:
A. Provide counsel for the FTC and the Receiver with a full accounting of all Assets outside of the territory of the United States which are held either:
1. By Defendant or Receivership Entity;
2. For the benefit of any Defendant or Receivership Entity; or
3. Under direct or indirect control, individually or jointly, of any Defendant or Receivership Entity, as required by the forms included in Attachments A and B;
B. Transfer to the territory of the United States all such Assets in foreign countries; and
C. Hold and retain all repatriated Assets, and prevent any disposition, transfer, or dissipation whatsoever of any such Assets, except as required by this Order.
VIII. NON-INTERFERENCE WITH REPATRIATION
IT IS FURTHER ORDERED that Defendants, and each of their successors, assigns, members, officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, whether acting directly or through any entity, corporation, subsidiary, division, affiliate or other device, are hereby preliminarily restrained and enjoined from taking any action, directly or indirectly, that may result in the encumbrance or dissipation of foreign Assets, or in the hindrance of the repatriation required by Section V of this Order, including but not limited to:
A. Sending any statement, letter, fax, e-mail, or wire transmission, telephoning or engaging in any other act, directly or indirectly, that results in a determination by a foreign trustee or other entity that a "duress" event has occurred under the terms of a foreign trust agreement, until such time that all Assets have been fully repatriated pursuant to Section V of this Order; and
B. Notifying any trustee, protector, or other agent of any foreign trust or other related entities of either the existence of this Order, or of the fact that repatriation is required pursuant to a Court Order, until such time that all Assets have been fully repatriated pursuant to Section V of this Order.
IX. APPOINTMENT OF RECEIVER
IT IS FURTHER ORDERED that Thomas McNamara of Ballard & Spahr is appointed Receiver for the Receivership Entities, and any affiliates or subsidiaries thereof controlled by any of them, with the full power of an equity receiver. The Receiver shall be the agent of this Court and solely the agent of this Court in acting as Receiver under this Order. The Receiver shall be accountable directly to this Court. The Receiver shall comply with all local rules and laws governing federal equity receivers.
X. COOPERATION WITH THE RECEIVER
IT IS FURTHER ORDERED that Defendants, their successors, assigns, members, officers, agents, servants, employees, and attorneys shall fully cooperate with and assist the Receiver. Such cooperation and assistance shall include but not be limited to providing any information to the Receiver that the Receiver deems necessary to exercise the authority and discharge the responsibilities of the Receiver under this Order; providing any login and password required to access any computer or electronic files or information in any medium; and advising all persons who owe money to Receivership Entities that all debts should be paid directly to the Receiver. Defendants, and their successors, assigns, members, officers, agents, servants, employees, and attorneys are hereby restrained and enjoined from directly or indirectly:
A. Transacting any of the business of Receivership Entities;any Documents of Receivership Entities;
B. Excusing debts owed to Receivership Entities;
C. Destroying, secreting, defacing, transferring, or otherwise altering or disposing of
D. Transferring, receiving, altering, selling, encumbering, pledging, assigning, liquidating, or otherwise disposing of any Assets owned, controlled, or in the possession or custody of, or in which an interest is held or claimed by, Receivership Entities or the Receiver;
E. Failing to notify the Receiver of any Asset of a Receivership Entity held in any name other than the name of such entity, or by any person or entity other than a Receivership Entity, or failing to provide any assistance or information requested by the Receiver in connection with obtaining possession, custody, or control of such Assets; or
F. Doing any act or thing whatsoever to interfere with the Receiver's taking and keeping custody, control, possession, or managing of the Assets or Documents subject to this receivership; or to harass or interfere with the Receiver in any way; or to interfere in any manner with the exclusive jurisdiction of this Court over the Assets or Documents of Receivership Entities; or to refuse to cooperate with the Receiver or the Receiver's duly authorized agents in the exercise of their duties or authority under any Order of this Court.
This Section does not prohibit transfers to the Receiver, as specifically required in the Section on Delivery of Receivership Property or the Section on the Repatriation of Foreign Assets of this Order.
XI. DUTIES AND AUTHORITY OF RECEIVER
IT IS FURTHER ORDERED that the Receiver is directed and authorized to accomplish the following:
A. Assume full control of Receivership Entities by removing, as the Receiver deems necessary or advisable, any director, officer, independent contractor, employee, attorney, or agent of a Receivership Entity, including Defendants Steven Sunyich, Christopher Sunyich, Michael Sunyich, Shawn Sunyich, Melissa Sunyich Gardner, and Kent Brown, from control of, management of, or participation in, the affairs of Receivership Entities;
B. Take exclusive custody, control, and possession of all Assets and Documents of, or in the possession, custody, or under the control of, Receivership Entities, wherever situated. The Receiver shall have full power to divert mail and to sue for, collect, receive, take possession of, hold, and manage all Assets and Documents of Receivership Entities and other persons or entities whose interests are now held by or under the direction, possession, custody, or control of Receivership Entities;
C. Take all steps necessary to be added as the sole authorized signatory for, and have signatory authority, at any bank, title company, escrow agent, financial institution, or brokerage firm which has possession, custody, or control of any Assets of Receivership Entities;
D. Take all steps necessary to secure the business premises of Receivership Entities, which may include, but are not limited to, taking the following steps as the Receiver deems necessary or advisable:
1. Serving and filing this Order;
2. Completing a written inventory of all receivership Assets;
3. Requiring all employees and other agents of Receivership Entities to complete a questionnaire providing name, address, job description, computers or other device and passwords used in connection with their work, method of compensation, and all accrued and unpaid commissions and compensation of each such employee or agent;
4. Video-recording all portions of the location;
5. Changing the locks and disconnecting any computer networks or other means of access to electronically stored information or other Documents maintained at that location or elsewhere; or
6. Requiring any persons present on the premises at the time this Order is served to leave the premises, to provide the Receiver with proof of identification, and/or to demonstrate to the satisfaction of the Receiver that such persons are not removing from the premises Documents or Assets of Receivership Entities, including but not limited to cell phones, computers, tablets, and similar devices. Such authority shall include, but not be limited to, the authority to order any owner, director, or officer of any Receivership Entity to leave the business premises;
E. Conduct such investigation and discovery as may be necessary to locate and account for all the Assets of Receivership Entities;
F. Conserve, hold, and manage all receivership Assets, and perform all acts necessary or advisable to preserve the value of those Assets, in order to prevent any irreparable loss, damage, or injury to consumers, including but not limited to obtaining an accounting of the Assets and preventing the transfer, withdrawal, or misapplication of Assets;
G. Enter into contracts and purchase insurance as advisable or necessary;
H. Prevent the inequitable distribution of Assets and to determine, adjust, and protect the interests of consumers and creditors who have transacted business with Receivership Entities;
I. Manage and administer the business of Receivership Entities until further order of this Court by performing all incidental acts that the Receiver deems to be advisable or necessary, which includes retaining, hiring, or dismissing any employees, independent contractors, or agents;
J. Choose, engage, and employ attorneys, accountants, appraisers, investigators, and other independent contractors and technical specialists, as the Receiver deems advisable or necessary in the performance of duties and responsibilities;
K. Make payments and disbursements from the receivership estate that are necessary or advisable for carrying out the directions of, or exercising the authority granted by, this Order. The Receiver shall apply to the Court for prior approval of any payment of any debt or obligation incurred by Receivership Entities prior to the date of entry of this Order, except payments that the Receiver deems necessary or advisable in order to secure Receivership Entities' Assets, such as rental payments;
L. Collect any money due or owing to Receivership Entities;
M. Institute, compromise, adjust, appear in, intervene in, or become party to such actions or proceedings in state, federal or foreign courts that the Receiver deems necessary and advisable to preserve or recover Receivership Entities' Assets or to carry out the Receiver's mandate under this Order;
N. Defend, compromise, adjust, or otherwise dispose of any or all actions or proceedings instituted against Receivership Entities or the Receiver that the Receiver deems necessary and advisable to preserve Receivership Entities' Assets or to carry out the Receiver's mandate under this Order;
O. Continue and conduct the businesses of Receivership Entities in such manner, to such extent, and for such duration as the Receiver may in good faith deem to be necessary or appropriate to operate the businesses profitably and lawfully, if at all, using solely the Assets of the receivership estate;
P. Take depositions and issue subpoenas to obtain Documents and records pertaining to the receivership and compliance with this Order. Subpoenas may be served by agents or attorneys of the Receiver and by agents of any process server retained by the Receiver;
Q. Open one or more bank accounts as designated depositories for Receivership Entities' Assets. As appropriate, the Receiver shall deposit such Assets in such a designated account and shall make all payments and disbursements from the receivership estate from such an account; and
R. Maintain accurate records of all receipts and expenditures made by the Receiver.
XII. DELIVERY OF RECEIVERSHIP PROPERTY
IT IS FURTHER ORDERED that immediately upon service of this Order upon them, Defendants and Receivership Entities and each of their successors, assigns, members, officers, agents, servants, employees, and attorneys, shall forthwith or within such time as permitted by the Receiver in writing, deliver to the Receiver possession and custody of:
A. All Assets of Receivership Entities, whether situated within or outside the territory of the United States, that are:
1. Held by Receivership Entities;
2. Held for the benefit of Receivership Entities; or
3. Under the direct or indirect control, individually or jointly, of Receivership Entities;
B. All Documents of Receivership Entities, including but not limited to all books and records of Assets, all financial and accounting records, balance sheets, income statements, bank records (including monthly statements, canceled checks, records of wire transfers, records of ACH transactions, and check registers), corporate minutes, contracts, customer and consumer lists, title Documents, and electronic records;
C. All Assets belonging to members of the public now held by Receivership Entities;
D. Any mobile phones, computers, or devices (e.g., cell phone, smart phone, tablet, laptop) used predominantly for the benefit of, or issued by, Receivership Entities;
E. All keys, computer and other passwords, entry codes, combinations to locks required to open or gain access to any of the property or effects, and all monies in any bank deposited to the credit of Receivership Entities, wherever situated; and
F. Information identifying the accounts, employees, properties, or other Assets or obligations of Receivership Entities.
In the event that any person or entity fails to deliver or transfer any Asset or Document, or otherwise fails to comply with any provision of this Section, the Receiver may file ex parte an Affidavit of Non-Compliance regarding the failure. Upon filing of the affidavit, the Court may authorize, without additional process or demand, Writs of Possession or Sequestration or other equitable writs requested by the Receiver. The writs shall command and direct the United States Marshal or any sheriff or deputy sheriff of any country, or any other federal or state law enforcement officer, to seize the Asset, Document , or other item covered by this Section and to deliver it to the Receiver.
XIII. TRANSFER OF FUNDS TO THE RECEIVER BY FINANCIAL INSTITUTIONS AND OTHER THIRD PARTIES
IT IS FURTHER ORDERED that, upon service of a copy of this Order, any financial or brokerage institution or depository, escrow agent, title company, commodity trading company, payment processing company, or trust shall cooperate with all reasonable requests of counsel for the FTC and the Receiver relating to implementation of this Order, including transferring funds at the Receiver's direction and producing records related to Defendants' or Receivership Entities' Assets.
XIV. RECEIVER'S REPORTS
IT IS FURTHER ORDERED that the Receiver shall report to this Court every three (3) months regarding:
A. The steps taken by the Receiver to implement the terms of this Order;
B. The value of all Receivership Entities' liquidated and unliquidated Assets;
C. The sum of all Receivership Entities' liabilities;
D. The steps the Receiver intends to take in the future to:
1. Prevent any diminution in the value of Receivership Entities' Assets;E. Any other matters which the Receiver believes should be brought to the Court's attention.
2. Pursue receivership Assets from third parties; and
3. Adjust the Receivership Entities' liabilities, if appropriate; and
If any of the required information would hinder the Receiver's ability to pursue receivership Assets, the portions of the Receiver's report containing such information may be filed under seal and not served on the parties.
XV. RECEIVER'S BOND
IT IS FURTHER ORDERED that the Receiver shall file with the Clerk of this Court a bond in the sum of $ 10,000 with sureties to be approved by the Court, conditioned that the Receiver will well and truly perform the duties of the office and abide by and perform all acts the Court directs.
XVI. COMPENSATION OF THE RECEIVER
IT IS FURTHER ORDERED that the Receiver, and all persons or entities retained or hired by the Receiver as authorized under this Order, shall be entitled to reasonable compensation for the performance of duties undertaken pursuant to this Order and for the cost of actual out-of-pocket expenses incurred by them from the Assets now held by or in the possession or control of, or which may be received by, Receivership Entities. The Receiver shall file with the Court and serve on the parties a request for the payment of reasonable compensation at the time of the filing of any report required under this Order. The Receiver shall not increase the fees or rates used as the bases for such fee applications without prior approval of the Court.
XVII. ACCESS TO BUSINESS PREMISES AND RECORDS
IT IS FURTHER ORDERED that
A. Unless already provided pursuant to the TRO entered on January 30, 2013, Defendants, Receivership Entities, and all their employees or agents shall provide the Receiver with any necessary means of access to Documents, devices, and records, including, without limitation, the locations of Receivership Entities' business premises, keys and combinations to locks, computer access codes, device passwords, and storage area access information.
B. Unless already provided pursuant to the TRO entered on January 30, 2013, if any computers or other electronic data devices (including but not limited to mobile devices) containing information related to the business practices or finances of Receivership Entities are at a location other than those listed in the TRO, including, but not limited to, the personal residences of Individual Defendants, then immediately upon service of this Order upon them, such Defendant and its agents, employees, officers, servants and those persons in active concert and participation with it shall produce to the Receiver all such computers and other electronic data devices. In order to prevent the destruction of electronic data, upon service of this Order upon them, such Defendant and its agents, employees, officers, servants and those persons in active concert and participation with it shall power down (turn off) such computers or other electronic data devices containing such information in the normal course for the operating systems used on such devices and shall not use such computers or devices until the FTC or Receiver has copied or inspected them, along with any codes needed for access.
C. Unless already provided pursuant to the TRO entered on January 30, 2013, within forty-eight (48) hours of service of this Order, each Defendant shall produce to the Receiver a list of all agents, employees, officers, servants and those persons in active concert and participation with any Receivership Entity.
XVIII. DEFENDANTS' ACCESS TO BUSINESS PREMISES AND RECORDS
IT IS FURTHER ORDERED that the Receiver shall allow Defendants and their representatives reasonable access to the premises of Receivership Entities. The purpose of this access shall be to inspect, inventory, and copy any Documents and other property owned by, or in the possession of, Receivership Entities, provided that those Documents and property are not removed from the premises without the permission of the Receiver. The Receiver shall have the discretion to determine the time, manner, and reasonable conditions of such access.
XIX. PRESERVATION OF RECORDS
IT IS FURTHER ORDERED that Defendants and each of their successors, assigns, members, officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, whether acting directly or through any entity, corporation, subsidiary, division, affiliate or other device, are hereby preliminarily restrained and enjoined from destroying, erasing, mutilating, concealing, altering, transferring, or otherwise disposing of, in any manner, directly or indirectly, any Documents that relate to the business practices or finances of any Defendant, including, but not limited to, any contracts, accounting data, correspondence, advertisements, computer tapes, disks or other computerized records, books, written or printed records, lead lists, consumer or customer lists or financial data, handwritten notes, recordings, telephone logs, telephone scripts, receipt books, ledgers, personal and business canceled checks and check registers, bank statements, appointment books, copies of federal, state, or local business or personal income or property tax returns.
XX. PROHIBITION ON USE OF CONSUMER INFORMATION
IT IS FURTHER ORDERED that Defendants, their officers, agents, directors, servants, employees, salespersons, and attorneys, as well as all other persons or entities in active concert or participation with them, who receive actual notice of this Order by personal service or otherwise, whether acting directly or indirectly, including by assisting, consulting, brokering, planning, investing, or advising, are hereby preliminarily restrained and enjoined from using, benefitting from, selling, renting, leasing, transferring, or otherwise disclosing the name, address, telephone number, email address, social security number, credit card number, debit card number, bank account number, any financial account number, or any data that enables access to a consumer's account, or other identifying information of any person which any Defendant or Receivership Entity obtained prior to entry of this Order in connection with or with a purpose of billing, invoicing, debiting, or accepting payment for or the marketing or sale of any actual or sham good or service, including those who were contacted or are on a list to be contacted by any of the Defendants or Receivership Entities. Notwithstanding the foregoing, Defendants may disclose such identifying information to a law enforcement agency (including the FTC), Receiver, or as required by any law, regulation, or court order.
XXI. CREDIT REPORTS
IT IS FURTHER ORDERED that the FTC may obtain credit reports concerning any of the Defendants pursuant to Section 604(a)(1) of the Fair Credit Reporting Act, 15 U.S.C. §1681b(a)(1), and that, upon written request, any credit reporting agency from which such reports are requested shall provide them to the FTC.
XXII. RECORDKEEPING/BUSINESS OPERATIONS
IT IS FURTHER ORDERED that Defendants, their officers, agents, directors, servants, employees, salespersons, and attorneys, as well as all other persons or entities in active concert or participation with them, who receive actual notice of this Order by personal service or otherwise, whether acting directly or indirectly, including by assisting, consulting, brokering, planning, investing, or advising, are hereby preliminarily restrained and enjoined from:
A. Failing to create and maintain Documents that, in reasonable detail, accurately, fairly, and completely reflect their incomes, disbursements, transactions, and use of money;
B. Creating, operating, or exercising any control over any business entity, including any partnership, limited partnership, joint venture, trust, sole proprietorship, limited liability company or corporation, without first providing the Commission with a written statement disclosing:
1. The name of the business entity;
2. The address and telephone number of the business entity;
3. The names of the business entity's officers, directors, principals, managers and employees; and
4. A detailed description of the business entity's intended activities;
C. Professionally affiliating with, becoming employed by, or performing any remunerative work for any business or person without first providing the Commission with a written statement disclosing:
1. The name of the business or person;
2. The address and telephone number of the business or person; and
3. A detailed description of the nature of affiliation, employment, or work and the nature of the Defendant's duties and responsibilities.
XXIII. BANKRUPTCY PETITIONS
IT IS FURTHER ORDERED that, in light of the appointment of the Receiver, the Corporate Defendants are hereby prohibited from filing petitions for relief under the United States Bankruptcy Code, 11 U.S.C. § 101 etseq., without prior permission from this Court.
XXIV. STAY OF ACTIONS
IT IS FURTHER ORDERED that:
A. Except by leave of this Court, during the pendency of the Receivership ordered herein, Defendants, and all customers, principals, investors, creditors, stockholders, lessors, and other persons seeking to establish or enforce any claim, right, or interest against or on behalf of Defendants and all others acting for or on behalf of such persons, including attorneys, trustees, agents, sheriffs, constables, marshals, and other officers and their deputies, and their respective attorneys, servants, agents, and employees be and are hereby stayed from:
1. Commencing, prosecuting, continuing, entering, or enforcing any suit or proceeding, except that such actions may be filed to toll any applicable statute of limitations;
2. Accelerating the due date of any obligation or claimed obligation; filing or enforcing any lien; taking or attempting to take possession, custody, or control of any Asset; attempting to foreclose, forfeit, alter, or terminate any interest in any Asset, whether such acts are part of a judicial proceeding, are acts of self-help, or otherwise;
3. Executing, issuing, serving, or causing the execution, issuance or service of, any legal process, including but not limited to attachments,
garnishments, subpoenas, writs of replevin, writs of execution, or any other form of process, whether specified in this Order or not; or
4. Doing any act or thing whatsoever to interfere with the Receiver's taking custody, control, possession, or management of the Assets or Documents subject to this receivership; or to harass or interfere with the Receiver in any way; or to interfere in any manner with the exclusive jurisdiction of this Court over Receivership Entities' Assets or Documents.
B. This Section does not stay:
1. The commencement or continuation of a criminal action or proceeding;
2. The commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power;
3. The enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power; or
4. The issuance to a Defendant or Receivership Entity of a notice of tax deficiency.
XXV. SERVICE OF ORDER
IT IS FURTHER ORDERED that copies of this Order may be served by any means, including facsimile transmission or email, by employees or agents of the FTC or the Receiver, upon any financial institution or other entity or person that may have possession, custody, or control of any Defendants' or Receivership Entity's Documents or Assets, or that may otherwise be subject to any provision of this Order. Service upon any branch or office of any financial institution shall effect service upon the entire financial institution.
XXVI. ACKNOWLEDGMENT OF RECEIPT OF ORDER BY DEFENDANTS
IT IS FURTHER ORDERED that each Defendant, within three (3) business days of receipt of this Order, must submit to counsel for the FTC a truthful sworn statement acknowledging receipt of this Order.
XXVII. PROOF OF DISTRIBUTION OF ORDER BY DEFENDANTS
IT IS FURTHER ORDERED that Defendants shall immediately provide a copy of this Order to their agents, servants, employees, consultants, and any affiliated businesses, and other persons and entities subject in any part to their direct or indirect control. Within five (5) business days of receipt of this Order, Defendants must submit to counsel for the FTC a truthful sworn statement identifying those persons and entities to whom this Order has been distributed.
XXVIII. CORRESPONDENCE
IT IS FURTHER ORDERED that, for the purposes of this Order, because mail addressed to the FTC is subject to delay due to heightened security screening, all correspondence and service of pleadings on Plaintiff shall be sent either via electronic transmission or via Federal Express to:
R. Michael Waller
Megan E. Gray
600 Pennsylvania Avenue, NW
Mailstop M-8102B
Washington, DC 20580
Telephone: (202) 326-2902 (Waller), (202) 326 -3408 (Gray)
Fax: (202) 326-2558
Email: rwaller@ftc.gov, mgray@ftc.gov
XXIX. RETENTION AND DISCLOSURE OF DOMAIN NAME REGISTRATIONS, AND OTHER DIGITAL RECORDS BY REGISTRARS, ISPS, AND OTHER THIRD PARTIES
IT IS FURTHER ORDERED that any ISP (Internet Service Provider), website hosting provider, domain name registrar, lead provider, database manager, cloud provider, third-party CRM database manager (Customer Relationship Management), SaaS licensor (Software As A Service), entity, or person that holds, controls, or maintains custody of any website, database, consumer lead list, digital data, computer logs, or other electronic record ("Digital Data") owned or controlled by, or made by or on behalf of, any Defendant or Receivership Entity shall, upon service of this Order:
A. Hold and retain within its control and prohibit any person or entity with control over such Digital Data from withdrawing, removing, assigning, transferring, pledging, encumbering, disbursing, dissipating, converting, selling, gifting, or otherwise disposing of any such Digital Data, except:
1. As directed by further order of the Court; or
2. As directed in writing by the Receiver (regarding Digital Data held in the name of or for the benefit of a Receivership Entity);
B. Deny Defendants and Receivership Entities access to any original computer logs generated by or in the name of any Defendant or Receivership Entity, or subject to access by any Defendant or Receivership Entity, whether directly or indirectly;
C. Unless already provided pursuant to the TRO entered on January 30, 2013, provide counsel for the FTC and the Receiver, within three (3) days after being served with a request, copies of such Digital Data, provided that such institution or custodian may charge a reasonable fee;
D. Prevent the destruction or erasure of any Internet website, or its underlying computer logs, that is owned by or on behalf of Defendants or the Receivership Entities, or predominantly for their benefit, by preserving such websites in the format in which they are currently maintained, except:
1. As directed by further order of the Court; or
2. As directed in writing by the Receiver (regarding Digital Data held in the name of or for the benefit of a Receivership Entity); and
E. Unless already provided pursuant to the TRO entered on January 30, 2013, provide to counsel for the FTC and the Receiver, within three (3) days after being served with a request, a list of all Internet domain names registered by Defendants, Receivership Entities, or their officers, agents, servants, employees, and those persons in active concert or participation with them who received actual notice of this Order by personal service or otherwise.
F. Cooperate with all reasonable requests of the Receiver relating to this Order's implementation.
XXX. DURATION OF ORDER
IT IS FURTHER ORDERED that the Preliminary Injunction granted herein shall remain in full force and effect until further order of the Court.
XXXI. RETENTION OF JURISDICTION
IT IS FURTHER ORDERED that this Court shall continue to retain jurisdiction of this matter for all purposes.
IT IS SO ORDERED:
________
MIRANDA M. DU
UNITED STATES DISTRICT JUDGE