| STEPHEN CALKINS General Counsel CHARLES A.
HARWOOD ELEANOR DURHAM ATTORNEYS FOR PLAINTIFF UNITED STATES DISTRICT COURT
FIRST AMENDED COMPLAINT Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), for its First Amended Complaint alleges: 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 a permanent injunction, rescission of contracts, restitution, disgorgement, and other equitable relief for defendants' deceptive acts or practices in violation of the FTC's Trade Regulation Rule entitled "Telemarketing Sales Rule" ("the Rule"), 16 C.F.R. Part 310. JURISDICTION AND VENUE 2. Subject matter jurisdiction is conferred upon this Court by 15 U.S.C. §§ 45(a), 53(b), 57b, 6102(c), and 6105(b), and 28 U.S.C. §§ 1331, 1337(a), and 1345. 3. Venue in the District of Nevada is proper under 15 U.S.C. § 53(b), as amended by the Federal Trade Commission Act Amendments of 1994, Pub. L. No. 103-312, 108 Stat. 1691, and 28 U.S.C. § 1391(b), (c), and (d). THE PARTIES 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 enforces the FTC Act and the Telemarketing Sales Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive telemarketing acts or practices, including assisting and facilitating deceptive practices, and credit card laundering. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act and the Telemarketing Sales Rule and to secure such equitable relief as is appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b), 57b, and 6105(b). 5. Woofter Investment Corporation d/b/a A.T.M.S. ("Woofter"), is incorporated in Nevada. Its office and principal place of business is 1500 East Tropicana Avenue, #216, Las Vegas, Nevada. Woofter is also known as W.I.C. and Woofter & Associates, and does business as A.T.M.S. Woofter transacts business in the District of Nevada. 6. Patsy M. Barbour, a.k.a. Patsy Barbour-Woofter ("Barbour"), is president and sole shareholder of Woofter. At all times relevant to this complaint, acting alone or in concert with others, she has formulated, directed, controlled, or participated in the acts and practices of defendant Woofter, including the acts and practices set forth in this complaint. She resides and transacts business in the District of Nevada. 7. William L. Woofter is the director of Woofter. At all times relevant to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of defendant Woofter, including the acts and practices set forth in this complaint. He resides and transacts business in the District of Nevada. 8. Konrad King ("King") is office manager of Woofter. At all times relevant to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of defendant Woofter, including the acts and practices set forth in this complaint. He resides and transacts business in the District of Nevada. 9. Konrad King, Inc., is incorporated in Nevada. Its office and principal place of business is 765 E. Eldorado Lane, Las Vegas, Nevada. Konrad King, Inc., transacts business in the District of Nevada. COMMERCE 10. At all times relevant to this complaint, defendants' course of business, including the acts and practices alleged herein, has been and is in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS' BUSINESS PRACTICES 11. Woofter provides credit card processing, the purchase of foreign lottery tickets, and customer service on behalf of numerous telemarketing boilerrooms that are deceptively and illegally telemarketing chances and interests in foreign lottery tickets to United States residents. In some instances, Woofter deceptively and illegally telemarkets or sells chances or interests in foreign lottery tickets to United States residents itself. 12. Among the telemarketing clients for whom Woofter provides credit card processing, customer service, and foreign lottery ticket purchases are the Legato Group, and Lexus, which were the subjects of U.S. and Canadian criminal law enforcement proceedings last year for the unlawful sale of lottery tickets to U.S. residents. 13. The various lottery telemarketing clients of defendants, and in some instances defendants Woofter, Barbour, William L. Woofter, and King, operate in a similar fashion. They target United States residents, particularly the elderly, contacting them by telephone and mail to solicit them to participate in foreign lotteries (e.g., Australia and Spain) by purchasing chances and interests in lottery tickets. Purchases may be for individual chances, but more often are for pooled chances in which the consumer purchases a share in a group purchase. 14. During telephone solicitations or in direct mail pieces, defendants' telemarketing clients, and in some instances defendants Woofter, Barbour, William L. Woofter, and King, make false and misleading representations to induce the purchase of chances or interests in lottery tickets. Defendants and their telemarketing clients represent through a variety of statements that the consumer cannot lose, or is guaranteed to win some large amount of money, that the odds of winning are very good, that the telemarketers' lottery program increases the chance of the consumer winning, or that the winnings are tax free. Consumers have been told for example that:
15. The statements set forth in Paragraph 14 are not true. Contrary to the representations made by defendants Woofter, Barbour, William L. Woofter, and King and their telemarketing clients, neither defendants nor their telemarketing clients improve a consumer's odds of winning, and consumers do not win large sums of money. The odds of winning anything in the foreign lotteries are small, and the odds are not disclosed. In most instances any actual consumer winnings are for small amounts of money, generally far less than the consumer has paid to purchase lottery tickets, chances or interests. Additionally, the amount that consumers are induced to pay for the lottery tickets greatly exceeds the actual cost of the tickets. 16. Consumers are not told that the telemarketers' or defendants' policy is to deny cancellation of purchases or refunds of money paid for lottery chances. Consumers who have attempted to cancel their purchases or obtain refunds or credits have been denied until either a family member or attorney puts pressure on the company, and even then refunds or credits are often only partial. 17. The sale and trafficking in foreign lotteries is a crime in both the United States and Canada. Neither defendants Woofter, Barbour, William L. Woofter, and King nor their telemarketing clients disclose to consumers that by participating in the foreign lotteries, consumers are participating in violations of federal criminal law, including laws prohibiting the importing and transmitting of lottery materials by mail and otherwise, 18 U.S.C. §§ 1301 and 1302, and anti-racketeering laws relating to gambling, 18 U.S.C. §§ 1952, 1953, and 1084. 18. The services provided by defendants make it possible for their telemarketing clients to conduct this scheme. Defendants purchase lottery tickets on behalf of their telemarketing clients for the Australian lottery. Defendants claim to be the sole registered U.S. agent for Tattersall's lottery, one of the largest in Australia. The lottery tickets purchased by defendants are not sent back to consumers, but are retained by the Tattersall's sales agent in Australia. The consumer receives from defendants or their telemarketing client only a confirmation package containing a listing of the combinations of numbers on their tickets. 19. The confirmation package sent to the consumer usually contains a letter that carries the name of A.T.M.S. (the d/b/a for Woofter), or the names of both the telemarketer and A.T.M.S. Frequently A.T.M.S. is described in the confirmation materials as "U.S. Customer Service," and an 800 number is provided for the consumer to contact A.T.M.S. with questions concerning credit card billing. The confirmation package also frequently includes a credit card "authorization" slip for the consumer to sign and return. (Defendants have often already charged the consumer's credit card for the purchase.) This authorization has been used by defendants to persuade dissatisfied consumers not to seek a chargeback from their credit card company. 20. Defendants provide assistance concerning the underlying transaction as well. Barbour has represented that Woofter monitors its telemarketing clients; answers questions for consumers who call the 800 number concerning purchases, winning numbers or rules of the lotteries; and makes sure customers get what they purchased. When consumers have a problem, according to Barbour, Woofter intercedes on their behalf with the telemarketer. 21. Many of the lottery tickets, chances or interests sold to consumers by defendants' telemarketing clients are purchased through charges to the consumer's VISA or MasterCard. Defendants have at least two merchant accounts in the name of its d/b/a A.T.M.S. Woofter makes its merchant accounts available to its telemarketing clients for processing credit card transactions for a 15% processing fee. Defendants' use of these merchant accounts to process credit card transactions for their telemarketing clients is not authorized by VISA or MasterCard. VIOLATIONS OF THE TELEMARKETING SALES RULE 22. In the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. § 6101, et seq., Congress directed the FTC to prescribe rules prohibiting deceptive telemarketing acts or practices. On August 16, 1995, the Commission promulgated the Telemarketing Sales Rule, 16 C.F.R. Part 310, with a Statement of Basis and Purpose, 60 Fed. Reg. 43842 (Aug. 23, 1995). The Rule became effective December 31, 1995. 23. Defendants Patsy M. Barbour, William L. Woofter, Konrad King, and Woofter Investment Corporation d/b/a A.T.M.S., and their telemarketing clients, are "telemarketers" or "sellers" engaged in "telemarketing" as those terms are defined in the Rule, 16 C.F.R. § 310.2(r), (t) and (u). 24. Defendants Patsy M. Barbour, William L. Woofter, Konrad King, Woofter Investment Corporation d/b/a A.T.M.S., and Konrad King, Inc., are "merchants," as that term is defined in the Rule, 16 C.F.R.§ 310.2(l). 25. The Rule requires sellers and telemarketers to disclose material restrictions, limitations or conditions regarding the goods or services that are the subject of a sales offer, and to disclose if the seller has a policy of not making refunds. 16 C.F.R. § 310.3(a)(1)(ii) and (iii). 26. The 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 the sales offer. 16 C.F.R. § 310.3(a)(2)(iii). 27. The Rule also prohibits telemarketers and sellers from making a false or misleading statement to induce any person to pay for goods or services. 16 C.F.R. § 310.3(a)(4). 28. Except as expressly permitted by the applicable credit card system, it is a violation of the Rule for a merchant to present or deposit into, or to cause another to deposit into, the credit card system for payment, a credit card sales draft generated by a telemarketing credit card transaction that is not the result of a telemarketing credit card transaction between the cardholder and the merchant. 16 C.F.R. § 310.3(c)(1). 29. It is a violation of the Rule for any person to provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any practice that violates § 310.3(a) or (c) of the Rule. 16 C.F.R. § 310.3(b). 30. 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 Sales Rule constitute deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT ONE 31. In numerous instances, in connection with telemarketing foreign lottery tickets, chances, or interests, defendants Woofter, Barbour, William L. Woofter, and King fail to disclose that the sale and trafficking in foreign lotteries is a crime in both the United States and Canada, and fail to disclose their policy of not making refunds or cancellations. Defendants have thereby violated Section 310.3(a)(1)(ii) and (iii) of the Rule. 16 C.F.R. § 310.3(a)(1)(ii) and (iii). COUNT TWO 32. In numerous instances, in connection with telemarketing foreign lottery tickets, chances, or interests, and to induce the purchase of lottery tickets, chances or interests, defendants Woofter, Barbour, William L. Woofter, and King have made false or misleading representations that consumers have won a large jackpot, or are guaranteed to win a large jackpot, or that odds of winning are very good, that telemarketing clients have special programs that increase the consumers' chances of winning, or that winnings are tax free. Defendants have thereby violated Section 310.3(a)(2)(iii) and (a)(4) of the Rule. 16 C.F.R. § 310.3(a)(2)(iii) and (a)(4). COUNT THREE 33. In numerous instances, in connection with telemarketing foreign lottery tickets, chances, or interests, defendants' telemarketing clients fail to disclose that the sale and trafficking in foreign lotteries is a crime in both the United States and Canada, and fail to disclose their policy of not making refunds or cancellations. Defendants' telemarketing clients have thereby violated Section 310.3(a)(1)(ii) and (iii) of the Rule. 16 C.F.R. § 310.3(a)(1)(ii) and (iii). 34. In numerous instances, in connection with telemarketing foreign lottery tickets, chances, or interests, defendants' telemarketing clients have made false or misleading representations that consumers have won a large jackpot, or are guaranteed to win a large jackpot, or that odds of winning are very good, that telemarketing clients have special programs that increase consumers' chances of winning, or that winnings are tax free. Defendants' telemarketing clients have thereby violated Section 310.3(a)(2)(iii) and (a)(4) of the Rule. 16 C.F.R. § 310.3(a)(2)(iii) and (a)(4). 35. In connection with providing credit card processing, customer service, and registration of ticket purchases for their telemarketing clients, defendants provide substantial assistance or support to their telemarketing clients, knowing or consciously avoiding knowing that their telemarketing clients are engaged in acts or practices that violate § 310.3(a), as set forth in Paragraphs 33 and 34 above. Defendants have thereby violated Section 310.3(b) of the Rule, 16 C.F.R. § 310.3(b). COUNT FOUR 36. In numerous instances, and without the express permission of the applicable credit card system, defendants have presented to or deposited into, or caused another to present or deposit into the credit card system for payment, credit card sales drafts generated by telemarketing credit card transactions that are not the result of telemarketing credit card transactions between the cardholder and defendants. Defendants have thereby violated Section 310.3(c)(1) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(c)(1). CONSUMER INJURY 37. Consumers throughout the United States have suffered and continue to suffer substantial monetary loss as a result of defendants' unlawful acts or practices. In addition, defendants have been unjustly enriched as a result of their unlawful practices. Absent injunctive relief by this Court, the defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest. THIS COURT'S POWER TO GRANT RELIEF 38. 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 Commission. 39. 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 this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from defendants' violations of the Telemarketing Sales Rule, including the rescission and reformation of contracts and the refund of monies. 40. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by the defendants' law violations. PRAYER FOR RELIEF WHEREFORE, plaintiff, the Federal Trade Commission, requests that this Court, as authorized by 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 pursuant to its own equitable powers:
Respectfully Submitted, STEPHEN CALKINS CHARLES A. HARWOOD __________________________________ ATTORNEYS FOR PLAINTIFF |