| WILLIAM E. KOVACIC General Counsel RAYMOND E.
MCKOWN (CA BAR #150975) Attorneys for Plaintiff UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. SALYON, INC., a
California corporation dba First Liberty
Financial, Salyon National Credit, Shop Salyon, and Quicklinks.com; SACV COMPLAINT FOR INJUNCTIVE AND and OTHER EQUITABLE RELIEF Plaintiff, the Federal Trade Commission ("Commission"), for its complaint alleges: 1. The Commission brings this action under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), to secure a permanent injunction, preliminary injunctive relief, rescission of contracts, restitution, disgorgement, appointment of a receiver, 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). JURISDICTION AND VENUE 2. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345, as well as 15 U.S.C. §§ 45(a) and 53(b). 3. Venue in the United States District Court for the Central District of California is proper under 28 U.S.C. § 1391(b) and (c), as well as under 15 U.S.C. § 53(b). 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 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 is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act and to secure such equitable relief as is appropriate in each case, including restitution for injured consumers. 15 U.S.C. § 53(b). 5. Defendant Salyon, Inc. ("Salyon"), dba First Liberty Financial, Salyon National Credit, Shop Salyon, and Quicklinks.com, is a California corporation with its principal places of business at 6 Journey #160, Aliso Viejo, California 92656, and 20555 Pascal Way, Lake Forest, California 92630. Salyon transacts business in the Central District of California. 6. Defendant Mark Joseph Lyon is an officer, director, and one of three shareholders of Salyon. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Salyon, including the acts and practices set forth in this complaint. He resides in, and transacts or has transacted business in, the Central District of California. 7. Defendant John Donald Lyon is an officer, director, and one of three shareholders of Salyon. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Salyon, including the acts and practices set forth in this complaint. He resides in, and transacts or has transacted business in, the Central District of California. 8. Defendant Kurt Charles Uhler is a manager and one of three shareholders of Salyon. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Salyon, including the acts and practices set forth in this complaint. He resides in, and transacts or has transacted business in, the Central District of California. COMMERCE 9. At all times material 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. DEFENDANTS' COURSE OF CONDUCT 10. On or about February 5, 1999, defendants Mark J. Lyon, John D. Lyon, and Kurt C. Uhler created corporate defendant Salyon, Inc., in California. Since that time defendants have marketed a "gold card" to consumers, many or most of whom are consumers who have a negative or meager credit history. 11. Defendants mail their solicitation to consumers. The solicitation purports to offer consumers a gold Visa credit card, MasterCard credit card, or a functionally similar credit card at very favorable terms for a $49 fee plus delivery fees that range up to $15. The solicitation typically offers consumers a $15,000 credit limit with a zero percent interest rate for the first year. The solicitation also represents that: consumers have been pre-approved for the gold card; no further background checks will be necessary in order to obtain the card; and that consumers' anticipated favorable payment history with the card will be reported to the three major credit reporting agencies to help consumers establish a positive credit history. Numerous solicitations have featured the MasterCard trademark, and each solicitation typically has a six week expiration date. 12. Numerous solicitations promise consumers that if they build a positive credit history with the gold card for an initial three month period, defendants will deliver a second MasterCard with even better terms, i.e., a lifetime zero percent interest rate. 13. The solicitation does not adequately disclose that defendants' gold card can be used only to purchase items from defendants' website or catalog. Only after consumers have paid the full fee do they learn that use of the gold card is limited to purchases directly from defendants. 14. Similarly, the solicitation does not disclose that the gold card cannot be used to pay the entire purchase price of goods that are purchased from defendants' website or catalog. Only after consumers have paid the full fee to obtain the card do they learn that they must pay approximately 50% to 70% of the goods' cost by some method other than defendants' gold card, i.e., by check or money order. 15. In numerous instances, consumers have complained to defendants that their solicitation and representations are deceptive and misleading and for those reasons, among others, the consumers want refunds. However, such requests by these complaining consumers have been routinely rebuffed by defendants. VIOLATIONS OF SECTION 5 OF THE FTC ACT COUNT ONE 16. In numerous instances, in connection with the marketing of their gold card, defendants have represented, expressly or by implication, that:
17. In truth and in fact:
18. Therefore, each of the representations set forth in Paragraph 16, is false and misleading and constitutes a deceptive act or practice in or affecting commerce in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT TWO 19. In numerous instances, in connection with the marketing of their gold card, defendants have represented, expressly or by implication, that Salyon will assist consumers in establishing or improving their credit standing by reporting their credit histories to the three major credit reporting agencies (Equifax, Trans Union and Experian). 20. In truth and in fact Salyon does not assist consumers in establishing or improving their credit standing because it does not report customers' favorable credit histories to any of the three major credit reporting agencies (Equifax, Trans Union, and Experian). 21. Therefore, the representation set forth in Paragraph 19 is false and misleading and constitutes a deceptive act or practice in or affecting commerce in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45. COUNT THREE 22. In numerous instances, in connection with the marketing of their gold card, defendants have represented, expressly or by implication, that consumers can use the gold card to make purchases from a wide variety of merchant and retail outlets. 23. Prior to the time that payment is made, defendants have failed to disclose or to disclose adequately to consumers that their gold card can be used only to purchase items from defendants' catalogs and websites. This fact would be material to consumers in their decision to purchase the gold card from defendants. 24. In light of the representation set forth in Paragraph 22, defendants' failure to disclose or to disclose adequately the material information set forth in Paragraph 23, was, and is, a deceptive act or practice in or affecting commerce in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT FOUR 25. In numerous instances, in connection with the marketing of their gold card, defendants have represented, expressly or by implication, that consumers can use the gold card to make purchases. 26. Prior to the time that payment is made, defendants have failed to disclose or to disclose adequately to consumers that their gold card cannot be used to pay the entire cost of services or items purchased with the gold card. This fact would be material to consumers in their decision to purchase the gold card from defendants. 27. In light of the representation set forth in Paragraph 25, defendants' failure to disclose or to disclose adequately the material information set forth in Paragraph 26, was, and is, a deceptive act or practice in or affecting commerce in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). CONSUMER INJURY 28. 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, defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest. THIS COURT'S POWER TO GRANT RELIEF 29. 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. 30. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by defendants' law violations. PRAYER FOR RELIEF WHEREFORE, plaintiff, the Federal Trade Commission, requests that this Court, as authorized by Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), and pursuant to its own equitable powers: Award plaintiff such temporary and preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of consumer injury during the pendency of this action and to preserve the possibility of effective final relief; Permanently enjoin defendants from violating the FTC Act as alleged herein; Award such relief as the Court finds necessary to redress injury to consumers resulting from defendants' violations of the FTC Act, including but not limited to rescission of contracts, the refund of monies paid, and the disgorgement of ill-gotten monies; and Award plaintiff the costs of bringing this action, as well as such other and additional relief as the Court may determine to be just and proper. Respectfully Submitted, WILLIAM E. KOVACIC Dated: _________________________ RAYMOND E. MCKOWN |