FTC and Westgate Resorts- A Permanent Injunction- Robert Paisola Reports- David Siegel Prison Time?
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
UNITED STATES OF AMERICA, Plaintiff,
v. CENTRAL FLORIDA INVESTMENTS, INC., a Florida corporation, WESTGATE RESORTS, LTD., a Florida limited partnership, and
CFI SALES & MARKETING, L.L.c., a Florida limited liability company, Defendants.
STIPULATED JUDGMENT AND ORDER FOR PERMANENT INJUNCTION
Plaintiff, the United States of America, acting upon notification and authorization to the Attorney General by the Federal Trade Commission ("FTC" or the "Commission"), has commenced this action by filing the complaint herein, and Defendants have waived service of the summons and the complaint. The parties, represented by the attorneys whose names appear hereafter, have agreed to settlement of this action without adjudication of any issue of fact or law.
THEREFORE, on the joint motion of the parties, it is hereby ORDERED, ADJUDGED, AND DECREED as follows: FINDINGS
I. This Court has jurisdiction over the subject matter and the parties pursuant to
28 U.S.C. §§ 1331, 1337(a), 1345 and 1355, and 15 U.S.C. §§ 45(m)(1 )(A), 53(b), and 56(a).
2. Venue is proper as to all parties in this District.
The activities of Defendants are in or affecting commerce, as defined in Section 4 of the FTC Act, 15 U.S.C. § 44.
This Stipulated Judgment and Order for Permanent Injunction is for settlement purposes only, and does not constitute and shall not be interpreted to constitute an admission by Defendants or a finding that the law has been violated as alleged in the Complaint, or that the facts alleged in the Complaint, other than jurisdictional facts, are true.
The complaint states a claim upon which relief may be granted against Defendants, under Sections 5(a), 5(m)(1)(A), and 13(b) of the Federal Trade Commission Act ("'FTC Act"), 15 U.S.C. §§ 45(a), 45(m)(l)(A), and 53(b).
Defendants have entered into this Stipulated Judgment and Order for Permanent Injunction ("Order") freely and without coercion. Defendants further acknowledge that they have read the provisions ofthis Order and are prepared to abide by them.
Plaintiff and Defendants hereby waive all rights to appeal or otherwise challenge or contest the validity of this Order.
Defendants have agreed that this Order does not entitle Defendants to seek or to obtain attorneys' fees as a prevailing party under the Equal Access to Justice Act, 28
U.S.C. § 2412, and Defendants further waive any rights to attorneys' fees that may arise under said provision of law.
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9. Entry ofthis Order is in the public interest.
For the purpose of this Order, the following definitions shall apply:
"Customer" means any person who is or may be required to pay for goods or services offered through telemarketing.
"Defendants" are Central Florida Investments, Inc., a Florida corporation, Westgate Resorts, Ltd., a Florida limited partnership, and CFI Sales & Marketing, L.L.c., a Florida limited liability company.
"Established business relationship" means a relationship between the seller and a person based on: (a) the person's purchase, rental, or lease of the seller's goods or services or a financial transaction between the person and seller, within the eighteen (18) months immediately preceding the date of the telemarketing call; or (b) the person's inquiry or application regarding a product or service offered by the seller, within the three (3) months immediately preceding the date of a telemarketing call.
"National Do Not Call Registry" means the National Do Not Call Registry, which is the "do-not-call" registry maintained by the Commission pursuant to 16 C.F.R. § 310.4(b)(l)(iii)(B).
"Representatives" means Defendants' successors, assigns, officers, agents, servants, employees, and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise.
6. "Seller" means any person who, in connection with a telemarketing
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transaction, provides, offers to provide. or arranges for others to provide goods or services to the customer in exchange for consideration whether or not such person is under the jurisdiction of the Commission.
"Telemarketer" means any person who. in connection with telemarketing, initiates or receives telephone calls to or from a customer or donor.
"Telemarketing Sales Rule" or "Rule" means the FTC Rule entitled "Telemarketing Sales Rule," 16 C.F.R. Part 310, attached hereto as Appendix A or as may be hereafter amended.
"Telemarketing" means a plan. program, or campaign which is conducted to induce the purchase ofgoods orservices ora charitable contribution, by use ofone or more telephones and which involves more than one interstate telephone call. Telemarketing does not include catalog solicitations defined by 16 C.F.R. § 31O.2(cc) or any other act or practices exempt by 16 C.F.R. § 310.6.
"Outbound telephone call" means a telephone call initiated by a telemarketer to induce the purchase of goods or services or to solicit a charitable contribution.
11. "Person" means any individual, group, unincorporated association, limited or
general partnership, corporation, or other business entity. ORDER
I. PROHIBITION AGAINST ABUSIVE TELEMARKETING PRACTICES
IT IS ORDERED that. in connection with telemarketing. Defendants and their Representatives are hereby permanently restrained and enjoined from engaging in, causing
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other persons to engage in, or assisting other persons to engage in, violations ofthe Telemarketing Sales Rule, including but not limited to initiating any outbound telephone call to a person's telephone number on the National Do Not Call Registry of persons who do not wish to receive outbound telephone calls to induce the purchase of goods or services unless the seller proves:
A. The seller has obtained the express agreement, in writing, of such person to place calls to that person. Such written agreement shall clearly evidence such person's authorization that calls made by or on behalf of a specific party may be placed to that person, and shall include the telephone number to which the calls may be placed and the signature of that person; or
B. The seller has an established business relationship with such person and that person has not previously stated that he or she does not wish to receive outbound telephone calls made by or on behalfofthe seller.
Provided, however. that if the Commission promulgates rules that modify or supersede the Telemarketing Sales Rule, in whole or part, Defendants shall comply fully and completely with all applicable requirements thereof, on and after the effective date ofany such rules.
II. CIVIL PENALTV
IT IS FURTHER ORDERED that judgment in the amount ofNine Hundred Thousand ($900,000.00) is hereby entered against Defendants, jointly and severally, as a civil penalty, pursuant to Section 5(m)(1)(A) ofthe Federal Trade Commission Act,
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15 U.S.C. § 45(m)(I)(A).
A. Within five (5) days ofreceipt of notice of the entry of this Order, Defendants' attorney shall transfer the civil penalty payment in the form ofa wire transfer or certified or cashier's check made payable to the Treasurer of the United States. The check or written confirmation of the wire transfer shall be delivered to: Director, Office of Consumer Litigation, U.S. Department of Justice Civil Division, P.O. Box 386, Washington, DC 20044. The cover letter accompanying the check shall include the title of this litigation and a reference to DJ# 102-3434.
B. In the event ofdefault on the payment required to be made by this Section, the entire unpaid civil penalty, together with interest computed under 28 U.S.C. § 1961 -accrued from the date of default until the date of payment --shall be immediately due and payable. Defendants agree that, in such event, the facts as alleged in the complaint filed in this action shall be taken as true in any subsequent litigation filed by Plaintiff or the Commission to enforce their rights pursuant to this Order, including but not limited to a nondischargeability complaint in any subsequent bankruptcy proceeding.
C. Defendants shall cooperate fully with Plaintiff and the Commission and their agents in all attempts to collect the amount due pursuant to this Section if any of Defendants fail to pay fully the amount due at the time specified herein. In such an event, Defendants agree to provide Plaintiff and the Commission with their federal and state tax returns for the preceding two years, and to complete new standard-form financial disclosure forms fully and accurately within ten (10) business days of receiving a request from Plaintiff or the
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Commission to do so. Defendants further authorize Plaintiffand the Commission to verify all information provided on their financial disclosure forms with all appropriate third parties, including but not limited to financial institutions.
D. In accordance with 31 U.S.C. § 7701, Defendants are hereby required, unless they have done so already, to furnish to Plaintiff and the FTC their taxpayer identifying number(s) (employer identification numbers) which shall be used for purposes of collecting and reporting on any delinquent amount arising out of Defendants' relationship with the government.
III. RECORD KEEPING PROVISIONS
IT IS FURTHER ORDERED that for a period of five (5) years from the date of entry of this Order, each Defendant, and its successors and assigns, shall maintain and make available to the Plaintiff or Commission, within seven (7) days of the receipt ofa written request, business records demonstrating compliance with the terms and provisions ofthis Order.
IV. DISTRIBUTION OF ORDER BY DEFENDANTS AND ACKNOWLEDGMENTS OF RECEIPT IT IS FURTHER ORDERED that each Defendant, and its successors and assigns, shall within thirty (30) days ofthe entry ofthis Order, provide a copy of this Order including Appendix A to all of their owners, principals, members, officers, and directors, as well as managers, agents, servants, employees, and attorneys having decision-making authority with
respect to the subject matter of this Order; secure from each such person a signed statement acknowledging receipt of a copy of this Order; and shall, within ten (10) days of complying
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with this Section, file an affidavit with the Court and serve the Commission, by mailing a copy thereof, to the Associate Director for Enforcement, Federal Trade Commission, 601 New Jersey Avenue, N.W., Washington, D.C. 20580, setting forth the fact and manner of their compliance, including the name and title ofeach person to whom a copy of the Order has been provided.
V. NOTIFICATION OF BUSINESS CHANGES
IT IS FURTHER ORDERED that each Defendant, and its successors and assigns, shall notify the Associate Director for Enforcement, Federal Trade Commission, 601 New Jersey Avenue, N.W., Washington, D.C. 20580, at least thirty (30) days prior to any change in such Defendant's business, including, but not limited to, merger, incorporation, dissolution, assignment, and sale, which results in the emergence of a successor corporation, the creation or dissolution of a subsidiary or parent, or any other change, which may affect such Defendant's obligations under this Order.
VI. FEES AND COSTS
IT IS FURTHER ORDERED that each party to this Order hereby agrees to bear its own costs and attorneys' fees incurred in connection with this action.
IT IS FURTHER ORDERED that the provisions of this Order are separate and severable from one another. If any provision is stayed or determined to be invalid, the remaining provisions shall remain in full force and effect.
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VIII. RETENTION OF JURISDICTION
IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for purposes ofconstruction, modification, and enforcement ofthis Order.
IX. COMPLETE SETTLEMENT
.The parties, by their respective counsel, hereby consent to entry of the foregoing Order which shall constitute a final judgment and order in this matter. The parties further stipulate and agree that the entry ofthe foregoing Order shall constitute a full, complete and final settlement of this action.
JUDGMENT IS THEREFORE ENTERED in favor of Plaintiff and against Defendants, pursuant to all the terms and conditions recited above.
SO ORDERED thi~l~:'r-bL'-lPrLU~~~
UNITED STATES DISTRI T JUDGE
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FOR THE PLAINTIFF:
GREGORY G. KATSAS Assistant Attorney General Civil Division
BRIAN ALBRITTON United States Attorney Mid . IC0 'da
Ralph E. Hopkins Florida Bar # 0972436 Assistant U.S. Attorney Middle District ofFlorida 501 W. Church Street, Suite 300 Orlando, Florida 32805 407-648-7500 407-648-7588
EUGENE M. THIROLF Director Office of Consumer Litigation
KENNETH L. JOST Deputy Director Office of Consumer Litigation
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DANIEL K. CRANE-HIRSCH Trial Attorney Office of Consumer Litigation
U.S. Department ofJustice PO Box 386 Washington, D.C. 20044 202-616-8242 202-514-8742 Daniel.Crane-Hirsch@usdoj.gov
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FOR THE FEDERAL TRADE COMMISSION:
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FOR THE DEFENDANTS:
CENTRAL FLORIDA INVESTMENTS, INC.
WESTGATE RESORTS, LTD.
CFI SALES & MARKETING, L.L.C.
By: DAVID A. SIEGEL President, CFI Sales & Marketing, Inc. ICHAE.a..-v.Lrl4'~
Flon a 51887
Greenspoon Marder, P.A.
Capital Plaza I, Suite 500
201 East Pine Street
Orlando, FL 32801
Attorney for Defendants
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16 CFRPART 310
Telemarketing Sales Rule
Federal Trade CommIssIon
PART 31D-TELEMARKETING SALES RULE
310.1 Scope of regulations in this part.
310.3 Deceptive telemarketJng acts or practices.
310.4 AbWlive telemarketing acts or practJces.
310.5 Recordkeeping requirements.
310.7 Actions by stll.tes and private persons.
310.8 Fee for access to the Nationa.1 Do Not Call Registry.
310.9 Severab1l1ty. AtrmolUTY: IS U.S.C. 6101-6108.
SOURCE: 68 FR 4669, Jan. 29. 2003. unless otherwJse noted.
§ 310.1 Scope of regulations in this
This part implements the Telemarketing' and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. 6101-6108, as amended.
(a) Acquirer means a business organization, financial institution, or an
-- agent-of a.-ousln-ess-organization or financial institution that has authority from an organization that operates or licenses a credit card system to authorize merchants to accept, transmit, or process payment by credit card through the credit card system for money, goods or services, or anything else of value.
Attorney General means the chief legal officer of a state.
Billing information means any data that enables any person to access a customer's or donor's account, such as a credit card. checking, savings. share or similar account. utility b111, mortgage loan account. or debit card.
Caller identification service means a service that allows a telephone subscriber to have the telephone number, and. where available, name of the calling party transmitted contemporaneously with the telephone call, and displayed on a device in or connected to the subscriber's telephone.
Cardholder means a person to whom a credit card is issued or who is authorized to use a credit card on behalf of or in addition to the person to whom the credit card is issued.
(0 Charitable contribution means any donation or girt of money or any other thing of value.
Commission means the Federal Trade Commission.
Credit means the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.
Credit card means any card, plate, coupon book. or other credit device existing for the purpose of obtaining money, property, labor. or services on credit.
Credit card sales draft means any record or evidence of a credit card transaction.
Credit card system means any method or procedure used to process credit card transactions involving credit cards issued or licensed by the operator of that system.
Customer means any person who Is or may be required to pay for goods or services offered through telemarketing.
16 CFR Ch. I (1-1-08 Edition)
(m) Donor means any person solicited to make a charitable contribution.
(n) Established business relationship
-means a relationship between -~ seller and a consumer based on:
the consumer's purchase, rental, or lease of the seller's goods or services or a financial transaction between the consumer and seller, within the eighteen (IB) months immediately preceding the date of a telemarketing call; or
the consumer's inquiry or application regarding a product or service offered by the seller, within the three (3) months immediately preceding the date of a telemarketing call.
Free-to-pay conversion means, in an offer or agreement to sell or provide any goods or services, a provision under which a customer receives a product or service for free for an initial period and will incur an obligation to pay for the product or service if he or she does not take affirmative action to cancel before the end of that period.
Investment opportunity means anything, tangible or intangible, that is offered, offered for sale, sold, or traded based wholly or in part on representations, either express or implied, about past, present, or future income, profit, or appreciation.
Material means likely to affect a person's choice of, or conduct regarding, goods or services or a charitable contribution.
Merchant means a person who Is authorized under a written contract with an acquirer to honor or accept credit cards, or to transmit or process for payment credit card payments, for the purchase of goods or services or a charitable contribution.
Merchant agreement means a written contract between a merchant and an acquirer to honor or accept credit cards, or to transmit or process for payment credit card payments. for the purchase of goods or services or a charitable contribution.
Negative option feature means, in an offer or agreement to sell or provide any goods or services, a provision under which the customer's silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.
Federal Trade Commission
(u) Outbound telephone call means a telephone call initiated by a telemarketer to induce the purchase of
---- -goodS" or services or to-solicit a 'charitable contribution.
(v) PeTson means any individual. group. unincorporated association, limIted or general partnership, corporation, or other business entity.
(w) Preacquired account inlonnation
means any Information that enables a seller or telemarketer to cause a charge to be placed against a customer's or donor's account without obtaining the account number directly from the customer or donor during the telemarketing transaction pursuant to which the account w1ll be charged.
Prize means anything offered, or purportedly offered. and given. or purportedly given, to a person by chance. For purposes of this definition, chance exists If a person Is guaranteed to receive an Item and, at the time of the offer or purported offer. the telemarketer does not identify the specific Item that the person w1ll receive.
Prize promotion means:
A sweepstakes or other game of chance; or
An oral or written express or implied representation that a person has won, has been selected to receive, or may be eligible to receive a prize or purported prize.
SelleT means 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.
(aa) State means any state of the United States, the District of Columbia, Puerto Rico, the Northern Mariana Islands. and any territory or possession of the United States.
(bb) TelemarketeT means any person who, in connection with telemarketing, Initiates or receives telephone calls to or from a customer or donor.
(cc) Telemarketing means a plan, program, or campaign which Is conducted to induce the purchase of goods or servIces or a charitable contribution, by use of one or more telephones and which involves more than one Interstate telephone call. The term does not Include the solicitation of sales through the ma1l1ng of a catalog
which: contains a written description or 1llustratlon of the goods or services offered for sale; includes the business address of the-seller;-includes ~ult1ple --pages of written material or 1llustrations; and has been Issued not less frequently than once a year. when the person making the solicitation does not soltclt customers by telephone but only receives calls initiated by customers in response to the catalog and during those calls takes orders only without further sol1cltation. For purposes of the previous sentence. the term "further solicitation" does not Include prOViding the customer with Information about, or attempting to sell. any other item included in the same catalog which prompted the customer's call or in a substantially similar catalog.
(dd) Upselling means soliciting the purchase of goods or services following an initial transaction during a single telephone call. The upsell is a separate telemarketing transaction, not a continuation of the initial transaction. An "external upsell" is a sol1citation made by or on behalf of a seller different from the seller in the initial transaction, regardless of whether the initial transaction and the subsequent solicitation are made by the same telemarketer. An "internal upsell" is a solicitation made by or 'on behalf of the same seller as in the initial transaction, regardless of whether the tnitial transaction and subsequent solicitation are made by the same telemarketer.
§310.3 Deceptive telemarketing acts or practices.
Prohibited deceptive telemarketing acts or practices. It is a deceptive telemarketing act or practice and a violation of this Rule for any seller or telemarketer to \engage in the following conduct:
Before a customer pays} for goods or services offered, failing to disclose
I When a seller or telemarketer uses. or directs a customer to use, a courier to transport payment, the seller or telemarketer must make the disclosures required by §310.3(a}(1} before sending a courier to pick up payment or authorization for payment, or
truthfully, in a clear and conspicuous
manner. the following material information:
-(l) The ~otal costs to purchase.-receive. or use, and the quantity of. any goods or services that are the subject of the sales offer; 2
(11) All material restrictions, limitations, or conditions to purchase, receive, or use the goods or services that are the subject of the sales offer;
(iii) If the seller has a policy of not making refunds, cancellations, exchanges, or repurchases, a statement informing the customer that this is the seller's policy; or, if the seller or telemarketer makes a representation about a refund. cancellation. exchange. or repurchase policy, a statement of all material terms and conditions of such pol1cy;
In any prize promotion, the odds of being able to receive the prize. and, U the odds are not calculable in advance. the factors used in calculating the odds; that no purchase or payment is required to win a prize or to participate in a prize promotion and that any purchase or payment will not increase the person's chances of winning; and the no-purchase/no-payment method of participating in the prize promotion with either instructions on how to participate or an address or local or tollfree telephone number to which customers may write or call for information on how to participate;
All material costs or conditions to receive or redeem a prize that is the subject of the prize promotion;
In the sale of any goods or serv-. ices represented to protect, insure. or otherwise l1mit a customer's liability in the event of unauthorized use of the customer's credit card, the limits on a cardholder's liability for unauthorized use of a credit card pursuant to 15
U.S.C. 1643; and
(vii) If the offer includes a negative option feature, all material terms and
directing a cust.omer to have a courier pick up payment or authorization tor Pllyment.
2For oecere ot consumer credit products subject to the Truth in Lending Act. 15
U.S.C. 1601 et seq.. and Regulation Z, 12 CFR
226. compliance with the disclosure require· ments under t.he Truth in Lending Act and Regulation Z shall constitute compUance. wit.h §310.3(a)(l)(1) ot this Rule.
16 CFR Ch. I 0-1-08 Edinon)
conditions of the negative option feature. including. but not limited to, the fact that the customer's account will
-be-charged unless-the-customer-takes an affirmative action to avoid the charge(s), the date(s) the charge(s) will be submitted for payment, and the specific steps the customer must take to avoid the charge(s).
Misrepresenting. directly or by implication, in the sale of goods or services any of the following material information:
The total costs to purchase. receive, or use. and the quantity of. any goods or services that are the subject of a sales offer;
Any material restriction. limitation. or condition to purchase. receive. or use goods or services that are the subject of a sales offer;
(iii) Any material aspect of the performance, efficacy. nature. or central characteristics of goods or services that are the subject of a sales offer;
Any material aspect of the nature or terms of the seller's refund, cancellation, exchange, or repurchase policies;
Any material aspect of a prize promotion including. but not limited to, the odds of being able to receive a prize, the nature or value of a prize. or that a purchase or payment is required to win a prize or to participate in a prize promotion;
Any material aspect of an investment opportunity including. but not limited to, risk. liquidity, earnings potential. or profitability;
(vii) A seller's or telemarketer's affiliation with, or endorsement or sponsorship by, any person or government entity; \
(viii) That any customer needs offered goods or services to provide protections a customer already has pursuant to 15 U.S.C. 1643; or
(ix) Any material aspect of a negative option feature including, but not limited to, the fact that the customer's account will be charged unless the customer takes an affirmative action to avoid the charge(s), the date(s) the charge(s) will be submitted for payment, and the specific steps the customer must take to avoid the charge(s).
Federal Trade Commission §310.3
(3) Causing billing Information to be (F) A telephone number for customer
submitted for payment, or collecting or or donor Inquiry that is answered durattempting
to collect payment for Ing normal business hours; and
-goods ur services-or-a charitable-coIF ---(a} The-date or-thecustomer's-ordo--------trlbutlon, directly or Indirectly, wlth-nor's oral authorization; or out the customer's or donor's express (11i) Written confirmation of the verifiable authorization, except when transaction, Identified In a clear and the method of payment used Is a credit conspicuous manner as such on the card subject to protections of the outside of the envelope, sent to the Truth in Lending Act and Regulation customer or donor via first class mall Z,3 or a debit card subject to the pro-prior to the submission for payment of tectlons of the Electronic Fund Trans-the customer's or donor's billing Inforfer Act and Regulation E.4 Such au-matlon, and that Includes all of the Inthorlzatlon shall be deemed verifiable formation contained in if any of the following means is em-§§ 310.3(a)(3)(ii)(A)-(G) and a clear and ployed: conspicuous statement of the proce(
Express written authorization by dures by which the customer or donor
the customer or donor, which includes can obtain a refund from the seller or
the customer's or donor's signature; 6 telemarketer or charitable organlza(
Express oral authorization which tion in the event the confirmation Is
is audio-recorded and made available inaccurate; provided, however, that this
upon request to the customer or donor, means of authorization shall not be
and the customer's or donor's bank or deemed verifiable in instances in which
other billing entity, and which evl-goods or services are offered In a transdences
clearly both the customer's or action involving a free-to-pay converdonor's
authorization of payment for sion and preacquired account informathe
goods or services or charitable con-tion.
tributlon that are the subject of the (4) Making a false or misleading
telemarketing transaction and the cus-statement to induce any person to pay
tomer's or donor's receipt of all of the for goods or services or to induce a
following Information: charitable contribution.
The number of debits, charges, or (b) Assisting and facilitating. ItIsa de-
payments (If more than one); ceptive telemarketing act or practice
The date(s) the debit(s), and a violation of this Rule for a percharge(
s), or payment(s) will be sub-son to provide substantial assistance or
mitted for payment; support to any seller or telemarketer
The amount(s) of the debUts) when that person knows or consciously
charge(s) or payment(s)' ' avoids knowing that.the seller or tele,
,', marketer is engaged lD any act or prac(
The customer s or donor s name; tlce that violates §§310.3(a) (c) or (d)
The customer's or donor's billing or §310.4 of this Rule. ' ,
Information, Identified With sufficient (c) Credit card laundering. Except as
specificity such that the customer or expressly permitted by the applicable
donor understands what account will credit card system, it is a deceptive
be used to collect payment for the telemarketing act or practice and a
goods or services or charitable con-violation of this Rule for:
trlbutlon that are the subject of the (1) A merchant to present to or de-
telemarketing transaction; posit into, or cause another to present
to or deposit into, the credit card sys'
Truth in Lending Act, 15 U.S.C. 1601 et tem for payment, a credit card sales
seq.• and Regulation Z, 12 CFR part 226. draft generated by a telemarketing
'Electronic Fund TransCer Act, 15 U.S.C. transaction that is not the result of a
1693 et seq., and Regulation E, 12 CFR part
telemarketing credit card transaction
between the cardholder and the mer3
For purposes oC this Rule, t.he term "sigchant;
nature" shall include an electronic or digital
Corm oC signature, t.o (2) Any person to employ, solicit, or
t.he extent that such
Corm oC signature Is recognized as a valid sigotherwise cause a merchant, or an emnature
under applicable Cedera1 law or stat.e ployee, representative, or agent of the
contract law. merchant, to present to or deposit into
§310.4 16 CFR Ch. 1(1-1-08 EdlUan)
the credit card system for payment. a person's credit history, credit record,
credit card sales draft generated by a or credit rating until:
telemarketing transaction that is not (1) The time frame in which the seller
------------t.he-result-of -a-telemarketing-Gredlt--has-represented -8;11-of-the-goods-or------------~ ----card transaction between the card· services will be provided to that person holder and the merchant; or has expired; and
Any person to obtain access to the (11) The seller has provided the person credit card system through the use of a with documentation In the form of a business relationship or an affiliation consumer report from a consumer rewith a merchant. when such access is porting agency demonstrating that the not authorized by the merchant agree-promised results have been achieved. ment or the applicable credit card sys-such report having been issued more tem. than six months after the results were
Prohibited deceptive acts or prac-achieved. Nothing in this Rule should tices in the solicitation of charitable con-be construed to affect the requirement tributions. It is a fraudulent charitable in the Fair Credit Reporting Act, 15 solicitation, a deceptive telemarketing U.S.C. 1681, that a consumer report act or practice. and a violation of this may only be obtained for a specified Rule for any telemarketer soliciting permissible purpose; charitable contributions to misrepre-(3) Requesting or receiving payment sent, directly or by implication. any of of any fee or consideration from a perthe following material information: son for goods or services represented to
The nature. purpose, or mission of recover or otherwise assist in the reany entity on behalf of which a chari-turn of money or any other item of table contribution is being requested; value paid for by, or promised to, that
That any charitable contribution person in a previous telemarketing is tax deductible in whole or in part; transaction, until seven (7) business
The purpose for which any chari-days after such money or other item is table contribution will be used; delivered to that person. This provision
The percentage or amount of any shall not apply to goods or services charitable contribution that will go to provided to a person by a licensed ata charitable organization or to any torney; particular charitable program; (4) Requesting or receiving payment
Any material aspect of a prize of any fee or consideration in advance promotion including, but not limited of obtaining a loan or other extension to: the odds of being able to receive a of credit when the seller or teleprize; the nature or value of a prize; or marketer has guaranteed or repthat a charitable contribution is re-resented a high likelihood of success in quired to win a prize or to participate obtaining or arranging a loan or other in a prize promotion; or extension of credit for a person;
A charitable organization's or (5) Disclosing or receiving, for contelemarketer's affiliation with, or en-sideration. unencrypted consumer acdorsement or sponsorship by, any per-count numbers for use in teleson or government entity. marketing; provided, however, that this
paragraph shall not apply to the disclo§310.4 Abusive telemarketing acts or sure or receipt of a customer's or dopractices.
nor's billing information to process a
Abusive conduct generally. It is an payment for goods or services or a abusive telemarketing act or practice charitable contribution pursuant to a and a violation of this Rule for any transaction; seller or telemarketer to engage in the (6) Causing billing information to be following conduct: submitted for payment, directly or in(
Threats. intimidation. or the use directly, without the express informed of profane or obscene language; consent of the customer or donor. In
Requesting or receiving payment any telemarketing transaction, the of any fee or consideration for goods or seller or telemarketer must obtain the services represented to remove derogaexpress informed consent of the custOry Information from, or improve, a tomer or donor to be charged for the
Federal Trade Commission §310.4
goods or services or charitable con-violation of this Rule for a teletribution
and to be charged using the marketer to engage in, or for a seller
identified account. In any tele-to cause a telemarketer to engage in,
--marKetIng --~ra.nsacti()ll---involving --the-rollowing conduct:-----------preacquired
account information, the (1) Causing any telephone to ring, or
requirements in paragraphs (a)(6)(1) engaging any person in telephone conthrough
(11) of this section must be met versation, repeatedly or continuously
to evidence express informed consent. with intent to annoy, abuse, or harass
In any telemarketing transaction any person at the called number; involving preacquired account informa-(11) Denying or interfering in any tion and a free-to-pay conversion fea-way, directly or indirectly, with a perture, the seller or telemarketer must: son's right to be placed on any registry
obtain from the customer. at a of names and/or telephone numbers of minimum, the last four (4) digits of the persons who do not wish to receive outaccount number to be charged; bound telephone calls established to
obtain from the customer his or comply with §310.4(b)(l)(iH); her express agreement to be charged (111) Initiating any outbound telefor the goods or services and to be phone call to a person when: charged using the account number pur-(A) that person previously has stated suant to paragraph (a)(6)(i)(A) of this that he or she does not wish to receive section; and, an outbound telephone call made by or
make and maintain a.n audio re-on behalf of the seller whose goods or cording of the entire telemarketing services are being offered or made on tra.nsaction. beha.lf of the charitable organization
In any other telemarketing trans-for which a charitable contribution is action involving preacquired account being solicited; or information not described in paragraph (B) that person's telephone number is (a)(6)(1) of this section, the seller or on the "do-not-call" registry, maintelemarketer must: tained by the Commission. of persons
a.t a minimum, identify the ac-who do not wish to receive outbound count to be charged with sufficient telephone calls to induce the purchase specificity for the customer or donor to of goods or services unless the seller understand what account w11l be (i) has obtained the express agree-charged; and ment, in writing, of such person to
obtain from the customer or place calls to that person. Such written donor his or her express agreement to agreement shall clearly evidence such be charged for the goods or services person's authorization that calls made and to be charged using the account by or on beha.lf of a specific party may number identified pursuant to para-be placed to that person, and shall ingraph (a)(6)(i1)(A) of this section; or elude the telephone number to which
Famng to transmit or cause to be the calls may be placed and the signatransmitted the telephone number, ture6 of that person; or and, when made available by the tele-(ii) has an established business reIamarketer's carrier, the name of the tionship with such person, and that telemarketer, to any caller identifiea-person has not stated that he or she tion service in use by a recipient of a does not wish to receive outbound teletelemarketing call; provided that it phone calls under paragraph shall not be a violation to substitute (b)(l)(il1)(A) of this section; or (for the name and phone number used (iv) Abandoning any outbound telein, or billed for. making the call) the phone call. An outbound telephone call name of the seller or charitable organi-is "abandoned" under this section 1£ a zation on behalf of which a tele-person answers it and the telemarketer
marketing call is placed, and the seller's or charitable organization's cus6
For purposes oC this Rule, the term "sigtomer
or donor service telephone numna.
ture" shall include an electronic or digital
ber. which is answered during regular
form oC signature, to the extent that such business hours. form of signature is recognized as a valid sig(
b) Pattern of calls. (1) It is an abusive na.ture under applicable federal law or state telemarketing act or practice and a contract law.
§310.4 16 CFR Ch. I (1-1-08 Edition)
does not connect the call to a sales rep-(11) the seller or telemarketer, for
resentativ~ within two (2) seconds of each telemarketing call placed. allows
the person s completed greeting. the telephone to ring for at least fif---------.(
2)-It isan-abusive-telemarketing-act--teen (l5)-aeconds or-four (4) rings-before--_------_
or practice and a violation of this Rule disconnecting an unanswered call; for any person to sell, rent, lease, pur-(111) whenever a sales representative chase. or use any list established to is not available to speak with the percomply with §310.4(b)(l)(1ii)(A). or son answering the call within two (2) maintained by the Commission pursu-seconds after the person's completed ant to §310.4(b)(l)(l11)(B). for any pur-greeting, the seller or telemarketer pose except compliance With the provi-promptly plays a recorded message sions of this Rule or otherwise to pre-that states the name and telephone vent telephone calls to telephone Dum-number of the seller on whose behalf bers on such lists. the call was placed7; and
A seller or telemarketer w1ll Dot (1v) the seller or telemarketer. in acbe Hable for violating §310.4(b)(l)(I1) cordance with §3l0.5(b)-(d). retains and (iii) if it can demonstrate that, as records establishing compliance with part of the seUer's or telemarketer's §310.4(b)(4)(1)-(111). routine business practice: (c) Calling time restrictions. Without
It has established and imple-the prior consent of a person, it is an mented written procedures to comply abusive telemarketing act or practice with §310.4(b)(l)(11) and (iii); and a violation of this Rule for a tele(
It has trained its personnel. and marketer to engage in outbound teleany entity assisting in its compliance. phone calls to a person's residence at in the procedures established pursuant any time other than between 8:00 a.m. to §310.4(b)(3)(1); and 9:00 p.m. local time at the called
(111) The seller, or a telemarketer or person's location. another person acting on behalf of the (d) Required oral disclosures in the sale seller or charitable organization, has ofgoods or services. It is an abusive telemaintained and recorded a list of tele-marketing act or practice and a violaphone numbers the seller or charitable tion of this Rule for a telemarketer in organization may not contact, in com-an outbound telephone call or internal pliance with §310.4(b)(1)(iii)(A); or external upsell to induce the pur(
1v) The seller or a telemarketer uses chase of goods or services to fail to disa process to prevent telemarketing to close truthfully, promptly, and in a any telephone number on any list es-clear and conspicuous manner to the tablished pursuant to §310.4(b)(3)(111) or person receiving the call, the following 3l0.4(b)(1)(iii)(B). employing a version information: of the "do-not-call" registry obtained (1) The identity of the seller; from the Commission no more than (2) That the purpose of the call is to thirty-one (31) days prior to the date sell goods or services; any call is made and maintains (3) The nature of the goods or servrecords
documenting'this process; ices; and
The seller or a telemarketer or (4) That no purchase or payment is another person acting on behalf of the necessary to be able to win a prize or seller or charitable organization mon-participate in a prize promotion if a itors and enforces compl1ance with the prize promotion is offered and that any procedures established pursuant to purchase o~ payment w1ll not increase §3l0.4(b)(3)(i); and the person s chances of winning. This
Any subsequent call otherwise disclosure must be made before or in violating §310.4(b)(l)(ii) or (ii1) i th conjunction with the description of the
result of error s e prize to the person called. If requested
A seller ~r telemarketer w1ll not by that person, the telemarketer must be l1able for violating 310.4(b)(1)(lv) if: disclose the no-purchase/no-payment
the seller or telemarketer employs
'This provision does not o.fCect any seller's
technology that ensures abandonment
or telsmlU'keter's obligation to comply with
of no more than three (3) percent of all
relevant sto.te and Cederal laws. Includingcalls answered by a person. measured but not limited to the TCPA. 41 U.S.C. 22'l. per day per calling campaign; and 41 CFR part 64.1200.
Federal Trade CommissIon §310.6
entry method for the prize promotion; directly involved in telephone sales or
provided. however. that. In any Internal solicitations; provided. however. that if
upsell for the sale of goods or services. the seller or telemarketer permits fic-
the-seller-'Or telemarketer must -pro---titious ~ames;;o-be-useltbyllmployee~--vide
the disclosures listed in this section only to the extent that the information In the upsell differs from the disclosures prOVided In the initial telemarketing transaction.
Required oral disclosures in charitable solicitations. It Is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer. In an outbound telephone call to Induce a charitable contribution. to fall to disclose truthfully. promptly. and In a clear and conspicuous manner to the person receiving the call. the following Information:
The identity of the charitable organization on behalf of which the request Is being made; and
That the purpose of the call Is to solicit a charitable contribution.
(68 FR 4669. Jan. 29. 21103. as amended at 69 FR 16373. Mar. 29.20041
§310.5 Recordkeeping requirements.
Any seller or telemarketer shall keep. for a period of 24 months from the date the record Is produced, the following records relating to Its telemarketing activities:
All substantially different advertising. brochures, telemarketing scripts. and promotional materials;
The name and last known address of each prize recipient and the prize awarded for prizes that are represented. directly or by implication. to have a value of $25.00 or more;
The name and last known address of each customer. the goods or services purchased. the date such goods or servIces were shipped or provided, and the amount paid by the customer for the goods or services;8
The name. any fictitious name used. the last known home address and telephone number. and the job title(s) for all current and former employees
8For oecere ot consumer credit products subject to the Truth In Lending Act. 15
U.S.C. 1601 et seq.• and Regulation Z. 12 CFR
226. compliance with the recordkeeplng requirements under the Truth in Lending Act. and Regulation Z. shall constitute compliance with §310.5(a)(3) ot this Rule.
each fictitious name must be traceable to only one specific employee; and
All verifiable authorizations or records of express informed consent or express agreement required to be provided or received under this Rule.
A seller or telemarketer may keep the records required by §310.5(a) in any form. and in the same manner. format. or place as they keep such records In the ordinary course of business. Failure to keep all records required by §310.5(a) shall be a violation of this Rule.
The seller and the telemarketer call1ng on behalf of the seller may, by written agreement. allocate responsibility between themselves for the recordkeeplng required by this Section. When a seller and telemarketer have entered Into such an agreement, the terms of that agreement shall govern. and the seller or telemarketer. as the case may be. need not keep records that duplicate those of the other. If the agreement is unclear as to who must maintain any required record(s). or If no such agreement exists. the seller shall be responsible for complying with §§ 310.5(11.)(1)-(3) and (5); the telemarketer shall be responsible for complying with §310.5(a)(4).
In the event of any dissolution or termination of the seller's or telemarketer's business. the principal of that seller or telemarketer shall maintain all records as required under this Section. In the event of any sale. assignment, or other change in ownership of the seller's or telemarketer's business, the successor business shall maintain all records required under this Section.
Solicitations to induce charitable contributions via outbound telephone calls are not covered by§310.4(b)(1)(l11)(B) of this Rule.
The following acts or practices are exempt from this Rule:
The sale of pay-per-call services subject to the Commission's Rule entitled "Trade Regulation Rule Pursuant
§310.7 16 CFR Ch. I (1-1-08 Edition)
to the Telephone Disclosure and Dis-goods or services offered in the direct pute Resolution Act of 1992," 16 CFR mail solicitation, and that contains no Part 308. provided. however. that this material misrepresentation regarding
-----exemption··does-not,-apply -to -the -ra--any-item-contained in-§319.3(d)-of-this--quirements
of §§310.4(a)(1). (a)(7), (b), and (c);
The sale of franchises subject to the Commission's Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," ("Franchise Rule") 16 CFR Part 436. provided, however. that this exemption does not apply to the requirements of §§310.4(a)(1). (a)(7), (b). and (c);
Telephone calls in which the sale of goods or services or charitable solicitation is not completed. and payment or authorization of payment is not required. until after a face-to-face sales or donation presentation by the seller or charitable organization, provided, however. that this exemption does not apply to the requirements of §§310.4(a)(1). (a)(7). (b). and (c);
Telephone calls initiated by a customer or donor that are not the result of any solicitation by a seller, charitable organization, or telemarketer, provided, however, that this exemption does not apply to any instances of upse111ng included in such telephone calls;
Telephone calls initiated by a customer or donor in response to an advertisement through any medium, other than direct mail solicitation, provided. however. that this exemption does not apply to calls initiated by a customer or donor in response to an advertisement relating to investment opportunities, business opportunities other than business arrangements covered by the Franchise Rule. or advertisements involving goods or services described in §§310.3(a)(1)(vi) or 310.4(a)(2)-(4); or to any instances of upse111ng included in such telephone calls;
Telephone calls initiated by a customer or donor in response to a direct mail solicitation, including solicitations via the U.S. Postal Service, facsimile transmission, electronic mail, and other similar methods of delivery in which a solicitation is directed to specific addressees) or person(s), that clearly, conspicuously. and truthfully discloses all material information list,ed in §310.3(a)(1) of this Rule, for any
Rule for any requested charitable contribution; provided. however. that this exemption does not apply to calls initiated by a customer in response to a direct mall solicitation relating to prize promotions, investment opportunities, business opportunities other than business arrangements covered by the Franchise Rule, or goods or services described in §§31O.3(a)(I}(vi) or 310.4(a)(2)(4); or to any instances of upse111ng included in such telephone calls; and
(7) Telephone calls between a telemarketer and any business, except calls to induce the retail sale of nondurable office or cleaning supplies; provided. however. that §310.4(b)(I)(iii}(B} and §310.5 of this Rule shall not apply to sellers or telemarketers of nondurable office or cleaning supplies.
§310.7 Actions by states and private persons.
Any attorney general or other officer of a state authorized by the state to bring an action under the Telemarketing and Consumer Fraud and Abuse Prevention Act, and any private person who brings an action under that Act. shall serve written notice of its action on the Commission, if feasible, prior to its initiating an action under this Rule. The notice shall be sent to the Office of the Director, Bureau of Consumer Protection, Federal Trade Commission, Washington, D.C. 20580, and shall include a copy of the state's or private person's complaint and any other pleadings to be filed with the court. If prior notice is not feasible. the state or private person shall serve the Commission with the required notice immediately upon instituting its action.
Nothing contained in this Section shall prohibit any attorney general or other authorized state official from proceeding in state court on the basis of an alleged violation of any civil or criminal statute of such state.
§ 310.8 Fee for access to the National Do Not Call Registry.
(a) It is a violation of this Rule for any seller to initiate, or cause any
Trade Commission §310.8
telemarketer to initiate. an outbound divide the costs to access the registry
telephone call to any person whose among various clients of that teletelephone
number is within a given marketer or service provider.
or through another person, first has paid the annual fee, required by §310.8(c), for access to telephone numbers within that area code that are in-eluded in the National Do Not Call ~gistry maintained b.~ the Com~isS10n under §310.4(b)(l)(lli)(B); prOVIded, however, that such payment is not necessary
if the seller initiates, or causes
a telemarketer to initiate, calls solely to persons pursuant to §§310.4(b)(l)(i1i)(B)(i) or (ii), and the seller does not access the Na.tiona.l Do Not Ca.ll Registry for any other purpose.
(b) It is a viola.tion of this Rule for any telemarketer, on behalf of any seller, to initiate an outbound telephone call to any person whose telephone number is within a given area code unless that seller, either directly or through another person, first has paid the annual fee. required by §310.8(c), for access to the telephone numbers within that area code that are included in the National Do Not Call Registry; provided, however. that such payment is not necessary if the seller initia.tes, or causes a telemarketer to initiate,
calls solely to persons pursuant to
§§310.4(b)(1)(111)(B)(i) or (ii), and the seller does not access the National Do Not Call Registry for any other purpose.
(c) The annual fee, which must be paid by any person prior to obta.ining access to the National Do Not Call Registry, is $62 per area code of data accessed, up to a maximum of $17,050; provided, however, that there shall be no charge for the first five area codes of data accessed by any person, and provided further, that there sha.ll be no charge to any person engaging in or causing others to engage in outbound telephone calls to consumers and who is accessing the National Do Not Call Registry without being required under this Rule, 47 CFR 64.1200, or any other Federal law. Any person accessing the National Do Not Call Registry may not participate in any arrangement to
share the cost of accessing the registry, including any arrangement with any telemarketer or service provider to through another person, pays the fees set forth in §310.8(c), the person w1ll be provided a un1qu'e account number which will allow that person to access the registry data for the selected area codes at any time for twelve months following the first day of the month in which the person paid the fee ("the an..
nual period ). To obtain access to additional area codes of data during the first six months of the annual period, the person must first pa.y $62 for each additional area code of data not initially selected. To obtain a.ccess to additional area codes of data during the second six months of the annual period, the person must first pay $31 for each additional area code of data not initially selected. The payment of the additional fee w1ll permit the person to access the additional area codes of data for the remainder of the annual period.
(e) Access to the National Do Not Call Registry is limited to telemarketers sellers others engaged in or causing others to' engage in telephone calls to consumers, service providers acting on behalf of such persons and
any government agency that has law enforcement authority. Prior to accessing the National Do Not Call Registry. a person must provide the identifying information required by the operator of the registry to collect the fee, and must certify, under penalty of law, that the person is accessing the registry solely to comply with the proviSiODS of this Rule or to otherwise prevent telephone calls to telephone numbers on the registry. Ifthe person is accessing the registry on behalf of sellers, that person also must identify each of the sellers on whose behalf it is accessing the registry, must provide each seller's unique account number for access to the national registry, and must certify, under penalty of law, that the sellers w1ll be using the information gathered from the registry solely to comply with the provisions of
16 CFR Ch. I (1-1-08 Edition)
this Rule or otherwise to prevent telephone calls to telephone numbers on the registry. --i68-FjC45144~J'iiiY31.-200~:-asamendeda.t 6~
45585. July 3D, 2004; 70 FR 43280, July 27. 2005; 71 FR 43054, July 31. 2006)
The provisions of this Ru)e are separate and severable from one another. If any provision is stayed or determined to be invalld. it Is the Commission's intention
tha.t the remaining provisions shall continue in effect.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 02-22198-CIV-MARTINEZ/DUBE
SECURITIES AND EXCHANGE COMMISSION,
AMERICAN FINANCIAL GROUP
OF AVENTURA, INC.,
DAVID H. SIEGEL,
and EDWARD M. CHISM, SR.,
AMERICAN WEALTH MANAGEMENT
OF AVENTURA, INC.,
Plaintiff Securities and Exchange Commission ("Commission") alleges:
1. The Commission brings this action to restrain and enjoin Defendants from continuing to violate the federal securities laws in connection with their unregistered, fraudulent offer and sale of securities in the form of investment contracts. From approximately 1997 through at least June 2002 (the "relevant time period"), Defendants American Financial Group of Aventura, Inc. ("AFG"), its "head trader" David H. Siegel ("Siegel") and its president and chief executive officer ("CEO") Edward M. Chism, Sr. ("Chism"), raised approximately $87 million from investors by selling them interests in a so-called "Restricted Stock Loan Program" ("Loan Program"). Siegel, a recidivist securities violator, has misappropriated investor monies, issued false statements to investors and absconded with all or nearly all of the Loan Program documents from AFG's offices. In addition, Chism approved of AFG's offering materials and website, which boasted of the professionalism and experience of AFG's principals but omitted to disclose Siegel's extensive disciplinary background and his own background involving a 1999 order issued by a governmental agency in Panama, finding him liable for the mismanagement of public funds.
2. Defendant AFG was incorporated in Florida in January 1992 and has offices in Aventura, Florida. AFG purportedly is a capital management company specializing in alternative investments, including investment opportunities in the restricted securities markets.
3. Defendant Siegel, age 65, resides in Ft. Lauderdale, Florida and is AFG's senior vice president and director of investments. On July 22, 1987, Siegel was enjoined as a result of an enforcement action brought by the Commission alleging that he participated in a stock manipulation scheme. SEC v. Magna Technologies, Inc., Case No. 87-2895 MRP GX. (C.D. CA). In addition, Siegel has an extensive disciplinary history in connection with violations of the securities laws.
4. Defendant Chism, age 63, resides in Miami, Florida and was AFG's president and CEO. In August 1999, Panama's Comptroller General of the Republic, Office of Fiscal Responsibility issued a Final Resolution, finding Chism and others liable for mismanagement of public funds and fining him approximately $2.158 million, jointly and severally, with his wife. In February 2003, Chism was named as the defendant in a three-count Indictment, charging him with filing false and fraudulent income tax returns for the calendar years 1999 through 2001. United States v. Edward Myles Chism, Sr., Case No. 03-20117-CR-Moreno (S.D. Fla.). In May 2003, Chism entered a plea of guilty. On June 4, 2003, Chism was sentenced to a term of thirty months in prison, three years supervised release and was ordered to pay restitution as back taxes in an amount to be set by the Internal Revenue Service.
5. Relief Defendant American Wealth Financial Group of Aventura, Inc. ("American Wealth") was incorporated in Florida in June 2000 and has offices located in Aventura, Florida. At least $200,000 of investor funds earmarked for the Loan Program was deposited with American Wealth.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d) and 77v(a), and Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d), 78u(e) and 78aa.
7. Certain of the acts and transactions constituting violations of the Securities Act and the Exchange Act have occurred within the Southern District of Florida. The offices of Defendant AFG are located within the Southern District of Florida, and Defendants Siegel and Chism reside in the Southern District of Florida. Defendants have engaged in many of the acts and practices complained of herein within the Southern District of Florida.
8. Defendants, directly and indirectly, have made use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business complained of herein.
THE FRAUDULENT SCHEME
The Unregistered Loan Program Offering
9. During the relevant time period, AFG raised approximately $87 million by offering and selling investment contracts in the form of fractional participation in its Loan Program. The investments in the Loan Program are investment contracts and, therefore, securities as defined by Section 2(1) of the Securities Act, 15 U.S.C. § 77b(1), and Section 3(a)(10) of the Exchange Act, 15 U.S.C. § 78c(10).
10. Investors heard of the Loan Program investment by referrals and through word-of-mouth.
11. AFG's Loan Program purported to pool investor monies and then use those funds to make secured loans to various individuals and/or entities who were required to pledge restricted stock to AFG as collateral.
12. Investors relied on AFG to earn the promised returns on their investment interests in the Loan Program. Investors had no input in deciding whether AFG would lend money to a particular borrower or whether to approve a certain restricted stock as collateral. Moreover, investors had no role in AFG's management or operation.
13. The loans underlying the Loan Program would pay off in one of three ways: (1) the loan would mature full term, with all monthly interest payments made on schedule and the principal being repaid on the maturity date; (2) the borrower would repay the loan prior to the end of the contracted period and would pay all realized and accrued interest and any applicable pre-payment penalties; or (3) the loan would go into default.
14. Supposedly, if a borrower defaulted on a loan, AFG could seize title to its collateral through foreclosure and immediately sell the restricted securities into the market, i.e., the shares would then become free trading. In addition, AFG, through Siegel, would hedge its positions by shorting a portion of the securities in the borrowers' companies.
15. AFG claimed that there was full recourse to the borrower, and further that the lending process included obtaining loan documentation as set forth in a checklist, purportedly evidencing sound loans.
16. AFG's offering materials promised very high returns. The offering materials describe the collateral coverage as "4-5 times [the loan]," purport to offer investors the opportunity to receive monthly interest payments, and boast of "above average returns and low volatility." The materials describe the loans as "over collateralized" and tout AFG's purported "highly profitable niche-market."
17. AFG's offering materials promise investors returns of approximately 18-20% on their investments. Projected returns include 8% from loan interest plus additional 7% to 10% capital gains from hedging. According to the materials, the average loan period is 9-14 months, and a $100,000 minimum investment is required.
18. At least one investor was told that 60% of the investment would be used to fund the loans and that AFG would keep the remaining 40% to "hedge their positions."
19. Because of the collateral arrangement and the hedging (through short sales), investors were led to believe the risk of the investment was "extremely low."
20. Investors were told through AFG's offering materials and its website about the company's purported successful trading history, high rates of return, and the financial expertise and experience of those managing AFG. Siegel is described on AFG's website as having "over 25 years of experience in the brokering and fund management businesses . . . [and] is widely recognized as a leading expert in the field of restricted Securities [sic]." In fact, AFG's offering materials describe the company as "Your Specialist In Restricted Securities."
21. Neither the offering materials nor the website disclose the entry of a 1987 permanent injunction against Siegel for violations of the registration and antifraud provisions of the federal securities laws in connection with a stock manipulation scheme, or his other disciplinary history or Chism's disciplinary history in Panama.
22. During the course of the scheme, Siegel and AFG caused investors to receive fraudulent periodic statements by providing false data to the investment groups who passed this information on to the individual investors.
23. The false monthly statements indicated that the Loan Program was showing consistently high returns, when, in fact, it was losing value due to Siegel's mismanagement and/or misappropriation of as much as $87 million in investors' assets. In fact, one investor received a statement showing that he had earned 21.93% over 256 days.
24. No registration statement has been filed or is in effect with the Commission in connection with the securities offered by AFG.
Role of Siegel
25. Siegel has been described by AFG's management and its investors as AFG's "head trader." Siegel had exclusive control over certain of AFG's books and records.
26. In fact, Siegel was the only person with a combination to AFG's safe containing all or nearly all AFG's Loan Program documents, including the restricted securities.
27. Siegel was responsible for the dissemination of the bogus monthly statements AFG sent to investors that represented false returns.
28. Siegel was also responsible for all of AFG's financial operations pertaining to the Loan Program.
29. Moreover, Siegel had signatory authority over most, if not all, of AFG's bank accounts and controlled the movement of funds in those accounts.
30. In addition, Siegel met with investors, explained the Loan Program to them, and described to at least one investor the success of AFG and his 15 or 20 years of experience in making loans involving restricted stock.
31. When investors began seeking to redeem their investments, Siegel attempted to lull them into believing that their money would be forthcoming. For example, in or about mid-June, Siegel represented to an investor that the returns for the Loan Program had declined due to "increasing illiquidity of the stock collateral and greater than expected margin requirements." Siegel then gave the investor a check, which was ultimately returned for insufficient funds.
32. Siegel continues to attempt to lull investors. In fact, on or about July 8, 2002, Siegel stated that he could return $5-10 million to investors within the next six months and an additional $20 million "over time."
33. During the duration of the fraud, Siegel was actively involved in the day-to-day operations of AFG. Siegel had power to control the companies' corporate actions and policies in all areas, and routinely exercised this power.
Role of Chism
34. Chism, who was AFG's president and CEO handled administrative matters at AFG, including hiring and firing.
35. Chism also met with investors and potential investors, described AFG's Loan Program to them, and, as CEO of AFG, signed documents acknowledging the receipt of investor funds for investment purposes.
36. Chism also owned and controlled American Equity Management Group, Inc, a corporate entity that maintained bank accounts into which investor funds were deposited.
37. Furthermore, Chism approved AFG's offering materials and website, knowing that they would be disseminated to investors and potential investors, even though they omitted ot disclose Siegel's extensive disciplinary background involving the securities laws or his own background regarding the August 1999 findings by a government agency of Panama that Chism was liable for the mismanagement public funds and fining him over $2 million.
38. Moreover, Chism participated in meetings with potential investors where he touted AFG's returns and program, while omitting to disclose his and Siegel's past legal and disciplinary backgrounds.
39. During the duration of the fraud, Chism was actively involved in the day-to-day operations of AFG. Chism had power to control the companies' corporate actions and policies in all areas, and routinely exercised this power.
Misrepresentations and Omissions
40. AFG's offering materials, website, and monthly statements mailed to investors contain material misrepresentations and omissions concerning, among other things, purported profits, the dissipation of investor funds, Siegel's manipulation of AFG's books and records, and Siegel's disciplinary past, including an injunction against him for his participation in a stock manipulation scheme, and the findings by a Panamanian government agency that Chism was liable for the mismanagement of public funds.
41. For example, AFG's monthly statements falsely indicated returns of over 20% with the preservation of principal, when, in fact, as much as $87 million in investors' monies and assets were being mismanaged and/or misappropriated by Siegel.
42. Moreover, AFG's website boasted of the combined "75 years of experience in domestic and international financial markets" of its "key professionals." It also represented that Siegel had over 25 years of experience in the brokering and fund management businesses and touted Siegel as "widely recognized as a leading expert in the field of restricted securities." In addition, the website stated "Mr. Chism served for over 27 years in high ranking positions with the U.S. government" and that "[a]t AFG we insist on the highest standards of professionalism . . ."
43. Yet neither AFG's website nor offering materials disclose that: (a) Siegel has been enjoined, censured, fined and barred from the securities industry for his fraudulent conduct involving, among other things, a stock pump-and-dump scheme and various other violations while a principal at two separate registered broker-dealers; (b) AFG's president and CEO had been found by a Panamanian governmental agency to be liable for the mismanagement of public funds and was fined over $2 million; or (c) Chism was apparently filing false and fraudulent tax returns.
44. Additionally, AFG's website and offering materials tout AFG's successful operations over a 9+ year period and present the appearance of a well-run and highly organized investment firm.
45. For example, AFG touts itself as "your specialist in restricted securities" and boasts, "For over 9 years AFG has specialized in this highly profitable niche-market." In fact, AFG lacked even the most rudimentary internal controls, which permitted Siegel to manipulate AFG's books and records and misappropriate funds, and corporate account documents to such an extent that AFG has no idea how much it has in investor assets or their location.
46. Siegel has manipulated AFG's books and records in an attempt to conceal his fraudulent scheme and the misappropriation of approximately $87 million in investors' funds.
47. Furthermore, Siegel has absconded with key AFG documents regarding the Loan Program, including certificates of the restricted securities that collateralize the loans. These documents are critical in order to locate and account for the assets from the Loan Program.
48. Siegel told at least one investor that the invested money "was gone" and that he (Siegel) would go to jail for these activities.
SALE OF UNREGISTERED SECURITIES IN VIOLATION OF SECTIONS 5(a) AND 5(c) OF THE SECURITIES ACT
49. The Commission repeats and realleges paragraphs 1 through 48 of this Complaint. No registration statement was filed or in effect with the Commission pursuant to the Securities Act and no exemption from registration exists with respect to the securities and transactions described in this Complaint.
50. Since a date unknown through the present, Defendants AFG, Siegel, and Chism, directly and indirectly, have been: (a) making use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell securities as described herein, through the use or medium of a prospectus or otherwise; (b) carrying securities or causing such securities, as described in this Complaint, to be carried through the mails or in interstate commerce, by any means or instruments of transportation, for the purpose of sale or delivery after sale; and/or (c) making use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise, as described in this Complaint, without a registration statement having been filed or being in effect with the Commission as to such securities.
51. By reason of the foregoing, Defendants AFG, Siegel, and Chism, directly and indirectly, have violated, and unless enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).
FRAUD IN VIOLATION OF SECTION 17(a)(1) OF THE SECURITIES ACT
52. The Commission repeats and realleges paragraphs 1 through 48 of the Complaint.
53. Since a date unknown, but from approximately 1997 through at least June 2002, Defendants AFG, Siegel, and Chism, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce and by use of the mails, in the offer or sale of securities, as described herein, have been, knowingly, willfully or recklessly employing devices, schemes or artifices to defraud.
54. By reason of the foregoing, Defendants AFG, Siegel, and Chism, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1).
FRAUD IN VIOLATION OF SECTIONS 17(a)(2) AND 17(a)(3) OF THE SECURITIES ACT
55. The Commission repeats and realleges paragraphs 1 through 48 of its Complaint.
56. Since a date unknown, but from approximately 1997 through at least June 2002, Defendants AFG, Siegel and Chism, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce and by the use of the mails, in the offer or sale of securities, as described herein, have been: (a) obtaining money or property by means of untrue statements of material facts and omissions to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (b) engaging in transactions, practices and courses of business which are now operating and will operate as a fraud or deceit upon purchasers and prospective purchasers of such securities.
57. By reason of the foregoing, Defendants AFG, Siegel and Chism, directly and indirectly, have violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3).
FRAUD IN VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER
58. The Commission repeats and realleges paragraphs 1 through 48 of its Complaint.
59. Since a date unknown, but since approximately 1997 through at least June 2002, Defendants AFG, Siegel, and Chism, directly and indirectly, by use of the means and instrumentality of interstate commerce, and of the mails, and of any facility of any national securities exchange, in connection with the purchase or sale of the securities, as described herein, have been, knowingly, willfully or recklessly: (a) employing devices, schemes or artifices to defraud; (b) making untrue statements of material facts and omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (c) engaging in acts, practices and courses of business which have operated, are now operating and will operate as a fraud upon the purchasers of such securities.
60. By reason of the foregoing, Defendants AFG, Siegel, and Chism, directly or indirectly, have violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240. 10b-5, thereunder.
WHEREFORE, the Commission respectfully requests that the Court:
Declare, determine and find that Defendants AFG, Siegel and Chism committed the violations of the federal securities laws alleged herein.
Permanent Injunctive Relief
Issue a Permanent Injunction, restraining and enjoining Defendants AFG, Siegel and Chism, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them, from violating: (i) Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and (c); (ii) Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a); (iii) Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and (a)(3); and (iv) Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, thereunder.
Issue an Order requiring Defendants AFG, Siegel, and Chism and Relief Defendant American Wealth, to disgorge all ill-gotten profits or proceeds that they have received as a result of the acts and/or courses of conduct complained of herein, with prejudgment interest.
Issue an Order directing Defendants AFG, Siegel, and Chism to pay civil money penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78(d)(3).
Asset Freeze and Accounting
Issue an Order temporarily freezing the assets of Defendants AFG and Siegel, and Relief Defendant American Wealth until further Order of the Court, and requiring accountings by AFG and Siegel, and Relief Defendant American Wealth.
Records Preservation and Expedited Discovery
Issue an Order requiring Defendants AFG and Siegel to preserve any records related to the subject matter of this lawsuit that are in their custody, possession or subject to their control, and requiring Defendants AFG and Siegel and Relief Defendant American Wealth and others to respond to discovery on an expedited basis.
Repatriation of Investor Proceeds
Issue an Order requiring Defendants AFG and Siegel and the Relief Defendant to take such steps as are necessary to repatriate to the territory of the United States all funds and assets of investors described in the Commission's Complaint in this action which are held by them or are under their direct or indirect control, jointly or singly, and deposit such funds into the registry of the United States District Court for the Southern District of Florida, and provide the Commission and the Court a written description of the funds and assets so repatriated.
Officer and Director Bars
Issue Orders barring Defendants Siegel and Chism from serving as officers or directors of any public company pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78(d)(2).
Grant such other and further relief as may be necessary and appropriate.
Retention of Jurisdiction
Further, the Commission respectfully requests that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.
June 13, 2003
By: Alise M. Johnson
Senior Trial Counsel
Florida Bar No. 0003270
Direct Dial: (305) 982-6322
Terence M. Tennant
Florida Bar No. 0739881
Direct Dial: (305) 982-6346
Trisha D. Sindler
Florida Bar No. 0773492
Direct Dial: (305) 982-6352
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
801 Brickell Avenue, Suite 1800
Miami, Florida 33131
Telephone: (305) 982-6300
Facsimile: (305) 536-4154