1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MEMO IN SUPPORT OF MOTION FOR TRO FEDERAL TRADE COMMISSION 915 Second Ave., Ste. 2896 Seattle, Washington 98174 (206) 220-6350 WILLARD K. TOM General Counsel ROBERT J. SCHROEDER Regional Director MARY T. BENFIELD MIRY KIM Federal Trade Commission 915 Second Ave., Suite 2896 Seattle, WA 98174 Telephone: (206) 220-6350 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON FEDERAL TRADE COMMISSION, Plaintiff, v. ADVANCED MANAGEMENT SERVICES NW LLC, also d.b.a. AMS Financial, Rapid Reduction Systems, and Client Services Group, a Washington limited liability company; PDM INTERNATIONAL, INC., also d.b.a. Priority Direct Marketing International, Inc., a Delaware corporation; RAPID REDUCTION SYSTEM’S, LLC, a Delaware limited liability company; Ryan David Bishop; Michael L. Rohlf; and William D. Fithian, Defendants. Civil No. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF EX PARTE MOTION FOR TEMPORARY RESTRAINING ORDER WITH ASSET FREEZE, APPOINTMENT OF TEMPORARY RECEIVERS, AND OTHER EQUITABLE RELIEF -1- Case 2:10-cv-00148-LRS Document 5 Filed 05/10/10
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MEMO IN SUPPORT OF MOTION FOR TRO
FED ER AL TR AD E C OM M ISSIO N
915 Second Ave., Ste. 2896
Seattle, W ashington 98174
(206) 220-6350
WILLARD K. TOMGeneral CounselROBERT J. SCHROEDERRegional DirectorMARY T. BENFIELD MIRY KIM Federal Trade Commission915 Second Ave., Suite 2896Seattle, WA 98174Telephone: (206) 220-6350
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WASHINGTON
FEDERAL TRADE COMMISSION,
Plaintiff,
v.
ADVANCED MANAGEMENTSERVICES NW LLC, also d.b.a. AMSFinancial, Rapid Reduction Systems, andClient Services Group, a Washingtonlimited liability company;
PDM INTERNATIONAL, INC., also d.b.a.Priority Direct Marketing International,Inc., a Delaware corporation;
MEMORANDUM OFPOINTS ANDAUTHORITIES INSUPPORT OF EX PARTEMOTION FORTEMPORARYRESTRAINING ORDERWITH ASSET FREEZE,APPOINTMENT OFTEMPORARY RECEIVERS,AND OTHER EQUITABLERELIEF
The Federal Trade Commission (“FTC”) asks this Court to stop a massive
enterprise that telemarkets debt reduction services to consumers nationwide. Since
2008, Defendants have charged from $499 to $1590 for their promise to dramatically
reduce consumers’ credit card interest rates and save them thousands of dollars in a
short time. Law enforcement agencies and the Better Business Bureau have received
hundreds of complaints about Defendants’ fraudulent practices. Defendants’
misrepresentations, material omissions, and calling practices violate Section 5(a) of the
Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 45(a), and the Do Not Call
and other provisions of the Telemarketing Sales Rule (“TSR”), 16 C.F.R. Part 310.
To halt Defendants’ violations and preserve assets for eventual victim
restitution, the FTC asks the Court to enter an ex parte temporary restraining order
(“TRO”) that freezes Defendants’ assets, expedites discovery, grants immediate access,
and appoints temporary receivers over the corporate Defendants. This relief is
necessary to prevent ongoing injury to consumers, destruction of evidence, and
dissipation of assets, and to preserve the Court’s ability to provide effective final relief.
II. DEFENDANTS’ ILLEGAL BUSINESS PRACTICES
Defendants promise money back if they cannot reduce consumers’ credit card
interest rates and save them thousands of dollars. Then they fail to deliver on both the
service and the refund.
A. Defendants Violate the FTC Act
1. Defendants’ Deceptive Sales Calls
Defendants initially contact many consumers through unsolicited prerecorded
messages, or “robocalls.” Using a name like “card services” to sound like a
consumer’s own credit card issuer, the message warns consumers they need to speak to
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Plaintiff’s TRO Exhibit (“Exh.”) 18, p. 446, ¶ 3; p. 456, ¶ 3; p. 458, ¶ 3; p.1
466, ¶ 3; p. 470, ¶ 3; p. 481, ¶ 3; p. 483, ¶ 4.
Consumers who press “2” to stop further calls keep getting them anyway. 2
Exh. 18, p. 450, ¶ 3; p. 458, ¶ 4; p. 464, ¶ 3; p. 475, ¶ 4; p. 483, ¶ 4.
Exh. 12, p. 320, ¶ 4; Exh. 18, p. 448, ¶ 4; p. 450, ¶ 4; p. 452, ¶ 3; p. 460,3
¶ 4; p. 468, ¶ 4; p. 470, ¶ 5.
Exh. 18, p. 454, ¶ 4; p. 456, ¶ 4, p. 458, ¶ 4; p. 466 ¶ 4; p. 475, ¶ 5; p. 481,4
¶ 4; p. 483, ¶ 5.
AMS: Exh. 18, p. 448, ¶ 3; p. 452, ¶ 3; p. 468, ¶ 4; p. 484, ¶ 6. PDMI: Exh.5
12, p. 320, ¶ 4; Exh. 18, p. 446, ¶ 5; p. 451, ¶ 6; p. 454, ¶ 5; p. 456, ¶ 4; p. 458, ¶ 4;
p. 460, ¶ 4; p. 462, ¶ 4; p. 466, ¶ 4; p. 470, ¶ 5; p. 473, ¶ 4; p. 476, ¶ 6; p. 477, ¶ 4;
p. 481, ¶ 4.
Exh. 5, p. 122, ¶ 3; Exh. 6, p. 126, ¶ 2; Exh. 8, p. 183, ¶ 2 (Financial6
Services); Exh. 17, p. 428, ¶ 2 (card services); Exh. 18, p. 452, ¶ 3 (credit card
services); Exh. 20, pp. 508-09, ¶ 17. Generic company names allow Defendants to
remain anonymous to complaining consumers. In the past year, more than 42,000
Do Not Call complaints were filed against “card services,” “client services,”
“credit card services,” and “financial services.” Exh. 20, p. 510, ¶ 19. AMS has
worked with a confusing array of other companies, whose names are displayed on
MEMO IN SUPPORT OF MOTION FOR TRO
FED ER AL TR AD E C OM M ISSIO N
915 Second Ave., Ste. 2896
Seattle, W ashington 98174
(206) 220-63502
them about their credit card interest rates. Instructed to press “1” to speak to a live1
agent, consumers are transferred to one of Defendants’ telemarketers, who declines to2
provide a company name or again purports to be calling from “card services,” etc. 3
When a consumer asks who is calling, or to be removed from the call list, the caller
often hangs up. Persistent, interested consumers are eventually told the caller is4
“AMS Financial” or “Priority Direct Marketing” or are directed to
www.prioritydirect.net. Defendants also make live outbound calls to consumers, also5
posing as “card services” or the like. 6
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consumers’ materials along with the AMS Spokane address. Exh. 13, p. 329, ¶ 16
& pp. 332, 343, 361; Exh. 20, pp. 508-09, ¶ 17; Exh. 21, pp. 1283-1285. See, e.g.,
Exh. 17, pp. 429-30, ¶ 5 & p. 434.
Exh. 1 through 17, pp. 21- 444.7
Exh. 6, p. 126, ¶ 2; Exh. 8, p. 183, ¶ 2; Exh. 11, p. 259, ¶ 3; Exh. 17, p.8
428, ¶ 2.
Exh. 11, p. 259, ¶ 3.9
Exh. 17, p. 428, ¶ 2.10
Exh. 15, p. 401, ¶ 2; Exh. 20, p. 504-07, ¶¶ 6, 9, 11, 13, p. 544 (AMS), pp.11
552-53 (PDMI), p. 565 (Rapid Reduction), pp. 879-81 (Priority Direct).
Exh. 19, pp. 494-96, ¶¶ 16-19.12
Exh. 2, p. 40, ¶ 3; Exh. 3, p. 59, ¶ 2; Exh. 9, p. 220, ¶ 2; Exh. 10, p. 231,13
¶ 3; Exh. 11, p. 259, ¶ 4; Exh. 13, p. 324, ¶ 2; Exh. 14, p. 382, ¶ 3; Exh. 20, pp.
504-07, ¶¶ 6, 11, 13 and pp. 547, 553, 567, 880-81.
MEMO IN SUPPORT OF MOTION FOR TRO
FED ER AL TR AD E C OM M ISSIO N
915 Second Ave., Ste. 2896
Seattle, W ashington 98174
(206) 220-63503
Whether consumers press “1” or receive a live call directly from Defendants, the
telemarketers’ pitch is the same. They ask some basic questions about credit card debt,
balances, and interest rates, then claim they can significantly reduce those rates, often7
to below 10%. Defendants told Nancy Pederson that they could take her credit card8
interest rates from 18 - 26% down to 2.9 - 6.9%. They told Robin Zwartjes that they9
could negotiate her interest rate to one-third of her current rate. Defendants’ websites10
contain similar representations. Such blanket claims are groundless, and rates this11
low are generally impossible to negotiate. 12
Defendants claim special affiliations or expertise in dealing with financial
institutions that make such low rates possible. An undercover government agent13
(“UCA”) recorded a self-identifed Rapid Reduction telemarketer (‘Brandon”)
claiming:
BRANDON: [W]e go in there and we negotiate the rates on your behalf,and . . . we do actually have the direct lines to the retention department of
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Exh. 20, pp. 521-22, ¶ 46 & pp. 946-47.14
Exh. 7, p. 144, ¶ 2.15
Exh. 6, p. 126, ¶ 2.16
Exh. 19, pp. 496-97, ¶ 20.17
Exh. 2, pp. 40-41, ¶ 4; Exh. 10, p. 233, ¶ 7; Exh. 11, p. 262, ¶ 8; Exh. 13,18
pp. 327-28, ¶ 12; Exh. 19, pp. 496-97, ¶ 20 .
Exh. 1, p. 22, ¶ 4; Exh. 2, p. 40, ¶ 2; Exh. 3, p. 59, ¶ 3; Exh. 4, p. 94, ¶ 2;19
Exh. 7, p. 144, ¶ 3; Exh. 8, p. 184, ¶ 3; Exh. 11, p. 260, ¶ 5; Exh. 12, pp. 320-21,
¶ 5; Exh. 13, p. 325,¶ 3; Exh. 14, p. 382, ¶ 2; Exh. 15, p. 401, ¶ 2 (PDMI website
makes this claim), Exh. 16, p. 414, ¶ 3; Exh. 17, p. 428, ¶ 2; Exh. 20, pp. 506, ¶ 11
& 552.
TRO Exhs. 1-17, pp. 21-444. See, e.g., Exh. 1, p. 22, ¶ 4, p.30; Exh. 2, p.20
40, ¶ 2, p. 46; Exh. 3, p. 59, ¶ 3, p. 64; Exh. 6, p. 126, ¶ 2 & p. 133.
MEMO IN SUPPORT OF MOTION FOR TRO
FED ER AL TR AD E C OM M ISSIO N
915 Second Ave., Ste. 2896
Seattle, W ashington 98174
(206) 220-63504
all seventy seven FDIC regulated banks, where they issue credit cards, andwhere they do negotiations. So, we don’t deal with customer service. Idon’t know if you’ve tried to call yourself and have them lowered?UCA: Yeah.BRANDON: It’s a . . . it’s a dead end street. We don’t deal withthat, and that’s why we’re able to do this. People ask me how we’re ableto do this, because they can’t do it on their own? Well how aboutseventeen thousand people in customers and it’s called leverage? 14
One telemarketer claimed to work for a MasterCard subsidiary while offering to
lower credit card interest rates. Another consumer thought the caller was from Bank15
of America because of the offer to reduce her Visa card rate. In reality, Defendants16
have no special expertise or relationship with banks. Indeed, many banks will not17
work with a third party hired to negotiate lower interest rates. 18
Defendants charge from $499 to $1590 for their service. Wary consumers are
assured that this fee will be more than recouped. In fact, Defendants guarantee19
consumers will save (typically) $2500 because of reduced interest rates. One20
consumer was told that the service “would be ‘absorbed’ into my savings, meaning that
the fee wouldn’t come out of my credit card but instead would be taken from the
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Exh. 16, p. 414, ¶ 3.21
Exh. 1, pp. 22-23, ¶ 4; Exh. 10, p. 231, ¶ 3; Exh. 11, p. 260, ¶ 5; Exh. 13,22
p. 325, ¶ 3; Exh. 17, p. 428, ¶ 2; See also Exh. 8, p. 183, ¶ 2 ($199 deducted from
refund).
Exh. 1, p. 23, ¶ 6; Exh. 4, p. 94, ¶ 3; Exh. 6, p. 127, ¶ 4; Exh. 7, p. 145,23
¶ 4; Exh. 10, p. 232, ¶ 4; Exh. 11, p. 260-61, ¶ 6; Exh. 15, p. 402, ¶ 4; Exh. 17, p.
428-29, ¶ 4.
Exh. 1, p. 23, ¶ 6; Exh. 2, pp. 41-42, ¶ 7; Exh. 9, pp. 223-24, ¶ 15; Exh. 12,24
p. 321, ¶ 7; Exh. 14, p. 384, ¶ 8; Exh. 17, p. 429, ¶ 5.
See, e.g., Exh. 11, p. 260, ¶ 6, p. 263, ¶ 10; Exh. 12, p. 320, ¶ 5.25
Exh. 1, p. 24, ¶ 8; Exh. 2, p. 41, ¶ 4; Exh. 3, p. 60, ¶ 4; Exh. 4, p. 94, ¶ 4;26
Exh. 7, p. 145, ¶ 6; Exh. 8, p. 184, ¶ 5; Exh. 13, p. 325, ¶ 4; Exh. 14, pp. 382-83,
¶¶ 2, 5; Exh. 15, p. 402, ¶ 5; Exh. 16, p. 415, ¶ 5.
MEMO IN SUPPORT OF MOTION FOR TRO
FED ER AL TR AD E C OM M ISSIO N
915 Second Ave., Ste. 2896
Seattle, W ashington 98174
(206) 220-63505
monthly savings.” Consumers are assured of a full refund if the guaranteed interest21
rate savings are not achieved.22
Defendants record the consumer’s agreement to pay the fee by credit card. 23
Apparently included is a fleeting first-time reference to a $199 “non-refundable fee,”
which many consumers do not recall hearing. The shenanigans used by Defendants24
to convince consumers to purchase the service are not recorded. Defendants charge25
the entire fee to consumers’ credit cards within a day or two of the telemarketing call,
before performing any services.26
2. Defendants’ Welcome Package
About a week after being charged, consumers receive a welcome package.
Included is a “Credit Liability Summary,” which asks customers to list the details of
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See, e.g., Exh. 2, p. 47; Exh. 6, p. 135; Exh. 8, p. 200; Exh. 9, p. 226; Exh.27
13, p. 335.
Exh. 1, p. 30; Exh. 2, p. 46; Exh. 3, p. 64; Exh. 7, p. 151; Exh. 8, 199; Exh.28
9, p. 225.
See, e.g., Exh. 1, p. 30; Exh. 2, p. 46; Exh. 3, p. 64; Exh. 6, p. 133; Exh. 7,29
p. 151; Exh. 8, p. 199; Exh. 9, p. 225; Exh. 11, p. 268; Exh. 13, p. 337; Exh. 17, p.
436.
Id.30
See, e.g., Exh. 12, p. 321, ¶ 7 (“the documents did not corroborate my31
telephone conversations with [defendant’s telemarketer]”); Exh. 17, p. 429, ¶ 5
(noting differences between telephone claims and written materials).
Exh. 4, p. 95, ¶ 5; Exh. 13, pp. 326-27, ¶ ¶ 8-10; Exh. 14, p. 383, ¶ 5.32
Exh. 16, p. 415, ¶ 6, and p. 423. 33
MEMO IN SUPPORT OF MOTION FOR TRO
FED ER AL TR AD E C OM M ISSIO N
915 Second Ave., Ste. 2896
Seattle, W ashington 98174
(206) 220-63506
each credit card account. The form is to be mailed back within 30 days. 27 28
Those who read the rest of the paperwork closely may discern that what they
bought is not what they received. The agreement explains that the guaranteed savings
will be achieved only if the consumer follows a “Liability Reduction Schedule.” A29
disclaimer states: “I also understand that I am not guaranteed any interest reductions
with my creditors. Such a result may be within my ability and earned between myself
and my creditors . . . At any time after a rescission period [undefined], I understand
that I may cancel this service with written or verbal notice. I acknowledge that I will
not be reimbursed any of the fees that I have paid for this service, prior to the
cancellation.” This is most certainly not what consumers are told on the telephone.30 31
3. Defendants’ “Services”
After mailing back the forms, some consumers report that Defendants either did
not contact them or said they could not lower the consumer’s interest rates. 32 33
Sometimes a three-way call is arranged. The telemarketer asks the consumer to hang
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Exh. 3, p. 60, ¶ 5; Exh. 7, p. 146, ¶ 8; Exh. 8, p. 185, ¶ 7; Exh. 15, pp. 402-34
03, ¶ 5.
Exh. 10, p. 233, ¶ 7; Exh. 11, p. 262, ¶ 8; Exh. 13, pp. 327-28, ¶ 12; Exh.35
14, p. 383, ¶ 6.
Exh. 10, p. 233, ¶ 7. 36
Exh. 13, p. 328, ¶ 13; Exh. 15, p. 404, ¶ 8; Exh. 16, pp. 415-16, ¶ 6. 37
See, e.g., Exh. 3, pp. 74-75; Exh. 7, p. 162.38
Exh. 2, p. 41, ¶ 5; Exh. 10, p. 234, ¶ 8; Exh. 13, p. 328, ¶ 13.39
MEMO IN SUPPORT OF MOTION FOR TRO
FED ER AL TR AD E C OM M ISSIO N
915 Second Ave., Ste. 2896
Seattle, W ashington 98174
(206) 220-63507
up after authorizing his or her card issuer to speak to the telemarketer, later informing
the consumer that the issuer refused to lower the rate. Some consumers remain on the34
line and listen; typically, the credit card company declines and the call ends. The35
Defendants’ representative sometimes tells the consumer that he or she will try again in
a few months. It is apparent to most consumers at this point that Defendants have no36
special relationship or expertise with credit card issuers. After failing to achieve
interest rate reductions, Defendants sometimes urge consumers to transfer their
balances to a new credit card with a low rate. This is not what consumers paid for.37
Instead of interest rate reductions, what Defendants provide to consumers is a
“Debt Elimination Plan” that simply instructs them to keep paying the same monthly
amount on their credit cards, even when the minimum payments decline. A consumer
paying $1000 in monthly credit card payments would continue paying $1000 per
month until all cards are paid off. Defendants’ financial plan consists of nothing38
more than telling consumers to pay off their credit card bills faster.
4. Defendants’ Failure to Provide Refunds
Many consumers demand a refund from AMS. Often they are told they must
speak to a “manager” (which generally does not help), complete and sign AMS forms39
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Exh. 9, p. 221, ¶ 5.40
Exh. 16, p. 417, ¶ 11.41
Exh. 2, p. 43, ¶ 13; Exh. 3, p. 61, ¶ 7; Exh. 14, p. 395; Exh. 15, p. 404, ¶ 8.42
Exh. 1, p. 25, ¶ 12; Exh. 2, p. 43, ¶ ¶ 11-14; Exh. 4, p. 95, ¶ 6; Exh. 6, p.43
129, ¶ ¶ 11-12; Exh. 7, p. 146, ¶ 11; Exh. 10, p. 234, ¶ 9; Exh. 11, p. 265, ¶ 16;
Exh. 14, p. 385, ¶ 11; Exh. 17, pp. 430-31,¶ ¶ 7-8.
Exh. 3, p. 62, ¶ 9; Exh. 7, p. 147, ¶ 12 (chargeback declined); Exh. 9, p.44