in the united states district court for the district … dalbey injunction.pdfcase 1:11-cv-01396-cma...
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1 The State of Colorado is separately filing a memorandum in support of Plaintiffs’request for a preliminary injunction.
IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLORADO
Civil Action No. __________________
FEDERAL TRADE COMMISSION and )STATE OF COLORADO, ex rel. )JOHN W. SUTHERS, ATTORNEY GENERAL, )
)Plaintiffs, )
)v. )
)RUSSELL T. DALBEY; )DEI, LLLP; )DALBEY EDUCATION INSTITUTE, LLC; )IPME, LLLP; )CATHERINE L. DALBEY; and )MARSHA KELLOGG, )
)Defendants. )
FTC’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OFPLAINTIFFS’ MOTION FOR A PRELIMINARY INJUNCTION
AND OTHER EQUITABLE RELIEF1
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TABLE OF CONTENTS
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. Plaintiffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
B. Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
III. Defendants’ Deceptive Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A. Defendants’ Deceptive Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
B. The Claims are False and Unsubstantiated . . . . . . . . . . . . . . . . . . . . 17
1. Defendants Have Failed to Substantiate Their Claims . . . . . . 17
2. The FTC’s Mail and Telephone Surveys Demonstrate
That Very Few Consumers Succeed . . . . . . . . . . . . . . . . . . . . 18
3. Defendants Use Testimonialists Whose Experiences Are
Not Typical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4. Consumer Complaints, Declarations, and Survey
Responses Further Evidence Consumers’ Lack
of Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
IV. Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
A. The FTC Act Authorizes the Court To Grant the Requested
Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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B. The Standard for Entry of a Preliminary Injunction . . . . . . . . . . . . . 28
C. The Evidence Presented Meets the Standard for a Preliminary
Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
1. The Corporate Defendants’ Conduct Likely Violates
Section 5(a) of the FTC Act . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2. Defendant Dalbey is Likely Individually Liable Under
Section 5(a) of the FTC Act . . . . . . . . . . . . . . . . . . . . . . . . . 34
3. The Equities Balance in the FTC’s Favor . . . . . . . . . . . . . . . 35
D. The Proposed Preliminary Injunction Is Tailored To Provide
Interim Relief With Respect To Defendants’ Unlawful Practices . . 36
V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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TABLE OF AUTHORITIES
CASES
Bailey Employment Sys., Inc. v. Hahn, 545 F. Supp. 62 (D. Conn.1982), aff'd,723 F.2d 895 (2d Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CFTC v. British Am. Commodity Options Corp., 560 F.2d 135 (2d Cir. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 36
FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 29
FTC v. AmeriDebt, Inc., 373 F. Supp. 2d 558 (D. Md. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FTC v. Amy Travel Serv., Inc., 875 F.2d 564 (7th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
FTC v. Beatrice Foods Co., 587 F.2d 1225 (D.C. Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FTC v. Bishop, 2011 U.S. App. LEXIS 8473 (11th Cir. Apr. 25, 2011) . . . . . . . . . . . . . . . . . . . . 28
FTC v. Brown & Williamson Tobacco Corp.,778 F.2d 35 (D.C. Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FTC v. Cyberspace.com, LLC, 453 F.3d 1196 (9th Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1 (1st Cir. 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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FTC v. Evans Prods. Co., 775 F.2d 1084 (9th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
FTC v. Febre, 1996 U.S. Dist. LEXIS 9487 (N.D. Ill. 1996),aff’d, 128 F.3d 530 (7th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502 (S.D.N.Y. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192 (10th Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 30, 31, 34
FTC v. Gem Merch. Corp., 87 F.3d 466 (11th Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
FTC v. H.N. Singer, Inc., 668 F.2d 1107 (9th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28
FTC v. Ivy Capital, Inc., No. 2:11-cv-00283-JCM-GWF(D. Nev. Mar. 25, 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FTC v. Minuteman Press, 53 F. Supp. 2d 248 (E.D.N.Y. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
FTC v. Nat’l Invention Servs., Inc., 1997 U.S. Dist. LEXIS 16777(D.N.J. Aug. 12, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FTC v. Preferred Platinum Servs. Network, LLC, No. 10-cv-538-MLC-LHG (D.N.J. Feb. 16, 2010) . . . . . . . . . . . . . . . . . . . . . . . . 29
FTC v. Publ’g Clearing House, 104 F.3d 1168 (9th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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FTC v. Sage Seminars, Inc., 1995 U.S. Dist. LEXIS 21043(N.D. Cal. Nov. 2, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FTC v. Skybiz.com, Inc., 2001 U.S. Dist. LEXIS 26175 (N.D. Okla. Aug. 31, 2001), aff’d, 2003 U.S. App. LEXIS 1653 (10th Cir. 2003) . . . . . . . . . . . . . . . . 28, 29, 30
FTC v. Southwest Sunsites, Inc., 665 F.2d 711 (5th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
FTC v. Stefanchik, 2007 U.S. Dist. LIXIS 25173 (W.D. Wash. Apr. 3, 2007),aff’d, 559 F.3d 924 (9th Cir. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 20
FTC v. Stefanchik, 559 F.3d 924 (9th Cir. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 20
FTC v. Sterling Drug, Inc., 317 F.2d 669 (2d Cir. 1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FTC v. Thomsen-King & Co., 109 F.2d 516 (7th Cir. 1940) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FTC v. U.S. Oil & Gas Corp., 748 F.2d 1431 (11th Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28
FTC v. US Sales Corp., 785 F. Supp. 737 (N.D. Ill. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
FTC v. Vega, No. H-04-1478 (S.D. Tex. Apr. 23, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FTC v. Warner Commc’ns, Inc., 742 F.2d 1156 (9th Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020 (7th Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28, 31
FTC v. World Wide Factors, Ltd., 882 F.2d 344 (9th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 29, 35, 36
Novartis Corp. v. FTC, 223 F.3d 783 (D.C. Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Porter & Dietsch, Inc. v. FTC, 605 F.2d 294 (7th Cir. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Porter v. Warner Holding Co.328 U.S. 395 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Removatron Int’l Corp. v. FTC, 884 F.2d 1489 (1st Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
STATUTES AND RULES
15 U.S.C. §§ 41-58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
15 U.S.C. § 45(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 30
15 U.S.C. § 53(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
15 U.S.C. § 56(a)(2)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
28 U.S.C. § 1367 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COLO. REV. STAT. § 6-1-103 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
16 C.F.R. § 255.2(b) (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32, 34
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2 Often such promissory notes are created when purchasers do not qualify for traditionalbank financing because they have poor credit, lack a sufficient down payment or a steadyincome, are self-employed, or the property does not meet the qualifications of a traditionallender. When this occurs, some property owners may agree to act like a bank and provide thefinancing for the sale. In such instances, the real estate purchaser typically provides the sellerwith a signed promissory note that sets out such terms of the loan as the identity of the parties,the loan amount, the length of time for loan repayment, the amount of the payments or a formulafor calculating those payments, the payment frequency, and the interest rate. Sometimes, seller-financed promissory notes are the vehicle by which people help their relatives acquire property.
3 Defendants sold products or services to 473,254 customers from January 2006 throughMarch 2009. See Declaration of Manoj Hastak, Ph.D. (“Hastak Dec.”), Exh. A (“HastakReport”), at 3.
4 See, e.g., Declaration of Christina Hanson (“Hanson Dec.”) ¶¶ 2, 3 & 4; Declaration ofWilliam McCullough (“McCullough Dec.”) ¶¶ 2, 3 & 4; Declaration of Michael Mendola(“Mendola Dec.”) ¶¶ 2 & 3; Declaration of Margaret Rodway (“Rodway Dec.”) ¶¶ 2, 3 & 4;Declaration of Kathi Yevtich (“Yevtich Dec.”) ¶¶ 2 & 3.
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I. INTRODUCTION
The FTC asks this Court to halt, during the pendency of this litigation, certain specified
deceptive practices of Russell T. Dalbey and his companies, DEI, LLLP; Dalbey Educational
Institute, LLC; and IPME, LLLP (“Defendants”). Defendants’ infomercials and other
advertising promise consumers that they can quickly and easily find, broker, and earn substantial
money brokering seller-financed promissory notes or cash flow notes (“promissory notes” or
“notes”). These promissory notes are privately held mortgages or notes often secured by the real
property that is the subject of the loan.2 Many of Defendants’ customers, who have numbered in
the hundreds of thousands,3 have succumbed to Defendants’ claims of quick and easy success.
In reliance on such claims, these consumers have spent hundreds or thousands of dollars on
Defendants’ products and services.4
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5 See Declaration of Bonnie McGregor (“McGregor Dec.”) ¶ 19.
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In fact, very few consumers make any money or broker any promissory notes using
Defendants’ products or services. Defendants’ gross revenues, less refunds and chargebacks,
from January 1, 2006 through September 30, 2010, exceeded $312 million.5 Defendants’ claims
are false and/ or unsubstantiated in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
II. THE PARTIES
A. Plaintiffs
Plaintiff Federal Trade Commission is an independent agency of the United States
Government created by statute. 15 U.S.C. §§ 41-58. The Commission is charged with, inter
alia, enforcing Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or
deceptive acts or practices in or affecting commerce. The FTC is authorized to initiate federal
district court proceedings by its own attorneys, to enjoin violations of the FTC Act, and to secure
such equitable relief as may be appropriate in each case, including rescission of contracts,
restitution, the refund of monies paid, and the disgorgement of ill-gotten monies. 15 U.S.C.
§§ 53(b), 56(a)(2)(A).
Plaintiff State of Colorado is authorized to enforce the Colorado Consumer Protection
Act (“CCPA”) pursuant to COLO. REV. STAT. § 6-1-103. This Court has supplemental
jurisdiction over plaintiff Colorado’s claims under 28 U.S.C. § 1367.
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6 See McGregor Dec. ¶ 6 & Exh. 2.
7 See McGregor Dec. ¶ 17.
8 See WITCFB Website, www.witcfb.com/learn more.aspx; see, e.g., Yevtich Dec. ¶ 7.
9 See McGregor Dec., ¶¶ 5 & 19 & Exh. 1.
10 See McGregor Dec., ¶¶ 7-10, 19 & Exhs. 3, 4.
11 See McGregor Dec. ¶ 4 & Exhs. 1-3.
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B. Defendants
Defendant Dalbey Education Institute, LLC (“DEI”), formerly known as America’s
Note Network, LLC, is a Colorado limited liability company.6 As of 2010, DEI owned the
Winning in the Cash Flow Business infomercial.7 DEI has advertised, marketed, offered for
sale, sold, and distributed educational products and services, including the Winning in the Cash
Flow Business program, and other programs, services, seminars and workshops.8 Defendant
DEI, LLLP is a Colorado limited liability limited partnership and the holding entity and parent
of DEI.9
Defendant IPME, LLLP is a Colorado limited liability limited partnership. IPME,
LLLP has held the intangeable assets, including copyrights and trademarks, related to the
educational products and services advertised, marketed, offered for sale, sold, and distributed by
DEI.10 Defendants DEI, LLLP; DEI; and IPME, LLLP (hereinafter “Corporate Defendants”)
report 7233 Church Ranch Boulevard, Westminster, CO 80021 as their principal place of
business.11
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12 See McGregor Dec. ¶¶ 13, 16 & Exh. 7.
13 See Exhibits 1, 2 & 3 to Complaint; see also infra, III.A.2, 3, 10, 12 & 13.
14 From January 1, 2009 through June 30, 2009, over 90 percent of Defendants’customers purchased DEI’s products and services after calling the 800 number provided inDefendants’ infomercials. This percentage was over 84 percent and over 79 percent, in 2008 and2007, respectively. See McGregor Dec. ¶ 18.
15 See McGregor Dec. ¶ 20. The infomercial largely has been ranked as one of the 100most frequently disseminated infomercials in the United States on the Infomercial MonitoringService monthly reports for the period 2002 to March 2011. See id. at 32.
16 See, e.g., McGregor Dec. ¶¶ 23, 36 & Exh. 12 at 20:1 to 22:1.
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Defendant Russell T. Dalbey (“Dalbey”) is the majority owner, manager, and partner of
DEI, LLLP; the founder and Chief Executive Officer of DEI; and the majority owner and limited
partner of IPME, LLLP.12 He is the face of DEI, a company that bears his name. He appears in
infomercials and is prominently featured in websites, direct mail advertisements, and marketing
materials.13
III. DEFENDANTS’ DECEPTIVE BUSINESS PRACTICES
Dalbey and the Corporate Defendants promise consumers that by purchasing their
products and services they can quickly and easily find, broker and earn substantial money from
brokering promissory notes. The principal method Defendants use to draw consumers to the
program is an approximately 30-minute infomercial entitled, “Winning in the Cash Flow
Business” (“WITCFB”), of which Defendants have had numerous versions, all with similar
messages to consumers.14 The current WITCFB infomercial and its previous iterations have
been shown tens of thousands of times on broadcast and cable television.15 Depending on the
version of the infomercial, the cost of the program ranges from approximately $40 to $160.16
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17 See, e.g., Declaration of Stephen DiNardo (“DiNardo Dec.”) ¶ 3; Hanson Dec. ¶ 3;Yevtich Dec. ¶ 4.
18 McGregor Dec. ¶ 24.
19 See infra, III.A.2.
20 See McCullough Dec. ¶ 4; see also Declaration of Judy Hall (“Hall Dec.”) ¶ 4; HansonDec. ¶ 4; Declaration of Michele Moenning (“Moenning Dec.”) ¶ 3; Rodway Dec. ¶ 4; andYevtich Dec. ¶ 5 (declaring representatives told them such products and services were necessaryfor success or would enhance their chance of success).
21 See, e.g., Hall Dec. ¶¶ 5 &7; Yevtich Dec. ¶¶ 5, 7, 11 & 16.
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The WITCFB materials have included such items as booklets, CDs, and DVDs that purport to
teach consumers how to find and broker notes.17
The infomercial, websites, emails to consumers, and direct mail marketing materials
feature Dalbey and numerous testimonialists touting the substantial earnings to be made from
brokering promissory notes, and the ease and speed with which consumers can achieve those
earnings. A recent infomercial presents numerous images of fancy cars, yachts, and expensive
jewelry.18 Repeated as a mantra throughout the infomercials is the claim that all it takes to be
successful is three easy steps, the first and second of which reference finding and listing
promissory notes: “Find ‘Em,” “List ‘Em,” and “Make Money!”19 Often, Defendants lure
consumers who purchase the initial WITCFB program into purchasing additional products and
services with claims that such additional products and services will ensure or enhance their
success more quickly and easily.20 These additional products and services, such as multi-day
boot camps, seminars, coaching sessions and note holder lead lists cost hundreds to thousands of
dollars.21
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22 Plaintiffs allege additional unlawful claims in the Complaint, but to streamline ourrequest for relief at the preliminary injunction stage, seek to enjoin Defendants from makingthese core claims only.
23 In her declaration, Bonnie McGregor states that Complaint Exhibits 1, 2 and 3 aretrue, correct, and complete copies of infomercials produced by DEI. See McGregor Dec. ¶¶ 21-23. Throughout this memo, these infomercials are referred to as Complaint Exhibits 1, 2 and 3.
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A. Defendants’ Deceptive Claims
Defendants’ WITCFB infomercials and other marketing materials represent that DEI’s
customers are likely to quickly and easily find, list and broker promissory notes; earn substantial
amounts of money; and earn that money quickly and easily.22 The following excerpts from such
infomercials and materials serve as examples of these claims.
1. MALE ANNOUNCER: You’ll quickly see why everyone from the Wall StreetJournal to Money Magazine is raving about the cash flow business. And you’llbe amazed at just how easy it is to generate a stream of --ON SCREEN: Extra Income Every MonthMALE ANNOUNCER: -- extra income every month.ON SCREEN: Build Financial FreedomMALE ANNOUNCER: Build financial freedom --ON SCREEN: Better Quality of LifeMALE ANNOUNCER: -- and a better quality of life in just minutes a day.ON SCREEN: Retire Early MALE ANNOUNCER: Or even retire earlier than you ever dreamed possible. Order now and you’ll be ready to profit in minutes –ON SCREEN: Profit in Minutes!
See Complaint Exhibit 2 at 24:46 to 25:06 (graphics with text omitted); see also Complaint
Exhibit 3 at 07:08 to 07:23; 16:07 to 16:23; 24:37 to 24:52.23
2. RUSS DALBEY: It’s so incredibly easy, you wouldn’t believe it. You simplyfind a cash flow note and there’s millions of them out there, and then you listwhat you just found on my exclusive nationwide buyers network where buyersare ready to buy what you just found.
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24 McGregor Dec. ¶ 13 & Exh. 8.
25 McGregor Dec. ¶ 38 & Exh. 18.
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GARY COLLINS: So, you just find a note, list it on your exclusive network, andwhen the deal is done, you make money, just like that.RUSS DALBEY: It doesn’t get any easier than my simple three steps.ON SCREEN: Find ‘EmRUSS DALBEY: You just find cash flow notes -ON SCREEN: List ‘EmRUSS DALBEY: -- you list them --ON SCREEN: Make Money!RUSS DALBEY: -- and make money.
See Complaint Exhibit 3 at 03:36 to 04:03; see also Complaint Exhibit 1 at 06:54 to 07:09; 07:41
to 07:50; Complaint Exhibit 2 at 26:40 to 26:49; Complaint Exhibit 3 at 21:30 to 21:40;
WITCFB Website, www.witcfb.com/more info.aspx (captured May 24, 2011) (“It's fast. You
can learn it quickly and potentially make thousands of dollars the first time out. . . . It's easy.
Just follow my 3 simple steps. There’s nothing to figure out on your own. I show you exactly
what to do.) (Emphasis in original.)24
3. RUSS DALBEY: There are literally tens of millions of dollars in cash flow notesin every county across America. So, there’s virtually no limit to how muchmoney people can make.
See Complaint Exhibit 3 at 4:32 to 4:41; see also Complaint Exhibit 2 at 07:00 to 07:09; 13:39 to
13:53; Email to consumer purportedly from Russell Dalbey (disseminated March 26, 2010)
(“That’s why I’ve designed a program that makes finding notes simple and easy. In fact, you
don’t even have to find interested note-holders — because with this program... They Find
You!”) (Ellipses and emphasis in original.)25
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4. GARY COLLINS: Russ, you make it all sound so easy.RUSS DALBEY: It is easy. I’ve seen my students make $500, $5,000, $50,000and more on one deal, their first deal, with not a lot of hard work, too, in just afew hours. So, I’d say it’s pretty easy, wouldn’t you?
See Complaint Exhibit 3 at 11:37 to 11:53.
5. ON SCREEN: DARLYS S. Michigan $262,216 PART TIME Unique experience, results will vary.
DARLYS S.: I’ve made over a quarter million dollars very easily, part-time.
See Complaint Exhibit 3 at 04:16 to 04:19; see also Complaint Exhibit 2 at 17:33 to 17:44
(testimonial of Darlys S.) (“This business has been a dream for both me and my family. I have
made over a quarter of a million dollars. And anybody can do the same as I have done. All
they’ve got to do is pick up that phone and call you.”).
6. ON SCREEN: DARRELL S. Washington $23,006 IN EARNINGS Unique experience, results will vary.
DARRELL S.: I looked in my home state, one zip code, 150,000 notes available.
See Complaint Exhibit 3 at 05:10 to 05:15.
7. ON SCREEN: EDEN A. Oklahoma $6,000 IN 20 MINUTES Unique experience, results will vary.
EDEN A.: I was worried at first that it might be difficult, but the first day, in thefirst 20 minutes, I listed three notes. I’m not intimidated. It’s very easy.
See Complaint Exhibit 3 at 11:23 to 11:33; see id. at 22:26 to 22:33.
8. ON SCREEN: MIKE & BETTY C. Iowa $219,921 IN EARNINGS Unique experience, results will vary.
Winning-2009.comMIKE C.: We have made over $200,000 in the Winning In the Cash FlowBusiness.
Case 1:11-cv-01396-CMA -KLM Document 3 Filed 05/26/11 USDC Colorado Page 15 of 50
26 McGregor Dec. ¶ 30 & Exh. 14.
27 McGregor Dec. ¶ 14 & Exh. 9, at 4.
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See Complaint Exhibit 3 at 20:06 to 20:09; see also Complaint Exhibit 2 at 15:32 to 15:39.
9. I’ve made $745,900.58 so far!“The hardest part is ordering the program. . . after that the rest is pretty easy. I’vemade $745,900.58.”
Barbara G PA
[Photograph of Barbara Graff]
See WITCFB Website, http://www.winning-2009.com, disseminated in 2009 & 2010 (dollar
figures may vary)26; see also Complaint Exhibit 3 at 04:27 to 04:39 (Scrolling at bottom of
screen: “UPDATE: PENNSYLVANIA HOUSEWIFE, BARBARA G. MAKES OVER
$622,000.00, SAYS, “ANYONE CAN.” STUDENTS ARE EARNING MILLIONS!”)
10. ON SCREEN: WINNING IN THE Cash Flow BUSINESSGARY COLLINS: What about the current status of the real estate industry, huh? Foreclosures are up, the economy’s sluggish. It doesn’t seem like the best ofconditions. How does your program work during these hard times?RUSS DALBEY: Gary, with the way the economy is right now, I've never seen abetter time to get started. Never. In fact, my students are reporting recordincome levels.
See Complaint Exhibit 3 at 19:42 to 20:02; see also Note Network Website,
www.notenetwork.com/content/email/wkshp/tc/011f/ (captured May 24, 2011) (“Due to the
economic conditions of the country . . . the HUGE number of foreclosures . . . we may never see
a more profitable time in the note business.”) (emphasis in original);27 Email to consumer
purportedly from Russell Dalbey (disseminated May 3, 2010) (“The economy is working in our
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28 McGregor Dec. ¶ 38 & Exh. 19, at 1.
29 McGregor Dec. ¶ 13 & Exh. 8, at 3.
30 McGregor Dec. ¶ 11 & Exh. 6, at 1.
31 McGregor Dec. ¶ 14 & Exh. 9, at 2.
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favor. There are opportunities all around you to find cash flow notes. There’s a HUGE demand
for your services.”) (emphasis in original).28
11. “Garland J. of Georgia has already made more than $171,108 in the short timehe’s been in the business.”
See WITCFB Website, www.witcfb.com/more info.aspx (captured May 24, 2011).29
12. “My goal is to help you make ONE MILLION DOLLARS this year! I want togive you a chance to become a real, bona-fide millionaire this year. Even if I fallshort and you make only $500,000 or you make $200,000 or even $75,000 –wouldn’t you still be happy? I want to create 100 new millionaires . . . In just oneyear!”
See Note Network Website, www.notenetwork.com/content/email/wkshp/tc/011f/; (captured
April 1, 2009, after clicking on a hyperlink found on www.russdalbeytriplecrown.com)
(purportedly quoting Russ Dalbey).30
13. “You’ll have your own personal MILLIONAIRE BLUEPRINT to follow andstart making note deals the minute you walk out the door.”
See Note Network Website, www.notenetwork.com/content/email/wkshp/tc/011f/ (captured May
24, 2011) (purportedly quoting Russ Dalbey).31
14. “I’ll back everything with my full 60 day money-back guarantee. Now thatmeans if you don’t start making money right away simply return the product andI’ll gladly refund your money no questions asked. It’s my 100%,‘I’ll-prove-it-to-you-money-back’ guarantee.”
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32 McGregor Dec. ¶ 13 & Exh. 7, at 3.
33 McGregor Dec. ¶ 13 & Exh. 8, at 12.
34 McGregor Dec. ¶ 38 & Exh. 17, at 1.
35 McGregor Dec. ¶ 29 & Exh. 13.
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See WITCFB Website, www.witcfb.com/learn more.aspx (captured May 24, 2011) (purportedly
quoting Russ Dalbey).32
15. “I’m putting my trust in you, though. I trust that if I take this financial risk now…You'll pay me back by being part of my Million Dollar Club.”
See WITCFB Website, www.witcfb.com/more_info.aspx (captured May 24, 2011) (explaining
why Russ Dalbey is offering the program at such a low cost).33
16. “Or imagine you open your email and see this message:‘I’m contacting you about your note service. I have some cash flow notesI need to sell fast. Please call me at your earliest convenience.’
Now imagine getting messages like this weekly, sometimes even daily...• Without ever making one single cold call• Without ever stepping foot in a courthouse• Without ever even meeting face-to-face with anyone.”
Email to consumer purportedly from Russ Dalbey (disseminated March 24, 2010) (ellipses in
original).34
17. “I see it all the time. People new to the Cash Flow business walk into our BootCamp nervous and unsure of themselves – but they walk out a short three dayslater, with a note deal in hand – confident and ready to close more deals themoment they get home.”
DEI Direct Mail Booklet, “Russ Dalbey’s NOTE DEALS ON SPEED Boot Camp,” at page 2,
distributed Oct. 07, 2008 (Sales Offer for DEI’s Boot Camp purportedly from Russ Dalbey); see
id., at page 3 (“I’ll personally guarantee in three days or less you’ll have a deal in the works.”)35
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36 McGregor Dec. ¶ 38 & Exh. 20, at 1.
37 See DiNardo Dec. ¶ 2; Mendola Dec. ¶ 2; Moenning Dec. ¶ 2; Declaration of MichellePearson (“Pearson Dec.”) ¶ 2; Declaration of Karen Phillips (“Phillips Dec.”) ¶ 2; Declaration ofAnthony Terrill (“Terrill Dec.”) ¶ 2; Yevtich Dec. ¶ 2.
38 See supra, III.A.5, 8, 9 & 11.
39 See McGregor Dec. ¶ 24.
40 See supra, III.A.1; see also McGregor Dec.¶ 24.
41 See supra, III.A.15.
42 See Hanson Dec. ¶ 2; Mendola Dec. ¶ 2; Moenning Dec. ¶ 2; Pearson Dec. ¶ 2;Phillips Dec. ¶ 2; Rodway Dec. ¶¶ 2 & 4; Terrill Dec. ¶ 2; Yevtich Dec. ¶ 2.
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18. “Give Me 30 Days And I’ll Give YOU A Guaranteed Note Deal! . . . I’m puttingtogether a success team. And if you’re on my team, I guarantee you a FINISHEDnote deal in 30 days.”
Email from DEI to consumer (disseminated December 10, 2010).36
Consumers conclude from these and other similar claims that they will earn substantial
sums of money.37 The infomercials include testimonialists who report substantial earnings,38 and
they include repeated images of people lapping in luxury.39 Defendants’ recent infomercial
repeatedly informs consumers that they can use the products and services to retire early and gain
financial freedom.40 In fact, Defendants’ advertising urges consumers to become a part of
Defendants’ millionaire club.41
Defendants tell consumers that they can find, list, and broker notes easily, and
consequently, can easily make the substantial amounts of money depicted in the advertising.42 In
a recent infomercial, Defendants use the words “simple” or “easy” (or variations of these words)
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43 See McGregor Dec. ¶ 24.
44 See supra, III.A.5; see also Moenning Dec. ¶ 2; Yevtich Dec. ¶ 2.
45 In fact, Complaint Exhibit 3 contains approximately fifteen references to working theprogram in one’s part-time or spare time. See McGregor Dec. ¶ 24.
46 In an infomercial advertising DEI’s initial materials, Defendants repeatedly tellconsumers that “[a]ll [they] need to do is follow the program and [they]’ll make money.” SeeMcGregor Dec. ¶ 23 & Exh. 12, at 14:8 to 9, 34:8 to 9 & 53:15 to 16.
47 See supra, III.A.3 & 6; Mendola Dec. ¶ 2.
48 See supra, III.A.16; see also McGregor Dec.¶ 23 & Exh. 12, at 11:24 to 25 (“In fact,you don’t ever even have to leave home.”), & at 25:13 to 14.
49 See supra, III.A.3.
50 See supra, III.A.2; see also Phillips Dec. ¶ 10.
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thirty-eight times, or more than once per minute.43 Further, many consumers are enticed by the
ease with which the testimonialists claim to have made their money. Often testimonialists claim
to have made their money while working only part-time or in their spare time.44 Such references
to “part-time” or “spare-time” work further communicates to consumers that the business is easy
and takes little effort.45 In addition, Defendants tell consumers that the initial package is all they
need to be successful.46
Consumers are told that promissory notes are everywhere,47 and that after using
Defendants’ programs, they can find such notes without ever setting foot in a courthouse, or
even without ever leaving home.48 In fact, Dalbey tells consumers that note holders will find
them.49 Once consumers find notes or note holders find them, Defendants tell consumers that
there are note purchasers ready to buy those notes.50 Thus, the infomercials communicate the
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51 See supra, III.A.2.
52 See supra, III.A.10; see also DiNardo Dec. ¶ 2.
53 See McGregor Dec. ¶ 24.
54 See supra, III.A.1 & 7.
55 See McGregor Dec. ¶ 13 & Exh. 8, at 1.
56 McGregor Dec. ¶ 24.
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notion that after finding the notes, consumers’ earnings are virtually guaranteed. Defendants’
mantra in its three-step program expressly states that after finding and listing a note, all that
remains is the third step – “make money.”51 Moreover, Defendants explain in their advertising
that it is easier to broker notes in the current sluggish economy due to the increase in
foreclosures.52
Defendants also tell consumers that they can find, list, and broker promissory notes
quickly and thereby make a substantial amount of money quickly. In a recent infomercial
Defendants use the word “fast” or “quick” (or variations of these words) approximately ten times
and reference success while working “part-time” or in one’s “spare time” approximately fifteen
times.53 These terms along with references to working the program for only “minutes a day”54
communicate to consumers that they can quickly achieve success.
In addition, Defendants offer a 30-day, or in some recent instances, a 60-day, “money-
back guarantee,” whereby Defendants purportedly refund consumers’ money if they are not
satisfied with their purchase of the initial WITCFB materials.55 This guarantee, which is
referenced in a recent infomercial approximately sixty times,56 conveys that consumers will
Case 1:11-cv-01396-CMA -KLM Document 3 Filed 05/26/11 USDC Colorado Page 21 of 50
57 See supra, III.A.14.
58 See McCullough Dec. ¶ 4; see also Declaration of Judy Hall (“Hall Dec.”) ¶ 4; HansonDec. ¶ 4; Declaration of Michele Moenning (“Moenning Dec.”) ¶ 3; Rodway Dec. ¶ 4; andYevtich Dec. ¶ 5 (declaring that representatives told them such products and services werenecessary for success or would enhance their chance of success). Often such sales were made toconsumers who complained that the initial WITCFB materials were inadequate to learn thebusiness. See Hall Dec. ¶ 4; Hanson Dec. ¶ 4; Rodway Dec. ¶ 4. Defendants’ representativesused high pressure sales tactics to induce these consumers to pay hundreds to thousands ofdollars to Defendants for additional products and services. DiNardo Dec. ¶ 8; Pearson Dec. ¶ 4;Phillips Dec. ¶ 4. Two such tactics Defendants used were to tell consumers that only limitedspace remained for certain programs (Hall Dec. ¶¶ 7 & 10; Moenning Dec. ¶ 6; Phillips Dec. ¶¶4 & 5) or that DEI or Russ Dalbey himself had hand-picked them to partcipate in certainprograms. DiNardo Dec. ¶ 4; Pearson Dec. ¶ 4; Terrill Dec. ¶ 4.
59 Yevtich Dec. ¶ 16.
60 See McCullough Dec. ¶8; Mendola Dec. ¶¶ 7 & 11.
61 See Moenning Dec. ¶ 6; Yevtich Dec. ¶ 5 (each declaring they paid DEI $6,000 orapproximately that amount for boot camp).
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quickly achieve success with their products and services – i.e., that they will achieve success
within the thirty or sixty days of the guarantee. In fact, Dalbey says he will refund the
consumers’ money if they “don’t start making money right away.”57
Defendants lead consumers to believe that they will succeed even more quickly and more
easily if they purchase additional products and services often for thousands of dollars.58 For
instance, Defendants tell consumers that the note holder lists they purchase for $99559 contain
current and accurate lists of note holders, thereby making it easy to find notes to broker.60 In
addition, Defendants guarantee “a deal in the works” or a “note deal in hand” (see supra,
III.A.19) to consumers who take a three-day boot camp for approximately $6000.61 Defendants
offer the boot camp at DEI’s Colorado offices and advertised it to provide “one-on-one personal
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62 McGregor Dec. ¶ 29 and Exh. 13, at 3.
63 See DiNardo Dec. ¶ 4; Moenning Dec. ¶¶ 6 & 9; Phillips Dec. ¶ 5.
64 See Hall Dec. ¶ 5 (“. . . the representative [] guaranteed that if I enrolled in the ProtégéProgram, I would not only make money, but make all of the money back that I had spent on theProtégé Program [$6,282]within 30 days of enrolling in it”); Phillips ¶ 4 (“One representative []assured me that I would earn enough money before my first credit card payment to pay for the[$3,500] program . . .”).
65 This consumer was told that if she wanted to earn $3,000 to $5,000 per month, shecould invest around $1,000 to $2,000 for Level One Assistance, but if she wanted to earnapproximately $20,000 to $30,000 per month, she could invest $5,000 to $10,000 in Level ThreeAssistance, also known as the Winner’s Circle. Moenning Dec. ¶ 5.
66 See Mendola Dec. ¶ 4; Moenning Dec. ¶ 6; Rodway Dec. ¶ 5; Yevtich Dec. ¶¶ 10 &15. One consumer was told that, in order to take advantage of the 10-note deal guarantee andreceive a refund, she would have to agree to serve as a testimonialist for DEI. Moenning Dec.¶ 6.
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training” and the opportunity to “work on real, live, deals.”62 Again, these guarantees convey to
consumers that by the end of the boot camp they will have brokered a note.63
Further, Defendants’ telemarketers tell consumers that they will quickly make back the
hundreds or thousands of dollars they spend on these additional programs.64 Defendants told at
least one consumer that there was a direct correlation between the amount of money she spent on
Defendants’ products and services and the amount of money she would earn – i.e., that if she
spent more money she would earn more money.65 In addition, to induce consumers into
purchasing these expensive products and services, Defendants offer some consumers a 10-note
deal guarantee – i.e. when the consumer succeeds in brokering ten note deals in a year,
Defendants will refund the money he or she spent on their products and services.66
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67 See McGregor Dec. ¶¶ 13, 15 & Exh. 7, at 3.
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B. The Claims are False and Unsubstantiated
Contrary to Defendants’ representations that its customers will quickly and easily find,
list, broker, and earn substantial money brokering notes, only a minuscule percentage of
Defendants’ customers have brokered notes or earned any money. This is true regardless of the
time and effort expended by consumers. The aforementioned claims are false and
unsubstantiated, as demonstrated by Defendants’ lack of any basis for their claims, surveys
conducted on behalf of the FTC, the atypicality of testimonialists appearing in Defendants
advertising, and consumer declarations and complaints obtained by the FTC.
1. Defendants Have Failed to Substantiate Their Claims
During its investigation, the FTC determined that Defendants, in the more than 15 years
during which they have operated their business,67 have never conducted a survey of their
customers to measure their success in brokering notes or making money. Both the Colorado
Attorney General’s Office (in 2007) and the FTC (in 2009) asked Defendants for substantiation
for their ubiquitous, high-earnings claims for consumers who purchased their products and
services. Both law enforcement agencies specifically requested copies of any surveys
Defendants conducted to measure customer success. Defendants have not conducted any such
surveys despite the passage of over 15 years selling their products and services, hundreds of
Case 1:11-cv-01396-CMA -KLM Document 3 Filed 05/26/11 USDC Colorado Page 24 of 50
68 In fact, the purported earnings of testimonialists is the only substantiation Defendantshave offered for their earnings claims. Such anecdotal evidence does not provide a basis to tellconsumers that the products Defendants sell will yield substantial earnings. See FTC v.Minuteman Press, 53 F. Supp. 2d 248, 253 n.2 (E.D.N.Y. 1998) (anecdotal evidence of fewconsumers who made the kind of money touted by defendants is not “representative of the classgenerally”).
69 The FTC retained Dr. Manoj Hastak, a Professor of Marketing at the Kogod School ofBusiness at American University in Washington, DC, and, as discussed below, FredericaConrey, Ph.D, of ICF Macro. Dr. Hastak is eminently qualified to conduct surveys. Hisqualifications are set forth in detail in his declaration and in his accompanying curriculum vitae. Hastak Dec. ¶¶ 3-8 & Exh. B. Dr. Hastak’s survey in this matter is similar to, but not the sameas, a survey he conducted in a previous FTC investigation of a similar business opportunity, laterused in litigation against the target of the investigation. See FTC v. Stefanchik, 2007 U.S. Dist.LEXIS 25173 (W.D. Wash. Apr. 3, 2007), aff’d, 559 F.3d 924 (9th Cir. 2009). The Stefanchiktrial court accepted Dr. Hastak as a qualified survey expert and relied upon his survey, alongwith other evidence, in entering summary judgment against the defendants in that case. See id.at *15-16. On appeal, the Ninth Circuit dismissed defendants’ arguments that Dr. Hastak’ssurvey was biased and unreliable. See 559 F.3d at 928-29.
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millions of dollars in revenues, and separate requests from both Plaintiffs to see such
substantiation.68
2. The FTC’s Mail and Telephone Surveys Demonstrate That Very FewConsumers Succeed
As part of its investigation, the FTC retained two experts to conduct surveys of hundreds
of randomly-selected WITCFB purchasers.69 The purpose of the surveys was to determine,
primarily, whether consumers were successful in brokering promissory notes and earning any
money as a result. Secondarily, the surveys were designed to test whether consumer success was
correlated with the amount of money consumers spent on Defendants’ products and services or
with the amount of time they spent working in the note brokering business. Defendants’
advertising claims of fast, easy, and substantial success make it unnecessary to examine whether
Case 1:11-cv-01396-CMA -KLM Document 3 Filed 05/26/11 USDC Colorado Page 25 of 50
70 See supra, III.A.1, 7 & n.45.
71 Accordingly, Dr. Hastak designed the survey to test whether success was correlated totime and money spent. Dr. Hastak drew a random sample of 3,000 customers from Defendants’database. See Hastak Report, at 3. He requested and received the names, addresses andtelephone numbers of 1,500 customers who spent less than $500 on Defendants’ products andservices (Group A) and 1,500 customers who spent $500 or more on Defendants’ products andservices (Group B). See id. Despite the low spending group comprising about 86 percent ofDefendants’ customers, the sample was split 50/50 between the high and low spenders. See id.The theory behind distinguishing high spenders from low spenders was that a customer whoinvested, for example, $4,000 and purchased more of DEI’s products and services is more likelyto have put in significant time and effort than a customer who spent, for example, only $40 onthe initial WITCFB program. Thus, the survey could test Defendants’ proposition that hardwork yields substantial earnings.
72 See Declaration of Frederica Conrey, Ph.D. (“Conrey Dec.”), Exh. A (“ConreyReport”), at 8. This $15.92 average earnings achieved is conservative – i.e., overstated – inDefendants’ favor. In making this calculation, the FTC assumed that each survey respondent
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there is a correlation between consumers’ efforts and their success, because Defendants’ ads
often suggest that little effort is needed. For example, Defendants claim that success can be
achieved after purchasing only the initial WITCFB program and working just minutes a day.70
Nevertheless, the FTC surveyed consumers for this measure because Defendants will argue that
despite their claims, it is consumers who are to blame for not working hard enough to achieve
substantial earnings. Defendants contend that if consumers work hard, they will broker notes
and earn substantial amounts of money.71
As described below, the surveys’ findings are clear, consistent, and compelling. First,
the surveys reveal that only 1.1 percent of Defendants’ customers ever brokered any notes and
only 0.9 percent earned any money brokering notes. Incredibly, the estimated average (mean)
amount of money earned by Defendants’ customers in the note brokering business was only
$15.92.72 Second, the surveys reveal that consumers who reported spending more time and
Case 1:11-cv-01396-CMA -KLM Document 3 Filed 05/26/11 USDC Colorado Page 26 of 50
earned the highest possible amount in the earnings category he or she selected. For example, ifsurvey respondents indicated they earned somewhere between $1,000 and $3,999 (as ninerespondents did), the FTC assumed that they each earned $3,999. See id.
73 There was no follow-up telephone survey reliability check in the Stefanchik case, yetthe district and circuit courts nevertheless deemed Dr. Hastak’s survey in that case reliable.
74 An added benefit of a telephone survey is that if the results closely match those of amail survey, it is reasonable to conclude that the survey mode employed (mail or telephone) didnot influence the results.
75 Like Dr. Hastak, Dr. Conrey is also eminently qualified to conduct surveys. Herqualifications are set forth in detail in the Declaration of Frederica Conrey, Ph.D (“ConreyDec.”) and in her accompanying curriculum vitae. See Conrey Dec. Exh. C. Dr. Hastak agreeswith the methodology used, and the conclusions reached, by Dr. Conrey. See Hastak Dec. ¶ 13.
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money trying to find and broker notes were only slightly more successful than consumers who
reported putting in less time and money.
The key survey results described above are derived from the data collected during the
mail survey designed by Dr. Hastak, as well as a virtually identical follow-up telephone survey.
At Dr. Hastak’s suggestion, the FTC commissioned the follow-up telephone survey to reach
those consumers who did not respond to the mail survey.73 A telephone survey would help
determine whether consumers who did not respond to the mail survey experienced different
success than those who responded. This is known as “non-response bias.”74 The FTC retained
Frederica Conrey, Ph.D, of ICF Macro to design and supervise the follow-up telephone survey.75
Dr. Conrey’s report addresses her telephone survey and the combined results of the mail and
telephone surveys. She determined there was no significant difference in success brokering
notes between those who responded to the mail survey and those who responded to the telephone
survey. In other words, she found no non-response bias.
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76 See Attachment A (graph illustrating “Percentage of DEI Survey Respondents WhoBrokered at Least One Note”); Conrey Dec. Exh. B (graph 1). Although the increase from 0.8percent to 2.7 percent is statistically significant, it is not meaningful from the perspective ofconsumers who are bombarded with marketing claims about how fast and easy it is to findpromissory notes, list them, and make substantial amounts of money. See Conrey Report, at 4-5.
77 See Attachment B (graph illustrating “Percentage of DEI Survey Respondents WhoEarned Any Money”); Conrey Dec., Exh. B (graph 5). The increase from 0.8 percent to 1.9percent is not statistically significant. See Conrey Report, at 5.
78 The survey results showed that those who spent $500 or more on Defendants’ productsand services reported spending more time in their first couple of months attempting to find, list,and broker promissory notes than those who spent less than $500. See Conrey Report, at 6-7(table 8).
79 See Conrey Report, at 5.
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In evaluating the combined results of the telephone and mail surveys, Dr. Conrey found
that only 2.7 percent of the high spending combined mail/telephone survey respondents brokered
any notes versus 0.8 percent of the low spending survey respondents.76 Similarly, only 1.9
percent of high spending combined mail/telephone survey respondents earned any money
brokering notes versus 0.8 percent of the low spending survey respondents.77 She concluded that
despite Group B mail/telephone respondents having reported spending more time and money in
the note brokering business,78 they were only slightly more successful than Group A
mail/telephone respondents at brokering notes. In addition, Dr. Conrey found that Group B
mail/telephone respondents were not significantly more likely than those in Group A to have
earned any money in the note brokering business.79 Therefore, notwithstanding Defendants’
advertising claims that consumers can make money quickly and easily, the survey results
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80 See Conrey Dec. Exh. B (graphs 2, 6 & 8).
81 See Conrey Report, at 8.
82 See id.
83 See McGregor Dec. ¶ 28.
84 See Conrey Report, at 8.
85 See Attachment C (graph illustrating “Average Earnings Comparison of DEI SurveyRespondents with Infomercial Testimonialists”); see also Declaration of Erez Yoeli, Ph.D.
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confirm that no consumers, even those who put in significant time, effort, and money, are likely
to broker notes or make money.80
Based on the survey results, Dr. Conrey then projected these figures to Defendants’
entire universe of customers.81 Her statistical analysis reveals that only 1.1 percent of all of
Defendants’ customers ever brokered any notes and only 0.9 percent earned any money
brokering notes.82 Therefore, Defendants’ numerous fast and easy success and substantial
earnings claims are false and misleading.
3. Defendants Use Testimonialists Whose Experiences Are Not Typical
Notwithstanding these stark results, Defendants’ infomercials and other advertisements
use testimonialists who report earnings ranging from over $1,000 for one note brokering deal to
over $1.2 million for multiple note brokering deals.83 The average testimonialist’s earnings in
each of the three WITCFB infomercials attached as Exhibits 1, 2, and 3 to the Complaint is
$127,172; $126,097; and $129,576, respectively. By contrast, the Commission’s survey
respondents’ average earnings were a paltry $16.84 DEI’s testimonialist earnings claims far
exceed the earnings of a typical DEI consumer.85
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¶ 4 & Exh. 1.
86 McGregor Dec. ¶ 31.
87 This percentage is overstated in favor of DEI. The 473,254 number used in thiscalculation is the number of DEI’s consumers from January 2006 to March 2009, a period of 31/4 years. However, the 335 testimonialists is the number of DEI’s testimonialists from August29, 2000, the date of the first entry in DEI’s database for a testimonialist, through May 21, 2009,the date DEI submitted the information to the FTC, a period of almost 8 3/4 years. Obviously,the percentage of “successful” consumers would be even lower if the FTC compared the 335testimonialists to the larger number of DEI’s consumers for the entire 8 3/4 year period. Moreover, DEI’s submission does not reveal how much its testimonialists earned from brokeringnotes, and thus, we do not know how many testimonialists earned more money from brokeringnotes than they spent for DEI’s products and services.
88 See McGregor Dec. ¶ 34.
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Moreover, DEI reported that, as of May 21, 2009, 335 of its customers have served as
testimonialists.86 A comparison of this number of testimonialists to the number of DEI’s
customers generally (473,254) yields a success rate of 0.071 percent, or less than 1 out of every
1,400 customers.87 Such a small percentage of “successful” customers surely cannot
substantiate a claim that a typical consumer will find, list, and broker notes and earn substantial
money from doing so.
4. Consumer Complaints, Declarations, and Survey Responses FurtherEvidence Consumers’ Lack of Success
Over the past five years, hundreds of consumers have complained to the FTC, the U.S.
Postal Inspection Service, the Internet Crime Complaint Center, the Colorado Better Business
Bureau, and others about Defendants’ business practices.88 These consumers complain that they
were misled by Defendants’ advertising; that they experienced no success in finding, brokering
or earning money as a result of their purchase of Defendants’ products and services; that they
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89 See id.
90 DiNardo Dec. ¶ 11; Hall Dec. ¶ 12; Hanson Dec. ¶ 8; McCullough Dec. ¶ 12; MendolaDec. ¶ 12; Moenning Dec. ¶ 14; Pearson Dec. ¶ 9; Phillips Dec. ¶ 12; Rodway Dec. ¶ 11; TerrillDec. ¶ 12. The remaining consumer brokered only one note, but made only $500 in commissionafter having spent $28,156 on DEI’s products and services. Yevtich Dec. ¶ 23.
91 Hanson Dec. ¶ 6; McCullough ¶ 9; Mendola Dec. ¶ 9; Moenning Dec. ¶ 7; PearsonDec. ¶ 5; Rodway Dec. ¶¶ 8 & 11; Terrill Dec ¶¶ 7 & 10.
92 See DiNardo Dec. ¶ 3 (declarant is a consultant for large real estate developers; see id.¶ 2); Hall Dec. ¶ 4; Hanson Dec. ¶¶ 3 & 4; Pearson Dec. ¶ 3; Phillips Dec. ¶ 3 (declaring “overallthe [initial] WITCFB materials were a waste”); Rodway Dec. ¶ 3; Terrill Dec. ¶ 3; Yevtich Dec.¶ 4. Consumers also note that the initial materials largely tout more products and services soldby DEI. Pearson Dec. ¶ 3; Yevtich Dec. ¶ 4.
93 See Hanson Dec. ¶ 6; Rodway Dec. ¶ 8; Yevtich Dec. ¶ 16.
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were pressured into buying expensive additional products and services; that they felt they had
been scammed; and that they were not refunded their money after asking DEI for such refunds.89
From these complaints and other sources, the FTC was able to interview and obtain
declarations from eleven consumers. All but one of these consumers stated that they did not find
any notes or make any money as a result of having used Defendants’ products and services.90
Many of these consumers reported spending significant time and effort in attempting to work the
business.91 Despite Defendants’ promises that the business is easy, it is not. Consumers, at least
one of whom has a background in real estate, reported that the initial WITCFB materials were
hard to understand and did not contain sufficient information to learn how to broker notes.92
Consumers who spent many hours looking for notes at local courthouses generally did not find
any notes.93
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94 See DiNardo Dec. ¶¶ 5, 7 & 11; Hall Dec. ¶¶ 6 & 12; Menola Dec. ¶¶ 11 &12; PhillipsDec. ¶¶ 8 & 12; Rodway Dec. ¶ 7; Yevtich Dec. ¶¶ 6 & 10. As a result, consumers did not makeback the money they spent on these products and services, a claim often made by Defendants’telemarketers, upon which consumers rely when purchasing these expensive additional productsand services.
95 See DiNardo Dec. ¶ 5; Moenning Dec. ¶ 8; Phillips Dec. ¶ 8.
96 See McCullough Dec. ¶ 8; Mendola Dec. ¶ 6; Terrill Dec. ¶ 7.
97 See Moenning Dec. ¶ 8; Yevtich Dec. ¶ 10.
98 Several consumers who responded to the FTC’s mail survey reported havingdifficulties succeeding in the business in such an economy. They reported that the market fornotes “shut down” and “was not conducive to note buying.” See McGregor Dec. ¶ 35.
99 In fact, Dalbey discusses the “sluggish economy” not as a pitfall, but as anopportunity. He states, “[w]ith the way the economy is right now, I’ve never seen a better time
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Consumers also reported that the additional programs they purchased did not help them
broker a single note.94 In fact, consumers who attended boot camp reported that they did not
complete a note deal by the end of the boot camp as they had been led to believe would occur.95
In addition, consumers who purchased lists of purported note holders from Defendants
reported that the contact information on the lists was often inaccurate, or that the lists put them
in contact with note holders who no longer held the note, or who complained that they had been
contacted numerous times.96 Even on the rare occasion when consumers found a note to list,
there were often numerous obstacles preventing consumers from brokering and making money
on a note deal, including finding note holders who were not interested in selling for the price
offered,97 or finding notes on foreclosed properties or properties with drastically decreased
values that would be difficult to broker.98 These pitfalls are not described in Defendants’
advertising.99
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to get started.” See supra, III.A.10.
100 Hastak Dec. ¶ 2; Hastak Report, at 12-21. Dr. Hastak’s report contains numerousillustrative verbatim responses for each of these themes. Dr. Hastak reports a sixth theme, thatsome consumers attributed their lack of success to their insufficient effort, rather than to DEI’sproducts and services. Hastak Report, at 21-22. As discussed above, this theme is of minimalimport, because Defendants’ ads often suggest that little effort is needed. See supra, III.B.2. Plaintiffs believe these consumers may have put forth little effort, because it was readilyapparent upon receiving the materials that Defendants’ program would require significantlymore time and effort to understand and work the business than advertised.
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In addition to the consumer complaints and consumer declarations, many consumers who
responded to the FTC’s mail survey complained about DEI’s practices in response to the
survey’s request for consumers to: “Feel free to include additional comments below.” Five
themes of these complaints, as detailed in Dr. Hastak’s report, are as follows: (1) DEI’s program
was a scam and a waste of my money; (2) DEI’s program and training materials were falsely
advertised as being very easy to learn and apply; (3) DEI constantly tried to upsell/ pressured
consumers to spend more money on additional programs; (4) the leads provided by DEI were
outdated or otherwise worthless; and (5) consumers put a lot of time and effort into following
DEI’s program, and still achieved no positive results.100
IV. ARGUMENT
The FTC asks the Court to enter a preliminary injunction limited to certain core
Complaint claims. The requested relief is warranted because the FTC is likely to succeed on the
merits, and the equities balance in the FTC’s favor.
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101 Section 13(b) of the FTC Act authorizes the issuance of injunctive relief in twodifferent situations. Because the Commission proceeds here under the second proviso of Section13(b), the standard that is prescribed in the statute (which relates to the issuance of temporary orpreliminary relief in aid of administrative proceedings) does not apply. FTC v. H.N. Singer, Inc.,668 F.2d 1107, 1110-11 (9th Cir. 1982); FTC v. U.S. Oil & Gas Corp., 748 F.2d 1431, 1434-35(11th Cir. 1984).
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A. The FTC Act Authorizes the Court To Grant the Requested Relief
This Court has the authority to grant preliminary and permanent relief pursuant to
Section 13(b) of the FTC Act, 15 U.S.C. § 53(b).101 The second proviso of Section 13(b)
provides that in “proper cases the Commission may seek, and after proof the court may issue, a
permanent injunction.” A “proper case” includes any matter involving a law violation that the
FTC enforces. FTC v. Evans Prods. Co., 775 F.2d 1084, 1086-87 (9th Cir. 1985); FTC v. H.N.
Singer, Inc., 668 F.2d 1107, 1111, 1113 (9th Cir. 1982). Cases such as this one, involving
allegations of fraud and deceptive advertising, replete with misrepresentations of material facts
in violation of Section 5(a) of the FTC Act, qualify as “proper cases” for injunctive relief under
Section 13(b). FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1028 (7th Cir.
1988); H.N. Singer, 668 F.2d at 1111; see also FTC v. Gem Merch. Corp., 87 F.3d 466, 468-70
(11th Cir. 1996).
In a Section 13(b) action, the Court may exercise the full breadth of its equitable
authority. The Tenth Circuit has explained that, “[a]lthough § 13(b) does not expressly authorize
a court to grant consumer redress . . . § 13(b)’s grant of authority to provide injunctive relief
carries with it the full range of equitable remedies . . . .” FTC v. Freecom Commc’ns, Inc., 401
F.3d 1192, 1202 n.6 (10th Cir. 2005) (emphasis added). Thus, under Section 13(b), this Court
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102 See, e.g., FTC v. Bishop, 2011 U.S. App. LEXIS 8473, *2-3 (11th Cir. April 25, 2011)(upholding preliminary injunction in deceptive mortgage loan modification and foreclosure reliefscheme); U.S. Oil & Gas, 748 F.2d at 1432, 1434-35 (upholding preliminary injunction indeceptive oil and gas lease lottery investment scheme); FTC v. Affordable Media, LLC, 179 F.3d1228, 1233, 1238 (9th Cir. 1999) (upholding preliminary injunction in Ponzi scheme); WorldWide Factors, 882 F.2d at 346-48 (upholding asset freeze in prize give-away scam); WorldTravel Vacation Brokers, 861 F.2d at 1021-22 (upholding preliminary injunction in deceptivevacation package scheme).
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may order whatever temporary or preliminary relief is necessary to prevent ongoing consumer
injury. See World Travel Vacation Brokers, 861 F.2d 1020, 1026; H.N. Singer, 668 F.2d at
1113; FTC v. Southwest Sunsites, Inc., 665 F.2d 711, 717-18 (5th Cir. 1982). The exercise of
this broad equitable authority is particularly appropriate where, as here, the public interest is at
stake. Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946).
B. The Standard for Entry of a Preliminary Injunction
The Commission has made the showing required for the issuance of a preliminary
injunction to prohibit the continuation of Defendants’ deceptive acts and practices. In deciding
whether to grant a preliminary injunction, this Court “must (1) determine the likelihood that the
FTC will ultimately succeed on the merits and (2) balance the equities.” FTC v. Skybiz.com,
Inc., 2001 U.S. Dist. LEXIS 26175, *22 (N.D. Okla. Aug. 31, 2001) (citing World Travel
Vacation Brokers, 861 F.2d at 1029), aff’d, 2003 U.S. App. LEXIS 1653 (10th Cir. 2003);
FTC v. World Wide Factors, Ltd., 882 F.2d 344, 346 (9th Cir. 1989). Preliminary injunctions
have been granted and upheld in several circuits in FTC deceptive advertising cases.102
Specifically, the FTC has obtained preliminary injunctive relief in a number of wealth-building
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103 See, e.g., Affordable Media, 179 F.3d at 1233, 1238 (upholding preliminary injunctionin Ponzi scheme); FTC v. Ivy Capital, Inc., No. 2:11-cv-00283-JCM-GWF (D. Nev. Mar. 25,2011), available at http://www.ftc.gov/os/caselist/1023218/110325ivycapitalprelim.pdf (ordergranting preliminary injunction in work-at-home scheme in which consumers were told theycould make thousands of dollars); FTC v. Preferred Platinum Servs. Network, LLC, No. 10-cv-538-MLC-LHG (D.N.J. Feb. 16, 2010), available athttp://www.ftc.gov/os/caselist/0923213/100217preferredplatinumprelim.pdf(order granting preliminary injunction in work-at-home scheme in which consumers were toldthey could make substantial amounts of money); FTC v. Vega, No. H-04-1478, available athttp://www.ftc.gov/os/caselist/estebanbarriosvega/040414prelimestebanbarriosvega.pdf (S.D.Tex. Apr. 23, 2004) (order granting preliminary injunction in work-at-home scheme in whichconsumers were told they would make $500 to $1,000 per week); Skybiz.com, 2001 U.S. Dist.LEXIS 26175, *26, 34 (order granting preliminary injunction in pyramid scheme in whichconsumers were told they could earn substantial amounts of money).
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and work-at-home schemes in which defendants have made false or deceptive claims about the
substantial amounts of money to be made by consumers.103
With respect to the first factor, a court “need only find some chance of probable success
on the merits.” Skybiz.com, 2001 U.S. Dist. LEXIS 26175, at *22. Specifically, the Commission
“meets its burden on the likelihood of success issue if it shows preliminarily, by affidavits or
other proof, that it has a fair and tenable chance of ultimate success on the merits.” FTC v.
AmeriDebt, Inc., 373 F. Supp. 2d 558, 563, 564 n.6 (D. Md. 2005) (quoting FTC v. Beatrice
Foods Co., 587 F.2d 1225, 1229 (D.C. Cir. 1978)) (internal quotations omitted).
The second part of the Court’s consideration is the balance of equities. The Court must
“balance[] the hardships of the public interest against [the] private interest,” according the public
interest greater weight. Skybiz.com, 2001 U.S. Dist. LEXIS 26175, *23 (citing FTC v.
Affordable Media, LLC, 179 F.3d 1228, 1236 (9th Cir. 1999)); World Wide Factors, 882 F.2d
at 347. The public interest should receive greater weight particularly where the evidence
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demonstrates that a defendant’s business is rooted in deception, for a “court of equity is under no
duty to protect illegitimate profits or advance business which is conducted [illegally].” CFTC v.
British Am. Commodity Options Corp., 560 F.2d 135, 143 (2d Cir. 1977) (quoting FTC v.
Thomsen-King & Co., 109 F.2d 516, 519 (7th Cir. 1940)) (internal quotations omitted); FTC v.
Nat’l Invention Servs., Inc., 1997 U.S. Dist. LEXIS 16777, *11-12 (D.N.J. Aug. 12, 1997)
(quoting British Am. Commodity Options, 560 F.2d at 143, in order granting preliminary
injunction with asset freeze in invention promotion scheme); FTC v. Sage Seminars, Inc., 1995
U.S. Dist. LEXIS 21043, *22-23 (N.D. Cal. Nov. 2, 1995) (same in deceptive business
opportunity scheme). Moreover, the FTC is not required to prove irreparable harm to
consumers, as it is presumed in a statutory enforcement action. Skybiz.com, 2001 U.S. Dist.
LEXIS 26175, at *21.
C. The Evidence Presented Meets the Standard for a Preliminary Injunction
1. The Corporate Defendants’ Conduct Likely Violates Section 5(a) ofthe FTC Act
Defendants have engaged in deceptive acts and practices within the meaning of the FTC
Act, 15 U.S.C. § 45(a). “The primary purpose of § 5 is to lessen the harsh effects of caveat
emptor,” which “‘can no longer be relied upon as a means of rewarding fraud and deception and
has been replaced by a rule which gives to the consumer the right to rely upon representations of
facts as truth.’” Freecom, 401 F.3d at 1202 (quoting FTC v. Sterling Drug, Inc., 317 F.2d 669,
674 (2d Cir. 1963)). A violation of Section 5 of the FTC Act occurs when a representation,
omission, or practice is likely to mislead ordinary consumers, if such representation, omission, or
practice is material, in that the information conveyed (or not conveyed) is likely to influence
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consumers’ decisions of whether to purchase the relevant service or product. See Freecom, 401
F.3d at 1203; World Travel Vacation Brokers, 861 F.2d at 1029. When the advertising at issue
involves express claims, materiality is presumed. See Novartis Corp. v. FTC, 223 F.3d 783, 786
(D.C. Cir. 2000). Moreover, “[m]isrepresentations concerning anticipated income from a
business opportunity generally are material and likely to mislead consumers because such
misrepresentations strike at the heart of a consumer’s purchasing decision.” Freecom, 401 F.3d
at 1203. “Neither proof of consumer reliance nor consumer injury is necessary to establish a § 5
violation.” Id.
Here, as described above, Defendants consistently have made express, material claims
about the speed and ease with which consumers can find and broker promissory notes and the
substantial amounts of money they are likely to earn by doing so. The FTC need only
demonstrate that Defendants’ representations were likely to mislead consumers and need not
prove consumer injury or reliance to establish a Section 5 violation. Freecom, 401 F.3d at 1203;
FTC v. US Sales Corp., 785 F. Supp. 737, 747-48 (N.D. Ill. 1992) (“Indeed, advertisements are
illegal if they have a ‘tendency’ or ‘capacity’ to deceive; actual deception of particular
consumers need not be proven.”). Nevertheless, the FTC possesses ample evidence that
consumers are misled by Defendants’ advertising claims about the promissory note business and
the financial success that consumers are likely to achieve. Consumer complaints and
declarations demonstrate that consumers were lured into purchasing Defendants’ products and
services with the understanding that they would achieve substantial financial success quickly and
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104 See supra, III.B.4.
105 See Conrey Report, at 8.
106 See supra, III.B.3.
107 See FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502, 528-29 (S.D.N.Y. 2000)(consumers joining defendants’ program could reasonably assume that promised rewards wereachieved by typical program participant); FTC v. Febre, 1996 U.S. Dist. LEXIS 9487, *8 (N.D.Ill. 1996) (“[I]t can be presumed that a consumer would reasonably believe that the statements ofearnings potential represent typical or average earnings.”), aff’d, 128 F.3d 530 (7th Cir. 1997);Bailey Employment Sys., Inc. v. Hahn, 545 F. Supp. 62, 70 (D. Conn. 1982) (projected earningsclaims were deceptive where such claims did not “bear a reasonable relationship to the averageamounts earned in the past by the majority of existing franchises”), aff’d 723 F.2d 895 (2d Cir.1983); 16 C.F.R. § 255.2(b) (2011) (FTC Endorsement Guides) (“An advertisement containingan endorsement relating the experience of one or more consumers on a central or key attribute ofthe product or service also will likely be interpreted as representing that the endorser’sexperience is representative of what consumers will generally achieve with the advertised
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easily,104 a message that is conveyed repeatedly to consumers in DEI’s advertising and
telemarketing. Moreover, Defendants’ vast sales demonstrate large consumer injury resulting
from their deceptive claims.
In addition to Defendants’ lack of substantiation for their claims of fast, easy, and
substantial money, the FTC’s surveys show that consumers did not achieve the results that
Defendants touted in their infomercials and other advertisements. The FTC’s surveys reveal that
an estimated 98.9 percent of DEI’s customers never brokered a single promissory note, and 99.1
percent never made any money in the promissory note brokering business.105 Defendants’
infomercials, which use testimonialists who report earnings of over $126,000 on average,
contrast starkly with the average earnings of the survey respondents, a meager $16.106 Therefore,
DEI’s testimonialist earnings claims are deceptive because they far exceed(ed) the earnings of a
typical DEI consumer.107
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product or service in actual, albeit variable, conditions of use.”).
108 See McGregor Dec. ¶ 33 & Exh. 15. Defendants include this disclaimer in a morerecent infomercial selling Defendant Dalbey’s new book, The Real Estate Secret, which alsopurports to teach people how to find and broker seller-financed promissory notes and therebyearn substantial amounts of money. In the infomercial, Defendants use some of the sametestimonialists who appear in the WITCFB infomercials. Although Defendants state in theirdisclaimer that “[m]ost will earn little or no money,” Defendants report that they have neverconducted a survey of their consumers’ success rates.
109 Id.
110 See, e.g., FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 1200 (9th Cir. 2006) (holdingthat fine print disclaimer did not preclude liability under Section 5 of FTC Act, because“solicitation may be likely to mislead by virtue of the net impression it creates even though thesolicitation also contains truthful disclosures.”); FTC v. Brown & Williamson Tobacco Corp.,778 F.2d 35, 42-43 (D.C. Cir. 1985) (affirming district court’s finding that advertisement’sdescription of cigarette tar content was deceptive even though fine print in the corner of the
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In fact, Defendants concede in a recent disclaimer that their advertised fast and easy
earnings claims are misleading and atypical. Defendants recently have used a testimonialist
disclaimer that states: “Results not typical and are dependent upon effort and other factors. Most
will earn little or no money. Testimonial [sic] purchased additional product.”108 (Emphasis
added.) This disclaimer is in small font and is hard to read,109 and Defendants have not placed it
in their WITCFB infomercials or on their websites.
Further, the disclaimers that Defendants have placed in their WITCFB infomercials are in
small, hard-to-read font. They minimally contrast with the screen behind them, are
unaccompanied by an audio disclaimer, and are displayed for only a few seconds, often with
distracting earnings claims in much larger text elsewhere on the screen. It is well-established
that fine print disclaimers typically do not mitigate deceptive headlines because consumers
rarely read them or are able to do so.110
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advertisement truthfully explained how tar content was measured); Porter & Dietsch v. FTC,Inc., 605 F.2d 294, 301 (7th Cir. 1979) (upholding FTC finding that disclosures “buried in smallprint” were inadequate to change net impression of weight loss claims in advertising); see also16 C.F.R. § 255.2(b) (“advertisement should clearly and conspicuously disclose the generallyexpected performance in the depicted circumstances”) (emphasis added).
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Moreover, neither the form nor substance of these disclaimers mitigate the overwhelming
net impression of the fast, easy, and substantial success claims in Defendants’ advertising. As
the court stated in FTC v. Direct Mktg. Concepts, Inc., “‘[d]isclaimers or qualifications in any
particular ad are not adequate to avoid liability unless they are sufficiently prominent and
unambiguous to change the apparent meaning of the claims and to leave an accurate impression.
Anything less is only likely to cause confusion by creating contradictory double meanings.’”
624 F.3d 1, 12 (1st Cir. 2010) (quoting Removatron Int’l Corp. v. FTC, 884 F.2d 1489, 1497
(1st Cir. 1989)) (holding that disclaimers in defendants’ infomercials did not mitigate deceptive
claims because such disclaimers failed to change net impression of infomercials).
2. Defendant Dalbey is Likely Individually Liable Under Section 5(a) ofthe FTC Act
If a corporation is liable for violating Section 5 of the FTC Act, an individual also may
be held liable for injunctive relief if the individual (i) participated directly in the corporation’s
acts or practices or (ii) had the authority to control them. See Freecom, 401 F.3d at 1204; FTC v.
Publ’g Clearing House, 104 F.3d 1168, 1170 (9th Cir. 1997). “Authority to control the company
can be evidenced by active involvement in business affairs and the making of corporate policy,
including assuming the duties of a corporate officer.” FTC v. Amy Travel Serv., Inc., 875 F.2d
564, 573 (7th Cir. 1989).
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111 See supra, e.g., III.A.12-17.
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Here, the FTC is likely to succeed in showing Defendant Dalbey’s participation or
authority to control the Corporate Defendants. He participated directly in the Corporate
Defendants’ advertising by serving as DEI’s spokesperson and featuring himself in DEI’s
infomercials, websites, direct mail advertisements, and marketing materials, many of which
appear to be messages to consumers from Defendant Dalbey himself.111 Further, Defendant
Dalbey had the authority to control the Corporate Defendants’ acts and practices, given his
respective roles as the founder, majority owner, manager, and partner of DEI, LLLP; the founder
and Chief Executive Officer of DEI; and the majority owner and limited partner of IPME, LLLP.
3. The Equities Balance in the FTC’s Favor
Once the Commission shows a likelihood of success on the merits, the Court must
balance the equities, assigning greater weight to the public interest than to Defendants’ private
concerns, in determining whether to grant injunctive relief. World Wide Factors, 882 F.2d at
347; FTC v. Warner Commc’ns, Inc., 742 F.2d 1156, 1165 (9th Cir. 1984) (per curiam)
(“Although private equities may be considered, public equities receive far greater weight”).
Here, the balance of equities tip decidedly in the FTC’s favor. The need for preliminary
injunctive relief is necessary to protect the public from any further ongoing financial injury
caused by Defendants’ deceptive practices. Financial injury may start at approximately $40 to
$160 for each consumer who purchases Defendants’ initial program, but quickly reaches
thousands of dollars for consumers who are misled into purchasing additional products and
services at a significant cost. In contrast, Defendants have no legitimate interest in making false
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112 See infra, n.108.
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claims or swindling consumers out of more money. World Wide Factors, 882 F.2d at 347
(upholding district court finding of “‘no oppressive hardship to defendants in requiring them to
comply with the FTC Act [or] refrain from fraudulent representation . . . .’”). A “court of equity
is under no duty to protect illegitimate profits or advance business which is conducted
[illegally].” British Am. Commodity Options, 560 F.2d at 143.
D. The Proposed Preliminary Injunction Is Tailored To Provide Interim ReliefWith Respect To Defendants’ Unlawful Practices
Plaintiffs’ proposed preliminary injunction does not require Defendants to cease
advertising or selling their note brokering products and services. Part I of Plaintiffs’ proposed
preliminary injunction requires Defendants to refrain from misrepresentations that violate the
FTC Act – specifically, representations that consumers are likely to: quickly or easily find, list,
or broker promissory notes; earn substantial amounts of money; or do so quickly and easily.
Part II requires Defendants to make the truthful disclosure in their infomercials and other
advertising that “[m]ost of [their] consumers will earn little or no money.” Plaintiffs’ proposed
disclaimer is virtually identical to the disclaimer that Defendants already use when marketing
Defendant Dalbey’s book, The Real Estate Secret.112 It would, however, need to be disclosed
clearly and prominently to all prospective customers. Further, the FTC’s survey data confirms
the need for such a disclaimer, as well as its accuracy.
Part III requires Defendants to record sales calls and retain records, such as telephone
sales scripts, training materials, and advertisements. Part IV requires Defendants to submit to
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