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ALDEN F. ABBOTT

General Counsel

ROBERTA DIANE TONELLI, Cal. Bar No. 278738

EMILY COPE BURTON, Cal. Bar No. 221127

COLIN A. HECTOR, Cal. Bar No. 281795

Federal Trade Commission

901 Market Street, Suite 570

San Francisco, CA 94103

rtonelli@ftc.gov, eburton@ftc.gov, chector@ftc.gov

Tel: (415) 848-5100; Fax: (415) 848-5184

Attorneys for Plaintiff

FEDERAL TRADE COMMISSION

filed

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

FEDERAL TRADE COMMISSION,

Plaintiff,

3v19-4022 ' SK

C

vs.

AH MEDIA GROUP, LLC, a Delaware Limited

Liability Company,

HENRY BLOCK, individually, and as an officer

of AH MEDIA GROUP, LLC,

ALAN SCHILL, individually, and as an owner of

AH MEDIA GROUP, LLC,

Defendants,

and

ZANELO, LLC, a Puerto Rico Limited Liability

Company,

Relief Defendant.

ase No.

FILED UNDER SEAL

MEMORANDUM OF POINTS

AND AUTHORITIES IN

SUPPORT OF PLAINTIFF'S EX

APPLICATION FOR

TEMPORARY RESTRAINING

ORDER WITH ASSET FREEZE,

APPOINTMENT OF A

RECEIVER, OTHER EQUITABLE

RELIEF, AND ORDER TO SHOW

CAUSE WHY A PRELIMINARY

INJUNCTION SHOULD NOT

ISSUE

Memo ISO^A-P/j/erEAppL. for TRO

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TABLE OF CONTENTS

I. INTRODUCTION 1

II. DEFENDANTS 3

A. Corporate Defendant 3

B. Individual Defendants 4

C. Relief Defendant 5

III. DEFENDANTS' ILLEGAL BUSINESS PRACTICES 6

A. Defendants' Online Marketing Is Deceptive and Unfair 6

1. Each Step in the Purchase Flow of Defendants' Websites Is Designed to Mislead

Consumers 6

a. The Landing Page 7

b. The Payment Page 9

c. The Upsell Pages 11

d. The Order Summary Pages 14

2. Defendants Do Not Adequately Disclose Their Onerous Return, Cancellation, and

Refund Policies and Practices 16

B. Defendants' Perpetuated Their Scam Through Illegal Credit Card Laundering and

Fraudulent Chargeback Dispute Practices 18

1. Credit Card Processing Industry Background 18

2. Defendants' Credit Card Laundering Practices 20

3. Defendants' Fraudulent Chargeback Dispute Practices 24

IV. THE FTC HAS SHOWN A LIKELIHOOD OF SUCCESS AND THE EQUITIES

WEIGH IN FAVOR OF THE REQUESTED RELIEF 25

A. This Court Has the Authority to Grant the Requested Relief 25

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B. The FTC Meets the Standard for Issuance of a Temporary Restraining Order 26

1. The FTC is Likely to Succeed on the Merits 26

a. Defendants Are Violating the FTC Act 27

i. Defendants' Practices Are Deceptive 27

ii. Defendants' Practices Are Unfair 29

b. Defendants Are Violating ROSCA 31

c. Defendants Are Violating the EFTA and Regulation E 33

2. The Balance of Equities Strongly Favors Injunctive Relief 33

3. Defendants Block and Schill Are Individually Liable for Defendants' Practices 34

C. The Relief Defendant Has Received 111-Gotten Gains and Does Not Have a Legitimate

Claim to Those Assets 37

V. AN EXPARTE TRO WITH ASSET FREEZE AND A RECEIVER IS ESSENTIAL 38

I

A. Conduct Relief to Protect Consumers From Being Victimized During the Pendency of

This Case Is Appropriate in Light of Defendants' Pervasive Illegal Conduct 38

B. An Asset Freeze and Appointment of a Receiver Are Warranted to Prevent the

Dissipation of Assets and Destruction of Evidence 39

C. The Court Should Enjoin Defendants From Destroying Evidence and Allow Plaintiff to

Take Limited Expedited Discovery 41

D. The Temporary Restraining Order Should be Issued Ex Parte to Preserve the Court's

Ability to Fashion Meaningful Relief 42

VI. CONCLUSION 43

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TABLE OF AUTHORITIES

Cases

Barrer v. Chase Bank United States, NA., 566 F.3d 883 (9th Cir. 2009) 32

Cyberspace.com, No. C00-1806L, 2002 U.S. Dist. LEXIS 25564 (W.D. Wash. July 10, 2002),

affd,A52> F.3datl200 27

Fed. Express Corp. v. Fed Espresso, Inc., No. 97-CV-1219RSP/GJD, 1997 WL 736530

(N.D.N.Y. Nov. 24, 1997) 42

FTC V. Affordable Media, LLC, 179 F.3d 1228, (9th Cir. 1999) 25, 26

FTCv. Am. Nat'l Cellular, Inc., Id \S\\ (9thCir. 1987) 26

FTCv. Am. Standard Credit Sys., Inc., 874 F. Supp. 1080 (C.D. Cal. 1994) 35

FTCv. Amazon, 2016 U.S. Dist. LEXIS 55569 30

FTCv. Amy TravelServ., Inc., 875 F.2d 564 (7th Cir. 1989) 34

FTCv. Apex Capital Group, No. 18-cv-09573 (C.D. Cal. Nov. 18, 2018) 26

FTCv. BunzaiMedia Grp., Inc., No. CV15-C4527-GW (PLAx), 2015 WL 5305243 (C.D. Cal.

Sept. 9,2015) 26

FTCv. Cardiff, No. 18-cv-2104, 2018 WL 5622644 (C.D. Cal. Oct. 10, 2018) 26

FTCv. Career Info. Serv's, lnc.,'^0. l:96-CV-1463-ODE, 1996 WL 435225 (N.D. Ga. June21,

1996) 40

FTC V. Commerce Planet Inc., No. SACV 09-01324-CJC(RNBx), 2011 WL 13225087 (C.D.

Cal. Sept. 8, 2011) 30

FTC V. Commerce Planet, Inc., 878 F. Supp. 2d 1048 (C.D. Cal. 2012), affd in relevant part by

642 F. App'x 680 (9th Cir. 2016), vacated and remanded on other grounds by%\5 F.3d 593

(9th Cir. 2016) 18

FTC V. Credit Bureau Ctr., LLC, 325 F. Supp. 3d 852 (N.D. 111. 2018) 32

FTC V. Cyberspace.com LLC, 453 F.3d 1196 (9th Cir. 2006) 27

FTCv. Five-Star Audio Club, Inc., 97 F. Supp. 2d 502 (S.D.N.Y. 2000) 28

FTCv. GlobalMktg Grp., Inc., 594 F. Supp. 2d 1281 (M.D. Fla. 2008) 30

Memo ISO ExParte Appl. for TRO iii

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FTC V. Grant Connect. LLC, 763 F.3d 1094 (9th Cir. 2014) 34, 35

FTC V. H. N. Singer. Inc., 668 F.2d 1107 (9th Cir. 1982) 25, 26, 39

FTC V. Health Formulas. LLC, 2015 WL 2130504 (D. Nev. May 6, 2015) 28, 32

FTC V. Health Formulas. LLC, No. 2:14-cv-01649, 2015 U.S. Dist. LEXIS 59387 (D. Nev. May

6,2015) 32

FTC V. Ideal Fin. Solutions. Inc., No. 2:13-cv-00143-JADGWF, 2015 WL 4032103 (D. Nev.

June 30, 2015) 3q

FTC V. Inc2I.com. 745 F. Supp. 2d 975 (N.D. Gal. 2010) ' 30, 37

FTCv. hy Capital. Inc., 2013 WL 1224613 (D. Nev. Mar. 26, 2013), aff'd in part, vacated in

part, 616 Fed. Appx. 360 (9th Cir. 2015) (mem.) 35

FTC V. JKPubl'ns. Inc., 99 F. Supp. 2d 1176 (C.D. Cal. 2000) 29, 30, 36

FTC V. John Beck Amazing Profits. LLC, 865 F. Supp. 2d 1052 (C.D. Cal. 2012) 28

FTC V. Johnson, No. 2:10cv-02203-RLH-GWF (D. Nev. Feb. 10, 2011) 19

FTC V. LoanPointe. LLC, No. 2:10-CV-335DAK, 2011 WL 4348304 (D. Utah Sept. 16, 2011)35

FTC V. Neovi. Inc., 604 F.3d 1150 (9th Cir. 2010) 29, 30

FTC V. Pantron I Corp., 33 F.3d 1088 (9th Cir. 1994) 27

FTC V. Publ'g Clearing House. Inc., 104 F.3d 1168 (9th Cir. 1997) 34

FTC V. RevMountain. LLC, No. 17-cv-02000-APG-GWF (D. Nev. July 25, 2017).. 26

FTC Skybiz.com. Inc., No. 01-CV-396-K(E), 2001 WL 1673645 (N.D. Okla. Aug. 31, 2011)

; 39, 40

FTC V. Transnet Wireless Corp., 506 F. Supp. 2d 1247 (S.D. Fla. 2007) 37

FTCv. Triangle Media Corp., (S.D. Cal. Aug. 24, 2018) 40

FTCv. Triangle Media Corp., ^o. 18cvl388-MMA (NLS), 2018 WL 4051701, at *12 n.3 (S.D.

Cal. Aug. 24, 2018) 20 26

FTC V. U.S. Oil & Gas Corp., 748 F2d 1431 (11th Cir. 1984) 39

FTC V. Warner Commons. Inc., 742 F.2d 1156 (9th Cir. 1984) 33

FTC V. World Travel Vacation Brokers. Inc., 861 F.2d 1020 (7th Cir. 1988) 40

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In the Matter ofMcGaiighey, 24 F .3d 904, (7th Cir. 1994) 40

Johnson v. Couturier, 572 F.3d 1067 (9th Cir. 2009) 41

Kraft, Inc. v. FTC, 970 F.2d 311 (7th Cir. 1992) 28

Lancore Ser\>s. Ltd. v. Barclays Bank Pic, [2009] EWCA (Civ) 752, 2009 WL 2173222 19

Paycom Billing Serx's. v. MasterCardInt'l, Inc., 467 F.3d 283 at 285-86, 2006 U.S. App. LEXIS

26820, 2006-2 Trade Cas. (CCH) P75,470

Reno Air Racing Ass'n, Inc. v. McCord, 452 F.3d 1126 (9th Cir. 2006) 42

SEC V. First Fin. Group. 645 F.2d 429 (5th Cir. 1981) 40

SEC V. Manor Nursing Ctrs.. Inc., 458 F.2d 1082 (2d Cir. 1972) 39

SEC V. UnifundSAL, 910 F.2d 1028 (2d Cir. 1990) 41

Semitool, Inc. v. Tokyo Electron Am., Inc., 208 F.R.D. 273 (N.D. Cal. 2002) 42

Standard Educators, Inc. v. FTC, 475 F.2d 401 (D.C. Cir. 1973) 35

United States v. Johnson, 111 F. App'x 638 (10th Cir. Apr. 19, 2018) 19, 20

Statutes

12C.F.R. § 1005.10(b) I 25 27

12 C.F.R. §205.10(b)

15 U.S.C. § 16931 33

15U.S.C.§ 1693e(a)

15 U.S.C. § 45(a) 1,25 27

15 U.S.C. §45(n) 29

15 U.S.C. § 53(b) 25

15 U.S.C. § 57(a)

15 U.S.C. § 57(b) 25

15U.S.C.§ 8403

15 U.S.C. § 8404

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I. INTRODUCTION

The Federal Trade Commission asks this Court to halt an online marketing scheme that

uses deceptive "trial" offers to enroll unsuspecting consumers in expensive continuity plans for

skin care products and dietary supplements. Defendants offer the trial for only a nominal

shipping and handling charge, but after consumers make this payment, Defendants proceed to

charge approximately $90 for the trial and an additional $90 each month for regular shipments of

the products. Defendants have reaped more than $42 million from these unlawful marketing

practices, which violate the Federal Trade Commission Act (the "FTC Act"), the Restore Online

Shoppers' Confidence Act ("ROSCA"), the Electronic Fund Transfer Act ("EFTA"), and

Regulation E.

Defendants offer the purported trials of their products on a group of nearly identical

websites, each of which promises that consumers need to pay only a minimal shipping and

handling fee (typically $4.99) to receive the product. In ordering the trial, consumers provide

their credit or debit card information to pay the shipping and handling fee, but the websites

explicitly state that this fee represents the total cost of the trial offer. Thus, consumers who order

one of Defendants' trials expect to receive a single shipment of one product and to be charged

one nominal shipping and handling fee.

Approximately two weeks later, however, Defendants automatically charge consumers

the full price of the trial product: around $90. Defendants also enroll consumers in a continuity

plan, charging them each month for regular shipments of the product. To make matters worse,

Defendants often trick consumers into ordering a trial of a second product; when consumers click

a box to complete their order, they are signed up for another trial sample of an additional product

(for which they will ultimately pay full price) and yet another monthly continuity plan.

In sharp contrast to Defendants' prominent representations that the trial products are free

but for nominal shipping and handling costs, language about the full price is hidden behind

hyperlinks or nearly invisible text, if it appears at all. And when consumers try to get their

money back. Defendants double-down on their fraudulent tactics. Consumers have difficulty

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reaching a customer service representative, and when they do, Defendants refuse to provide

refunds by pointing to an onerous (and poorly disclosed) refund policy. Further, when

consumers dispute charges with their credit card companies. Defendants cite non-operational

dummy websites—which contain much more prominent disclosures—to represent, falsely, that

the charges were adequately disclosed.

Attempting to evade detection by law enforcement and maintain their scheme,

Defendants use an ever-changing network of over 300 websites and more than 70 shell entities.

Defendants establish payment processing accounts in the shell entities' names and then use those

accounts to collect the unauthorized charges. Using numerous accounts allows Defendants to

spread complaints and compliance enforcement across numerous entities that appear unrelated,

and to ensure that as accounts get shut down for fraud there are ample backups to continue

processing consumer payments. The unauthorized charges are then transferred from the shell

entities' accounts to the Defendants.

Plaintiffs evidence of Defendants' illegal practices is overwhelming. It includes

screenshots of Defendants' deceptive advertisements and websites; undercover purchases;

hundreds of consumer complaints to government agencies and Better Business Bureaus; thirdparty records showing the structure of Defendants' enterprise; sworn statements from consumer

victims; and sworn declarations from FTC investigators and a forensic accountant.

Taken together, the evidence demonstrates that Defendants' business is permeated with

fraud and has caused substantial harm to consumers across the nation. The FTC therefore brings

this motion for an exparte temporary restraining order ("TRO") to halt Defendants' illegal

practices, to freeze their assets, and to have a temporary receiver appointed over the business.

Defendants' widespread pattern of deception, unauthorized charges to consumers' accounts, use

of shell companies to disguise their identity, use of fraudulent documentation in merchant

applications and consumer chargeback disputes, and other efforts to evade responsibility for their

conduct all strongly suggest that they would hide or dissipate assets if they received notice of this

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action. The requested relief is necessary and appropriate to preserve the Court's ability to

2 provide effective final relief, including eventual restitution to the victims.

3 II, DEFENDANTS'

4 A. Corporate Defendant

AH Media Group, LLC ("AH Media") is a Delaware limited liability company formed in

6 2016.^ Its principal place of business is in Greenwood Village, Colorado.^ AH Media is at the

7 center of Defendants' operation (the "AH Media Enterprise"). It markets its products through

8 shell companies registered in Wyoming (the "Wyoming LLCs"), including those identified in

9 Exhibit B to the Complaint. The AH Media Enterprise uses payment processing accounts set up

in the names of the Wyoming LLCs,'' but controlled by Henry Block ("Block").^ Block then

11 transfers the proceeds from bank accounts association with the Wyoming LLCs to AH Media's

12 bank account at First National Bank (the "AH Media FNB Account").^ Virtually all of the AH

13 Media Enterprise's operating expenses are paid from the AH Media FNB Account, including

14

, The FTC has filed 12 declarations in support of this Motion. The declarations, including

16 exhibits and attachments, are Bates stamped FTC-TRO-0001 - 1418, in Plaintiffs Appendix of

17

23

26

Declarations in Support of Plaintiff s Ex Parte Motion for Temporary Restraining Order with

Asset Freeze, Appointment of a Receiver, Other Equitable Relief, and Order to Show Cause

18 Why a Preliminary Injunction Should Not Issue ("App."). Citations to the Appendix appear as

"App." followed by a Bates number without the FTC-TRO prefix or any leading zeros (e.g. FTC19 TRO-0267 would appear at App. 267). An index that provides the Bates range for each

declaration is attached to this Memorandum as Attachment I.

^ Declaration of Yasser Dandashly, FTC Investigator ("Dandashly Deck"), Ex. 17 at App. 334.

21 ^ Dandashly Deck, Ex. 19 at App. 340-42.

'' Dandashly Deck 119-131 at App. 301-04 and Exs. 68-74 (merchant applications) at App.

22 917-1037.

^ Dandashly Deck ^ 104 at App. 297 and Ex. 56 at App. 831-33 (Block signatory on Wyoming

LLC accounts).

24 ^ Declaration of Thomas Van Wazer, FTC Forensic Accountant ("Van Wazer Deck"), H 9 at

App. 201 and Ex. 3 at App. 209-10 (showing flow of funds); Dandashly Deck 101-131 at

App. 297-340 (describing Defendants' use of shell companies) and Ex. 55 at App. 827-29

(summary table of Wyoming LLCs). AH Media has registered the various websites where

Defendants market and sell their deceptive trial offers. Dandashly Deckf^ 32-34 at App. 280

27 and Ex. 28-29 at App. 393-409 (Namecheap records showing websites registered to

Defendants.).

28

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1 advertising, manufacturing, and fulfillment expenses, as well as regular payments to the nominal

2 owners of the Wyoming LLCs (the "shell owners")7

3 AH Media is jointly owned by Block and Alan Schill ("Schill") (collectively, the

4 "Individual Defendants") through their companies, H Block Investments, LLC ("HBI") and XI

5 Family, LP ("XI Family").^

6 AH Media continues to operate. For example, according to the bank records from March

7 2019, the most recent records available, the AH Media FNB Account received over $680,000,

8 nearly all from various Wyoming LLCs.^ Later, on April 29, 2019, AH Media filed a Periodic

9 Report with the Colorado Secretary of State, where it is registered as a Foreign Entity.'® The

10 FTC also continues to receive consumer complaints about the AH Media Enterprise.''

11 B. Individual Defendants

12 Defendant Henry Block is the Manager of and Registered Agent for AH Media.'^ Block

13 is also an authorized signer for the AH Media FNB Account.'^ Block was a signatory for at least

14

Van Wazer Decl. lO-I I at App. 201-02 and Ex. 8 at App. 228-34; Dandashly Decl. 149-

16 151 at App. 308-09 and Ex. 81 at App. 1054-56.

^ Block is the Managing Member of HBI, a Colorado limited liability company, which is a

Member of and holds a 50% ownership interest in AH Media. Dandashly Decl. Ex. 18 at App.

13 336-38; Ex. 20 at App. 348-52. Block signed AH Media's Operating Agreement on behalf of

HBI and is also the authorized signer for HBI's bank account. Dandashly Decl. Ex. 18 at App.

19 338; Ex. 88 at App. 1147-49. Schill signed the agreement on behalf of XI Family, LP ("XI

Family"), a Delaware Limited Partnership, which is a Member of and holds a 50% ownership

interest in AH Media. Dandashly Decl. Ex. 18 at App. 336-38; Ex. 21 at App. 355. Schill is the

21 Managing Member of XI Management, LLC, a Delaware limited liability company, which is the

General Partner of XI Family. Dandashly Decl. Ex. 18 at App. 336-38. Schill is also the sole

22 Authorized Person for Relief Defendant Zanelo, LLC ("Zanelo"). Dandashly Decl. Ex. 22 at

App. 358-59, Ex. 24 at App. 371.

^ Dandashly Decl. ^ 161 at App. 311 and Ex. 87 at App. 1133-45.

24 '® Dandashly Decl. Ex. 19 at App. 340-46.

" Dandashly | Decl. 170 at App. 314.

25 '2 Dandashly Decl. Exs. 18 & 19 at App. 336-46. Block also refers to himself as a "Partner" of

2^ AH Media Group. Dandashly Decl. Ex. 86 at App. 1117-31.

Dandashly Decl. Ex. 56 at App. 831 (identifying Block as signor of First National Bank

27 account x 1128). First National Bank account x 1128 is held in the name of AH Media Group.

Van Wazer Decl. 3 at App. 198.

28

Memo ISO ExParte Appl. for TRO 4

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1 55 bank accounts in the name of various Wyoming LLCs that are part of the AH Media

2 Enterprise, and he is listed as holding corporate positions in many of the Wyoming LLCs.''^

3 Block owns 50 percent of AH Media through HBI.'^ Block has received over $3.18 million from

4 AH Media

5 Defendant Alan Schill has the authority to control AH Media through XI Family, which

6 holds a 50 percent ownership interest in AH Media.'^ Schill signed AH Media's Operating

7 Agreement on behalf of XI Family and XI Management, LLC ("XI Management").'^ AH Media

8 sent Schill at least $1.7 million directly, and Schill's company, Zanelo, LLC, has also received

9 over $2 million from AH Media

10 C. Relief Defendant

11 Zanelo, LLC ("Zanelo") is a Puerto Rico limited liability company organized on October

12 24,2017.^'' Schill is the only authorized person identified in Zanelo's formation documents.^'

13 Bank accounts for the AH Media FNB Account show payments to Zanelo in excess of $2 million

14

15

16

Dandashly Deck 105-06 at App. 298 and Ex. 55 at App. 827-29 (list of LLCs), Ex. 56 at

|g App. 831-33 (signatory on bank accounts), and Ex. 57 at App. 835-88 (example organization

documents showing LLCs for which Block is listed as member and treasurer)

19 See supra

Between April 2016 and March 2019, the AH Media FNB Account transferred approximately

$3.44 million to an HBI bank account and $40,601 to Block's personal bank account. Van

21 Wazer Deck ^ 10 at App. 201-02 and Exs. 4 & 7 at App. 212-17, 226. HBI transferred $300,000

to the AH Media FNB Account between April 2016 and September 2016, so the net to HBI is

22 slightly over $3.18. Id. n.3 at App. 202

Alan Schill is the Managing Member of XI Management, LLC, which is the General Partner of

XI Family, LP, which, in turn, has a 50% interest in AH Media Group. Dandashly Deck Ex. 18

24 at App. 336-38

25 '9 Dgg, ^ 10 at ^pp 201-02, Exs. 5 & 6 at App. 219-24.

Zanelo has provided the following addresses relating to its operation: 875 Carr 693, Suite 105,

Dorado, Puerto Rico and 7 Calle Manuel Rodriguez Sierra, Apartment 6, San Juan, Puerto Rico

27 00907. Dandashly Deck Exs. 22 & 23 at App. 357-69

Van Wazer Deck Ex. 22 at App. 357-60

28

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that are traceable to Defendants' deceptive practices^^ and to which Zaneio has no legitimate

2 claim.

3 III. DEFENDANTS' ILLEGAL BUSINESS PRACTICES

4 A. Defendants' Online Marketing Is Deceptive and Unfair

Defendants' entire business model is based on deception. Defendants lure consumers

6 into providing their billing information with false promises of a "$0.00" trial product for which

7 consumers purportedly will pay only a nominal shipping and handling fee. Defendants fail to

8 disclose that consumers' accounts will be charged the full price of the trial product after two

9 weeks, or that Defendants will continue to be charged the full price of the product each month

until consumers cancel. Defendants have bilked consumers out of over $42 million using this

11 deceptive scheme.

12 I. Each Step in the Purchase Flow of Defendants' Websites Is Designed

13 to Mislead Consumers

14 Defendants have marketed a number of different products, including skin creams and

dietary supplements.^^ Consumers initially encounter online advertisements for these products in

16 a variety of ways. Many consumers come across the advertisements on social media.^'* Others

17 see the advertisements when browsing the Internet, often as part of an article that includes an

18

19

21

22

23

24

22 Dandashly Deck ^ 10 at App. 201 -02 and Ex. 5 at App. 219-20.

Dandashly Deck ^ 27 at App. 279.

Declaration of Paula Consolini, consumer witness ("Consolini Deck") H 4 at App. 18;

27 Declaration of Lynette Langere Monchinski, consumer witness ("Langere Deck") t 3 at App. 93;

Declaration of Bernadette Ramirez, consumer witness ("Ramirez Deck") ]f 3 at App. 160

28

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alleged celebrity endorsement for the product.^^ Many of the advertisements promote a free trial

of Defendants' products.^*^

Consumers who click on the advertisements are automatically directed to Defendants'

websites to order their trials.^^ Defendants' websites contain a series of deceptive pages,

including: (a) landing pages that deceptively offer free trial products; (b) payment pages that

reinforce the misrepresentation that the trials are free and do not impose further obligations on

consumers; (c) upsell pages with "COMPLETE CHECKOUT" buttons that dupe consumers into

additional unauthorized continuity plans; and (d) summary pages that again represent that the

consumer is only obligated to pay a nominal shipping and handling fee for the trial.

a. The Landing Page

The ordering process is typically a multiple-step process, divided into several webpages.

The first webpage (the "landing page") consists of a long, splashy advertisement for the product,

with boxes where consumers can enter their contact information. Many of Defendants' websites

also create a sense of urgency by representing that supplies are limited and that consumers need

to act quickly, such as:^^

Declaration of Tracy Crump, consumer witness ("Crump Deck") 3 at App. 46 ("I was

browsing the internet when I saw an advertisement about TV celebrity Joanna Gaines selling a

set of skin cream products."); Declaration of Jean Hisle, consumer witness ("Hisle Deck") ^ 3 at

App. 67 ("The ad said that Tone Fire Garcinia had been on Shark Tank"); Declaration of Diane

Putterman ("Putterman Deck") ^ 2 at App. 149 ("The ad said that Christie Brinkley had endorsed

the product"); Dandashly Deck f 74 at App. 290, Ex. 42 at App. 553; Declaration of David

Gonzalez, FTC Investigator ("Gonzalez Deck"), H 6 at App. 236, Ex. 9 at App. 240.

Consolini Deck ^ 4 at App. 18; Hisle Deck f 3 at App. 67; Langere Deck 14 at App. 93;

Putterman Deck If 2 at App. 149.

Dandashly Deck 50-55 at App. 283-84, Ex. 36 at App. 517; Gonzalez Deck 4-9 at App.

235-36, Ex. 9 at App. 240; Consolini Deck 4-5 at App. 18; Crump Deck 3-4 at App, 46;

Hisle Deck 3-4 at App. 67; Langere Deck 3-4 at App. 93; Declaration of Kim Millikan,

consumer witness ("Millikan Deck") 2-3 at App. 112; Putterman Deck 2-3 at App. 149.

Gonzalez Deck Ex. 9-10 at App. 240-46; Dandashly Deck Ex. 36 at App. 517; Ex. 46 at App.

574-78, 588-92, 600-04, 610-14, 624-28, 638-42.

Memo ISO ExParte Appl. for TRO

Case 3:19-cv-04022-JD Document 13 Filed 07/12/19 Page 13 of 53 
 

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• ATTENTION: Due to high demand from recent media coverage we can no longer

guarantee supply. As of [today's date] we currently have product in-stock and

will ship within 24 hours of purchase.

• ONLY [#] TRIALS AVAILABLE NOW!

• Limit 1 Trial per Customer

Don't get left behind!

• [#] others are viewing this offer right now - [countdown clock]

The top of a landing page for one of Defendants' products, AmbroSina Skin Cream, is

included here as an example in Figure 1 below (the full landing page-^ contains many pages of

busy content). A prominent bright pink graphic with large, capital letters, states in the middle of

the page: "HURRY! CLAIM YOUR TRIAL TODAY."

FIGURE 1^"

t tMlvTJiT OTcr

A>«btk icirSteudmciOnty

TELL US WHERE TO SEND

YOUR TRIAL BOniE AmbroSina

ACHiEVf

VISIBLY

YOUNGER

LOOKING SKIN

Brighten Shin'eAppearence

Reslwe Your Radiant. Firmor Skin

Smooth Lcoh of Stubborn Fna lines

I Ml rl

Amsrc

uaiti

FEAI URED Th«Scisnce Behind AmbroSina SKm Deam

Gonzalez Dec!. Exs. 9-10 at App. 240-46.

Gonzalez Dec!. Ex. 10 at App. 242.

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As is typical of Defendants' landing pages, this one contains no visible disclosure

informing consumers that the trial is, in fact, not free, or explaining the complicated terms and

conditions of purchase. Instead, the terms and conditions are buried in a separate, multi-page

terms and conditions pop-up box accessible only by a small hyperlink at the bottom of a lengthy

webpage, requiring the consumer to scroll the full length of the webpage to locate the

hyperlink.^^

b. The Payment Page

After consumers enter their contact information on the landing page and click a "RUSH

MY TRIAL" or "ORDER NOW!" button, they are redirected to a second page (the "payment

page").^"* Figure 2 below is an example of the payment page for AmbroSina Skin Cream. The

payment pages typically state that the consumer will "Just pay a small shipping fee."^^ The

payment pages also request consumers' debit or credit card information specifically to cover the

shipping and handling charge. Significantly, the payment pages generally list the "Price" of the

trial product^^ as "$0.00," and state in large type that the consumer's "TOTAL" is equal to the

cost of the shipping and handling fee, often $4.99.^^

Dandashly Decl. Ex. 46 at App. 574-76, 588-90, 600-01, 610-12, 624-26, 638-40; Consolini

Decl. 16 at App. 18; Crump Decl. f 4 at App. 46; Hisle Decl. 114 at App. 67; Millikan Decl. H 3

at App. 112; Putterman Decl. H 3 at App. 149; Ramirez Decl. H 4 at App. 160.

Dandashly Decl. Ex. 46 at App. 576, 590, 601, 612, 626, 640.

See supra, n. 28; see also Dandashly Decl. Ex. 49 at 758-800 (text of terms pop-up).

Gonzalez Decl. Ex. 10 at App. 243; Dandashly Decl. Ex. 36 at App. 517 ; Ex. 46 at App. 578,

592,604,614,628,642.

Some of Defendants' payment pages use a variant of this text, "Just Pay for Shipping," in bold

font.

Many of Defendants' payment pages state that consumers will receive a 30-day supply of the

trial product. See Dandashly Decl. Ex. 46 at App. 578, 592, 614, 628, 642. There are also some

instances where the stated amount of the supply varies - e.g. a 45-day supply. Id. at App. 604.

Dandashly Decl. Ex. 46 at App. 578, 592, 604, 614, 628, 642; Gonzalez Decl. Ex. 10 at App.

243; Dandashly Decl. Ex. 36 at App. 517.

Memo ISO ExParte Appl. for TRO

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Figure 238

AmbroSina PiW&H <MD£A

9 o*h«rs v*w<4f!g ihis oPtf rghl rtcm 04:51

'-•tM* cS:>uc. You're cakinj>yeur firrt step towards • better sidn. Act new

so you don't miss out on this offMl

C rrw? irfiatirv • LOW CTOCt ^ "i? c " •>

fi^ i V**^ i' <> • T

• c ord?i 15 ,«Tc »f"i f NtonMrr *41*W

Ambrosiiu Slon Cream

Price:

it- k Hindojf

Uz fi TOTS..

FecEx ^ ^

5Q.Q0

$4'3^

VtKTEOSTBtS

"otni umMl •

CONFIRM YOUR EXCLUSIVE TRIAL NOW!

mwnaiCKaamOntrs

AvaettBUSResdamOWF

FINAL STEP PAYMENT INFORMAriON

h /Our i^'ni ^ at

MLT Tveerj

eVctUI Sct-iriactf Curiao'

MastetCSKi. Verifkdby

SeoiKDdt yiSA

ttvt I Mf<ite»eCuO' t tP-r^ A

Unfortunately, consumers who enter their billing information and click a button to

"COMPLETE CHECKOUT" or "RUSH MY TRIAL" do not receive a trial product for the

shipping cost of $4.99 without further obligation. Instead, approximately 14 days later.

Defendants charge consumers the full price of the trial product - typically about $90.""^

Gonzalez Deck Ex. 10 at App. 243.

Dandashly Deck Ex. 46 at App. 578, 592, 604, 614, 628, 642.

Gonzalez Deck 13, 16, 18 at App. 237-38, Exs. 12 & 13 at App. 251-55 ($4.99 charge on

Feb. 8, 2019; $89.92 charge on Feb. 25, 2019; $94.91 charge on Mar. 25, 2019); Dandashly

Deck TITI 65-68 at App. 288-89, Ex. 40 at App. 533 ($4.99 charge on May 16, 2018; $89.92

charge on June 1, 2018); Carey Deck 2-6 at App. 1; Consolini Deck 7, 9-10 at App. 18-19,

Att. B at App. 24-25; Crump Deck 7-8 at App. 46-47, Att. B at App. 52; Hisle Deck 5, 8 at

App. 67-68, Att. C at App. 75; Langere Deck T[$ 4, 6, 8 at App. 93-94, Att. B at App. 104-07;

Millikan Deck 5, 7, 11, 15, 23-24 at App. 112-15, Atts. B-E at App. 127-134; Putterman Deck

Memo ISO ExParte Appl. for TRO 10

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/^\

Defendants also enroll consumers in a continuity program, sending additional shipments of the

product each month and charging consumers'accounts the full price of each product shipped

until consumers are able to cancel, dispute their charges, or otherwise halt payments.'*'

In contrast to Defendant's splashy graphics urging consumers to "RUSH MY TRIAL"

and assurances that consumers will pay only a shipping and handling fee. Defendants hide any

disclosures about the true cost of the trial product. Specifically, Defendants typically bury this

information behind an unassuming hyperlink: to get information about the full price of the

product and the continuity plan, a consumer would have to scroll all the way to the bottom of the

page (through numerous bright, large text and graphics extolling the purported benefits of the

product), click on a tiny "Terms" hyperlink, and then scroll through small-font legalese within a

pop-up window.'*^ On some websites. Defendants disclose basic information about pricing and

the continuity plan in barely legible faint gray text near the bottom of the webpage, but even on

those sites this language might appear only after consumers have already completed their

orders.'*^

c. The Upsell Pages

After consumers enter their credit or debit card information on the payment page of one

of Defendants' websites and click a "RUSH MY TRIAL" or "COMPLETE CHECKOUT"

button,'*'* they are directed to a third page (the "upsell page") with further misrepresentations

4, 6 at App. 149, Att. 1 at App. 153; Ramirez Deck 7, 12 at App. 161, Att. A at App. 165-

66, Att. E at App. 176.

'*' Gonzalez Deck ^ 18 at App. 238, Ex. 13 at App. 255; Langere Deck 4-15 at App. 93-95,

Att. B at App. 104-07; Millikan Deck If 5, 7, 11, 15, 18-24, 27 at App. 112-16, Atts. B-E at

App. 122-34.

'*^ See, e.g., Gonzalez Deck Exs. 9 at App. 240; Dandashly Deck Ex. 46 at App. 588-90.

'*^ For a number of websites, the terms appear only on the order summary page, after the

consumer has completed the order. Dandashly Deck Ex. 46 at App. 586, 622, 636; Ex. 36 at

App. 517. In limited cases, the terms appear in very small font on the payment page. Id. Ex. 46

at App. 642.

'*'* Dandashly Deck Ex. 46 at App. 578, 592, 604, 614, 628, 642,

Memo ISO ExParte Appl. for TRO 11

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aimed at tricking consumers into ordering an additional bogus "triai.'"*^ Defendants' upsell

pages are designed to appear as the final step in ordering the original product when, in fact,

clicking through an upsell page has the effect of adding an additional product and associated

continuity plan to the order/^

As shown in Figure 3 below, this page often tells consumers, "Wait! Your Order Is Not

Complete!" and includes an image of a coupon for a free trial of an additional product, promising

a "FREE TRIAL" for just the small cost of shipping and handling. Below the coupon is a

brightly colored button prominently labeled "COMPLETE CHECKOUT."

Figure 3^*^

AmbroSina -o iMIPHN&INfO IIU&H OHOfR

vwn VOUR OI»B^ IS NOT OMPlfTE

t 1)1] i.r«ru ir-)]]- u •• " r -S)-" j:;. jm.n •!«]: E)« Se-«>r0 Lhiiiii;.! Supplier *v,irloil«

AMPLIFY YOUR RESULTS

with AMBROSINA EYE SERUM

? Add your FREE TRIAL bottle ^ JuM|Mysbippingof$4.97

yV j

a COHPLETE CHECKOUT

mavOH Menliedt, smn<oo» \FisA

3f- eitiMMuMnsiiiuw

Gonzalez Deck Ex. 10 at App. 244-45; Dandashly Deck Ex. 36 at App. 517, Ex. 46 at App.

580-85, 594-97, 606-07, 616-21, 630-35, 644-49.

Ramirez Deck T[T[ 5-7, 12 at App. 160-62; Dandashly Deck Ex. 89 at App. 1153, 1172, 1246,

1250 (consumer complaints nos. 79173828, 94011361,91117719, 94009881).

Gonzalez Deck Ex. 10 at App. 244; Dandashly Deck Ex. 46 at App. 580, 594, 616, 630, 644.

Gonzalez Deck Ex. 10 at App. 244.

Memo ISO ExParte Ap?l. for TRO 12

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But rather than simply completing the consumer's order of the original trial product,

clicking the "COMPLETE CHECKOUT" button adds the advertised upsell product to the

consumer's order.'^^ As with the original product, Defendants charge consumers the nominal

shipping and handling fee for the additional product immediately, and then charge consumers the

full price of the additional trial product - also around $90 - after two weeks.^® Defendants also

enroll consumers in a second continuity program that includes monthly shipments of, and

charges for, the second product.^'

As with the main free trial offer. Defendants bury the disclosures related to the upsell

product's full price and associated continuity plan. Consumers can find the terms of the upsell

offer, if at all, only by clicking on a small "Terms" hyperlink at the bottom of the upsell page,

which launches a pop-up text box with pages of dense text.^^ Consumers are unlikely to see this

language, and thus may not understand that, when they click "COMPLETE CHECKOUT,"

Defendants will send and bill them for an additional product.^^ The only way consumers can

avoid the additional charges is to find and click on another faint hyperlink, such as the one in

Figure 3 stating "No, Thanks. I decline the offer."^'^ Regardless of whether consumers find and

click this link or click "COMPLETE CHEKOUT," Defendants then redirect them to a series of

additional promotional web pages that make similar deceptive offers for other products.^^

Ramirez Decl, 5-7, 12 at App. 160-62; Dandashly Deck Ex. 89 at App. 1153, 1172, 1246,

1250 (consumer complaints nos. 79173828, 94009881, 91117719, 94011361).

Carey Decl. 2-6, 15 at App. 1 & 3; Consolini Decl. 5, 7,9-10 at App. 18-19; Crump

Decl. 3-8 at App. 46-47; Hisle Decl. 4-5, 8 at App. 67-68.

See supra, n. 50.

Gonzalez Decl. Ex. 10 at App. 244-45; Dandashly Decl. Ex. 36 at App. 517, Ex. 46 at App.

580-85, 594-97, 606-07, 616-21, 630-35, 644-49.

See supra, nn. 49 & 50.

Gonzalez Decl. Ex. 10 at App. 244-45; Dandashly Decl. Ex. 36 at App. 517, Ex. 46 at App.

580-85, 594-97, 606-07, 616-21, 630-35, 644-49.

The previous figures in this Memorandum show screenshots from an undercover purchase of

AmbroSina skin cream. The order summary page for the AmbroSina skin cream purchase

contained no visible terms on the page; terms were only available by clicking on a hyperlink at

the bottom of the webpage. Figure 4 displays an image captured from a separate undercover

purchase of Adelina skin cream. The Adelina order summary page did contain a disclosure, so

Memo ISO ExParte Appl. for TRO 13

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d. The Order Summary Pages

After consumers navigate through the upsell pages, Defendants direct them to a webpage

listing the items ordered and associated charges (the "order summary page"). Defendants' order

summary pages list only the price of the shipping and handling for the ordered trial products.^^

They list the price of the product as "$0.00," and the "Grand Total" reflects only the price of the

shipping and handling fees.^^

For example. Figure 4 below depicts the order summary page during a purchase of

Adelina skin cream.^^ The Adelina skin cream is listed as having a "SO.OO" price and the "Grand

Total" is $4.99, the cost of shipping and handling. Near the bottom of the page in Figure 4,

below a summary of the cost, billing, and shipping information for the order, a block of faint

grey text reads:

By submitting, you consent to having read and agreed to our Terms & Conditions

and after your 14 day trial period has expired, being enrolled in our membership

program is $89.92 plus shipping per month. You can cancel any time by calling

877-202-7581.

This text is the smallest, least prominent, and least distinct font of the order summary page. As a

result, consumers may not even see this language, let alone read it.^^

we provide it here for the Court's reference. Some of the upsell pages offer other skin care or

dietary supplement products, or various magazine subscriptions. See supra at n.50.

Gonzalez Decl. Ex. 10 at App. 246; Dandashly Decl. Ex. 36 at App. 517.

''Id.

Dandashly Decl. Ex. 36 at App. 517.

Carey Decl. H 2 at App. 1; Consolini Decl. ^ 6 at App. 18 ("Although I looked carefully, I did

not see any disclosure stating that 1 would receive additional shipments beyond the free trials, or

that 1 would be responsible for any additional costs or entered into a subscription for either

product."); Crump Decl. ^ 4 at App. 46 ("The website for Amabella stated that I only had to pay

$4.99 and $4.97 to try the Amabella Skin Cream and Amabella Eye Serum. 1 have a personal

policy of never accepting trial offers where 1 would automatically be enrolled in an ongoing

subscription; therefore, I always look for terms and conditions before 1 purchase anything that is

a 'trial' offer. I reviewed the Amabella website closely to ensure that it was only a one-time

purchase and not a trial."); Hisle Decl. ^ 4 at App. 67; Langere Decl. 14 at App. 93; Millikan

Decl. f 3 at App. 112; Putterman Decl. 3 at App. 149; Ramirez Decl. ^ 4 at App. 160.

Memo ISO ExParte Appl. for TRO 14

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Figure 460

'af/irt -O- SHEPPING INFO FINISH ORDER

THANK YOU FOR YOUR PURCHASE

Wf ri<»f ycii rojfry Ihf £>»-H.r'. i-kin f r»-,ir

'fui fdc li >-;c.«d,ie-JI0 ai, 20U

• 1

1 llenis Ordered 1

Product Price Qty. Amount

AOetmaSkin CrBam so 00 1 $000

hJbTotal: $0 00

3AH; $4 99

Grand Total: $4 99

Dtlling Information

Shipping Information

•A c&fliSrmaicn email has been sent io|

l^tagazine Customer Siwon uWr57yf3C

Tnw5 I »«fr*c"ac I cot.-iir-5

Understandably, many consumers who went through this process to order trials of

Defendants' products came away with the impression that they would be charged no more than

the shipping and handling fee for the product.^' The websites create and reinforce this

impression by calling the offers "TRIALS" and/or showing the "TOTAL" cost as "$0.00."^^

Dandashiy Dec!. Ex. 36 at 517.

Carey Decl. t 2 at App. 1; Consolini Decl. t 6 at App. 18; Crump Dec!, 4-5 at App. 46;

Hisle Decl. 14 at App. 67; Langere Decl. H 4 at App. 93; Millikan Decl. t 2 at App. 112;

Putterman Decl. H 3 at App. 149; Ramirez Dec!. ^ 4 at App. 160; Dandashiy Decl. 167-69 at

App. 312-14.

Gonzalez Decl. Ex. 10 at App. 242-46; Dandashiy Decl. Ex. 36 at App. 517, Ex. 46 at App.

574-651.

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Defendants' order summary pages, as illustrated by Figure 4 above, reinforce this idea by listing

the "Price" as "$0.00" and the "Grand Total" of the items ordered as the cost of shipping and

handling.^^ Defendants sometimes send consumers confirmation emails after consumers request

the trial product, but even these emails fail to disclose any costs other than the shipping and

handling fees, and again fail to disclose the terms of the trial order.^''

2. Defendants Do Not Adequately Disclose Their Onerous Return,

Cancellation, and Refund Policies and Practices

Some of Defendants' websites include express representations that ordering the trial

carries no commitments and imply that cancellation is easy.^^ In reality. Defendants

significantly restrict consumers' abilities to obtain refunds and even to cancel the ongoing

shipments. The undisclosed or poorly-disclosed restrictions on returns, cancellations, and

refunds include:

• requiring consumers to call to cancel orders before the expiration of the trial period to

avoid being charged the full price of the trial product, thus rendering the purported trial

opportunity illusory;^^

• making the trial period shorter than consumers would reasonably expect because the

stated amount of time the product supply will last (typically 30 days) is longer than the

trial period for the product (14 days), and by starting the trial period on the date of the

order rather than the date consumers receive the products;^^

Defendants sometimes send consumers confirmation emails. Dandashly Decl. ^ 77 at App.

291, Ex. 44 at App. 563-64; Ramirez Decl. 8 at App. 161, Att. B at App. 168-69. In some

instances. Defendants send no such communication. See, e.g., Consolini Decl. 16 at App. 18.

Dandashly Decl. Ex. 46 at App. 604, 642.

App. 19 at Consolini Decl. ^ 12 at App. 19; Hisle Decl. 11-13 at App. 68 & Att. D at 77

(Defendants did not respond to email requests to cancel); Gonzalez Decl. 21-22 at App. 238-

39 & Ex 15 at 268-70; Dandashly Decl. 65-72 at App. 288-90.

Langere Decl. t 7 at App. 94; Dandashly Decl. Ex. 41 at App. 541, Ex. 49 at App. 758-800.

Memo ISO ExParte Appl. for TRO 16

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requiring consumers to call a customer service number in order to cancel or obtain a

2 refund, while making it difficult for consumers to get through to customer service

3 representatives;^^ and

4 • requiring consumers who receive continuity plan shipments to return the product

unopened and at their own expense, and to call Defendants' customer service

6 representatives to obtain a Return Merchandise Authorization before shipping the

7 product, all within 30 days to avoid being charged,

8 Defendants routinely refuse to provide consumers with refunds.TM Even when consumers

9 satisfy Defendants' convoluted rules and return the unopened products to Defendants, many

consumers still are denied refunds.^' Other consumers are promised refunds that never happen.TM

11 Even consumers who are offered refunds are typically only offered partial refunds, instead of full

12 refunds.'^ Some consumers report that Defendants continue to charge them for additional

13 products, even after they request cancellation, sometimes necessitating that consumers cancel

14 their credit cards in order to avoid additional charges.TM

In light of the difficulties described above, many consumers resort to calling their credit

16 card companies to dispute Defendants' charges. Defendants' high credit card chargeback rates

17

18

Dandashly Decl. Ex. 49 at App. 758-800. Numerous consumers report difficulty contacting

19 Defendants' customer service representatives. For example, consumers have trouble finding a

23

26

working telephone number for Defendants' customer representatives or, when consumers do

manage to find a number, they only reach a voicemail message or are placed on hold for

21 prolonged periods of time. See, e.g., Consolini Decl. 11-12 at App. 19-20; Crump Decl. 10-

12 at App. 47; Hisle Decl. 12-13 at App. 68-69; Millikan Decl. 9-10, 19-22, 32 at App.

22 113-16.

Consolini Decl. ^ 13 at App. 20; Langere Decl. t 6 at App. 93; Gonzalez Decl. Ex. 15 at App.

268-70; Dandashly Decl. Ex. 49 at App. 758-800.

24 TM Carey Decl. 8-9 at App. 1-2; Millikan Decl. ^ 20 at App. 114-15; Putterman Decl. T| 7 at

App. 149-50; Ramirez Decl. 15-17 at App. 162.

See, e.g., Millikan Decl. 19-23 at App. 114-15.

TM See, e.g., Putterman Decl.f^ 8-9 at App. 150.

TM See, e.g.. Crump Decl. 17-18 at App. 48; Langere Decl. H 8 at App. 94.

27 TM Carey Decl. 116 at App. 3; Langere Decl. ^ 6, 8, 14 at App. 93-94; Millikan Decl. 27-28

at App. 115-16.

28

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provide more evidence that consumers were unaware they were going to be charged for the

2 products. In the United States, a chargeback rate greater than 1% is considered excessive. FTC

3 V. Commerce Planet, Inc., 878 F. Supp. 2d 1048, 1075 (C.D. Cal. 2012), aff'd in relevant part by

4 642 F. App'x 680 (9th Cir. 2016), vacated and remanded on other grounds 815 F.3d 593 (9th

Cir. 2016). The Wyoming LLCs often had chargeback rates well in excess of the average,

6 sometimes exceeding 10%.^^ In many instances, card networks terminated Defendants'

7 merchant accounts for violations of standards.

8 B. Defendants' Perpetuated Their Scam Through Illegal Credit Card

9 Laundering and Fraudulent Chargeback Dispute Practices

Defendants cannot maintain their flow of online sales without access to a means through

11 which to process charges to consumers' credit and debit cards. To ensure such access,

12 Defendants process credit and debit card charges through numerous different accounts opened in

13 the names of the Wyoming LLCs, each of which is fronted by one of the shell owners recruited

14 by Defendants to act as the principals on paper. Defendants also retain consumer funds and

delay detection of their high chargeback rates (and subsequent possible merchant account

16 termination) by disputing consumers' chargeback requests using fraudulent documentation

17 1. Credit Card Processing Industry Background

18 A company that sells products (a "merchant") supplies goods or services to a consumer (a

19 "cardholder"). To accept credit and debit card payments from the cardholder, merchants enter

21

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22 TWP Investments (MID 3899000003483102) has a chargeback rate of 10.36%, KA Ketterlin

(MID 3899000003198254) has a chargeback rate of 7.53%, GALB Investments (MID

3899000003345103) has a chargeback rate of 10.45%, and Piaz Investments (MID

24 3899000003366927) has a chargeback rate of 7.89%. Dandashly Decl. ^ 174 at App. 315, Ex. 91

at App. 1270-1352 (chargeback summary records),

At least 28 of Defendants' merchant accounts were flagged by MasterCard as "MATCH" hits,

("Member Alert to Control High Risk Merchants" ("MATCH") is a system created by

MasterCard as a way to database terminated merchants.) Each of these merchant accounts were

27 included on the MATCH list for "VIOLATION OF STANDARDS." Dandashly Decl.^ 175 at

App. 316, Ex. 92 at App. 1354-81

28

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into a contract (a "merchant services agreement" or "MSA") and open a merchant account with a

bank (an "acquirer") that is a member of a credit card network such as Visa or MasterCards^

Credit card networks provide a system for exchanging pajonents by establishing rules for credit

card transactions; acquirers agree to follow these rules.

The credit card networks prohibit "credit card laundering," also called "transaction

laundering," "factoring," and "aggregation," which:

occurs when a merchant who has entered into an MSA processes card transactions for the

supply of goods or services by a third party who has not entered into an MSA.... In such

a case, goods and services are being supplied by an entity which has not been scrutinized

by the merchant acquirer: and often this will be precisely because the supplier does not

want to be subject to scrutiny. [Laundering] can be a cloak for transactions which are

illegal and with which the merchant acquirer would not wish to be associated if it knew

of them: it would not enter into an MSA with such a supplier.^^

Laundering "is regarded as a risk to the integrity of the system as a whole."^^ To manage that

risk, it is critical that "the transactions processed by th[e] merchant should be settled by the

merchant acquirer into a bank account in that merchant's name."^®

Unscrupulous internet merchants frequently engage in credit card laundering by using

shell companies or shell owners to obtain merchant accounts, and numerous federal courts have

entered judgments—civil and criminal—against them.^' By laundering charges through shell

Paycom Billing Servs. v. MasterCardInt'l, Inc., 467 F.3d 283 at 285-86 (2d Cir. 2006)

(providing background on credit card payment processing industry).

Lancore Ser\'s. Ltd., No. [2009] EWCA Civ. 752, 2009 WL 2173222 (UK).

Id. (internal citations omitted).

Id. (internal citations omitted).

See, e.g. United States v. Johnson, 731 F. App'x 638, 642-43 (10th Cir. Apr. 19, 2018)

(affirming conviction for making false statements, but reversing and remanding for resentencing)

(describing "strategy... to set up multiple merchant accounts in names other than" the true

principal's, to ensure continued access to merchant accounts even when true merchant was

unable to secure merchant accounts due to history of excessive chargebacks); Prelim. Inj. Order,

FTCv. Johnson, No. 2:10cv-02203-RLH-GWF (D. Nev. Feb. 10, 2011), ECF No. 130 (ordering

prelim, inj. against defendants who used shell companies to secure merchant accounts as part of

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companies, merchants and their real principals are able to process more sales than otherwise

allowed under sales volume caps imposed by banks on individual merchant accounts. Such

merchants are also able to ensure that if one merchant account is shut down due to excessive

chargebacks, others will continue to process consumers' payments.^^ In addition, individuals

who may have been previously flagged by a bank or credit card association for engaging in

unscrupulous practices may nonetheless be able to access the payment networks by using the

shell owners to conceal their identities.

2. Defendants' Credit Card Laundering Practices

The Wyoming LLCs, referenced in Exhibit B to the Complaint, are shell companies.^^

AH Media is at the center of the operations of the Wyoming LLCs: AH Media registered the

Wyoming LLC's websites,^'* Block paid to establish the corporate entities (at the time using an

AH Media email address to do so) in Wyoming,^^ and Block registered the Wyoming LLCs as

foreign entities in Colorado.^^ The Wyoming LLCs often share the same corporate addresses,

and typically list Block as their corporate officer.®^ Moreover, the Wyoming LLCs' bank

accounts divert funds to the AH Media FNB Account, which then pays the operating expenses of

deceptive rebilling scheme); see also FTC v. Triangle Media Corp., No. 18cvl388-MMA (NLS),

2018 U.S. Dist. LEXIS 144599 (S.D. Cal. Aug. 24, 2018) (granting prelim, inj. for rebilling

issues and quoting receiver's finding that "Defendants have built a network of merchant accounts

by forming shell companies and convincing ordinary people, for a minimum of $500 per month,

to act as the 'front' (aka 'signer' or 'nominee') for the shell company and a merchant account in

its name.").

See United States v. Johnson, 732 F. App'x at 642-43 (describing credit card laundering as

"strategy" that enabled defendants to continue to access credit card networks after true merchant

was unable to acquire new merchant accounts).

Dandashly Decl.^t 101-18, 147-55 at App. 297-301, 308-09.

Dandashly Decl. Ex. 59 at App. 849-55 (example set of Wyoming LLCs).

Dandashly Decl. 37-42 at App. 281, 92-93 at App. 294 (dummy site information), Ex. 52

App. 808-13 (list showing LLCs associated with dummy sites).

Dandashly Decl. ^ 114 at App. 300, Ex. 62 at App. 869-80 (payment records for LLCs).

Dandashly Decl. 105-06 at App. 298, Ex. 55 at 827-29 (list of LLCs with addresses), Ex. 58

at App. 840-47 (example LLC).

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the AH Media Enterprise.^^ Block is the sole authorized signor for each of the Wyoming LLCs'

bank accounts.^^

Similarly, the individuals behind each of the Wyoming LLCs purport to be principals

and/or owners,^® but they are merely shell owners. For example, they do not control the

Wyoming LLCs' bank accounts.^' Moreover, they receive only approximately 1% of the

monthly revenue of their respective shell companies, and that amount is paid to them from the

AH Media Group FNB Account.^^

The AH Media Enterprise used the Wyoming LLCs to obtain merchant accounts, which

then allowed the enterprise to accept credit and debit card payments from consumers. Numerous

merchant account applications were submitted to multiple acquirers in the names of the

Wyoming LLCs.^^ The applications include false representations that the Wyoming LLCs are

the merchants and that the shell owners are the merchants' principals.^'^ These representations

are false because the true seller of each of these products is AH Media Group, with Block and

Schill as its principals. AH Media Group pays all of the expenses related to the sales of the

products and ultimately realizes the resulting profits.^^ Block exercises control over the

Wyoming LLCs through, among other things, his authority over the Wyoming LLCs' bank

Van Wazer Deck ^ 9 at App. 201, Ex. 3 at App. 209-10; Dandashly Deck 101-18, 147-55 at

App. 297-301,308-09

Dandashly Deck ^ 104 at App. 297, Ex. 56 at App. 831-33.

Dandashly Deck 105-06, 120 at App. 298, 301, Ex. 55 at App. 827-29, Ex. 57 at App. 835-

38, Ex. 67 at App. 897-916.

Dandashly Deck t 104 at App. 297, Ex. 56 at App. 831-33.

Dandashly Deck 158-59 at App. 310, Ex. 85 at App. 1104-15; see also Van Wazer Deck

Ex. 8 at App. 228-34 (showing payments to shell owners).

Dandashly Deck 124-25 at App. 302-03, Ex. 79 at App. 958-65.

See Dandashly Deck 102-118 at App. 297-301, Ex. 67 at App. 898-916 (example merchant

applications for shell companies); see also Dandashly Deck ^ 149 (almost all money from shell

companies flowed into AH Media).

Dandashly Deck ^n} 154-46 at App. 309-10.

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accounts.^^ The identification of the Wyoming LLCs on the merchant accounts merely serves to

2 obscure the fact that AH Media Group, and its principals, are the sellers of the products.

3 In their applications for merchant accounts. Defendants provide fake product names and

4 . reference fake "dummy" websites that they claim they use to sell their products.^^ The real

5 websites that consumers encounter advertise products with different brand names and differ

6 significantly from the dummy websites.^^

7 For example, the FTC conducted an undercover order of a trial of Defendants' product

8 Adelina Skin Cream from tryadelinaskin.com.^^ After the FTC placed its order, the FTC

9 undercover credit card was charged using the merchant descriptor

10 "KETTERLINCRM8442434364."'®° This billing descriptor matches the "DBA" field on the

11 Merchant Processing Application ("MPA") for the Wyoming company KA Ketterlin.'®' But the

12 KA Ketterlin MPA does not identify Adelina as its product, or tryadelinaskin.com as its business

13 website.'®^ Instead, KA Ketterlin purports to sell a product called "Ketterlin Skin Cream" and to

14 use the website ketterlinskincream.com. The ketterlinskincream.com website, an excerpt of

15 which is shown in Figure 5, contains a much more prominent disclosure about the terms and

16 conditions of the trial order (along with requiring consumers to check a box acknowledging their

17

23

26

1 g Dandashly Decl. f 104 at App. 297, Ex. 56 at App. 831 -33.

Dandashly Decl. 92-100 at App. 294-96, Ex 53 at App. 815-22. Defendants do not use the

19 dummy websites to generate sales and consumers would be unlikely to ever encounter these

websites. They appear to exist simply so that Defendants have something to use in support of the

many merchant applications submitted in the names of the Wyoming LLCs. Unlike the websites

21 Defendants use to generate sales, the dummy websites do not have "Secure Socket Layer

("SSL"), a widely accepted cryptographic protocol designed to provide security when

22 communicating over the internet needed for a website to accept payment credentials and

sensitive cardholder data. Id. 39-42 at App. 281. All of the dummy sites feature unique

products, but they share a nearly identical design and layout, as well as poor production value

24 IfH ^2-100 at App. 294-96

Dandashly Decl. 94-95, 100 at App. 295-96

25 99 Dandashly Decl. 49-52 at App. 283-84, Ex. 36 at App. 517

Dandashly Decl. ^ 121 at App. 302.

Dandashly Decl. 121-22 at App. 302, Ex. 67 at App. 897-900

27 Dandashly Decl. ft 119-22 at App. 301-02,

Dandashly Decl. 121-22 at App. 302, Ex. 68 at App. 918-27.

28

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agreement with the terms) than the tryadelinaskincream.com website, from which the FTC

conducted its undercover order of the trial product.

Figure 5'°^

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Defendants' use of shell companies and fake product names caused confusion among

consumers who ordered trial products from Defendants. Many consumers report that they

were unsure who had charged their credit card, as the billing descriptor did not match the name

of the product they ordered. This also increased some consumers' difficulty in locating a

functioning phone number to contact Defendants to cancel their orders or request a refund.

Ex. 68 at App.918

Crump Deck tH 7-8 at App. 46-47; Hisle Dec!. Ttt 7-9 at App. 67-68.

See, e.g., id

Crump Decl. tTf 10-11 at App. 47; Horsch Decl. 7-11 at App. 83; Millikan Decl. 9-10 at

App. 113.

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Many of Defendants' merchant accounts were shut down, often due to their high

chargeback rates, but by churning through shell companies, shell owners, and merchant

accounts. Defendants were able to delay detection by the payment processing system and

maintain access to consumer payment cards. Defendants' unlawful, continuing access to card

payments has prolonged the scam and expanded the scope of consumer injury. Defendants took

more than $42 million from consumers in a three-year period alone.

3. Defendants' Fraudulent Chargeback Dispute Practices

Defendants not only deceive acquirers in their applications for merchant accounts; they

also make misrepresentations in correspondence with banks when they respond to consumer

chargeback requests. For example. Defendants falsely represent (1) that customers have ordered

products other than the ones customers actually ordered; (2) that customers ordered products

through websites that had more prominent disclosures than the websites that consumers actually

used; and (3) that consumers checked boxes to attest that they agreed to the terms and

conditions."®

For example, consumer witness Tracy Crump ordered a trial of Amabella Skin Cream

and Amabella Eye Serum.'" She expected to pay only about $5 for shipping and handling for

each of the products, and so was surprised when she was later charged an additional nearly $90

for each product."^ Ms. Crump disputed the charge with her bank, only to learn that the bank

ultimately denied her dispute because the company had provided rebuttal documents."^ These

documents contained pictures of websites that Ms. Crump had not visited, featuring the product

Dandashly Decl. 175 at App. 316; see also Ex. 92 at App. 1351 -81 (chargeback data).

Between April 2016 through March 2019, the Wyoming LLCs sent $42,220,591 to the AH

Media FNB Account. Van Wazer Decl. 9 at App. 201, Ex. 3 at 209-10.

"® Carey Decl. 1 13 at App. 2 & Att. D at App. 13-17; Consolini | Decl. 16-17 at App. 20 & Att.

F at App. 42-45; Crump Decl. 13-14 at App. 47-48 & Att. D at App. 57-58; Ramirez Decl.

13-14, 19-20 at App. 162-63 & Att. G at App. 181-93.

''' Crump Decl. 3-5 at App. 46.

' Crump Decl. 3-5, 8 at App. 46.

Crump Decl. 13-14 at App. 47-48.

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'Piaz Skin Cream," not the Amabella products she had ordered and received."'* The Piaz Skin

2 Cream website submitted to the bank by the company contained terms and conditions that were

3 not on the website that Ms. Crump visited when she placed her order. Defendants have even

4 added call-out boxes to highlight these terms on the dummy page they submitted to dispute Ms.

Crump's request for a chargeback, indicating that Defendants are fully aware of how to properly

6 inform consumers about relevant details for their trial offer.

7 IV. THE FTC HAS SHOWN A LIKELIHOOD OF SUCCESS AND THE

8 EQUITIES WEIGH IN FAVOR OF THE REQUESTED RELIEF

9 Defendants' deceptive scheme violates Section 5 of the FTC Act, 15 U.S.C. § 45(a),

Section 4 of ROSCA, 15 U.S.C. § 8403, Section 907(a) of EFTA, 15 U.S.C. § 1693e(a), and

11 Section 1005.10(b) of Regulation E, 12 C.F.R. § 1005.10(b). To prevent any further injury to

12 consumers, the FTC asks that the Court issue the proposed TRO ex parte. The proposed TRO

13 would enjoin Defendants' ongoing law violations and would provide other equitable relief

14 designed to preserve the Court's ability to deliver monetary relief to victims at the conclusion of

the case.

16 A. This Court Has the Authority to Grant the Requested Relief

17 This case is brought under Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) &

18 57(b). Section 13(b) gives district courts authority to grant both a permanent injunction against

19 violations of any provisions of law enforced by the FTC, and "any ancillary relief necessary to

accomplish complete justice." FTC v. H. N. Singer, Inc., 668 F.2d 1107, 1113 (9th Cir. 1982).

21 Ancillary relief may include a non-noticed TRO, a preliminary injunction, an asset freeze, and

22 the appointment of a receiver. M at 1113 ("§ 13(b) provides a basis for an order freezing

23 assets"); FTC v. Affordable Media, LLC, 179 F.3d 1228, 1233-34 (9th Cir. 1999) (affirming

24 preliminary injunction including asset freeze); FTC v. Am. Nat'I Cellular, Inc., 810 F.2d 1511

Crump Decl. 14 at 47-48, Att. D at App. 57-58.

27 '''Id.

28

116 Id.

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(9th Cir. 1987) (upholding appointment of receiver and asset freeze). Section 19 of the FTC Act

also gives district courts jurisdiction to issue preliminary relief, H.N. Singer, 668 F.2d at 1110

("It is clear that under this section [19] a district court has jurisdiction to issue a preliminary

injunction."), and provides "a basis for the order freezing assets." Id. at 1112. Courts in the

Ninth Circuit have found sufficient cause to grant ex parte TROs with asset freezes and

receiverships in FTC cases brought against fraudulent continuity plans, like Defendants'

operation. See, e.g., FTC v. Apex Capital Group, No. 18-cv-09573 (C.D. Cal. Nov. 18, 2018)

(granting ex parte TRO with asset freeze and receivership); FTC v. Cardiff, No. 18-cv-2104,

2018 U.S. Dist. LEXIS 188113 (C.D. Cal. Oct. 10, 2018) (same); FTC v. Triangle Media Corp.,

3:18-cv-1388 (S.D. Cal. June 25, 2018) (same) (Dkt. 11); FTC v. Bunzai Media Grp., Inc., No.

CV15-C4527-GW (PLAx), 2015 U.S. Dist. LEXIS 123139, at *1 (C.D. Cal. Sept. 9, 2015)

(granting preliminary injunction and referencing ex parte TRO with asset freeze and receiver

entered on June 17, 2015); FTC v. RevMountain, LLC, No. 17-cv-02000-APG-GWF (D. Nev.

July 25, 2017) (granting ex parte TRO with asset freeze, in online rebilling scheme) (Dkt. 16).

B. The FTC Meets the Standard for Issuance of a Temporary Restraining

Order

A temporary restraining order is appropriate where the FTC demonstrates (1) a likelihood

of success on the merits, and (2) that the equities weigh in the FTC's favor. FTC v. Affordable

Media, 179 F.3d at 1233 (9th Cir. 1999) (citing FTC v. Warner Comma'ns. Inc., 742 F.2d 1156,

1160 (9th Cir. 1984)). As demonstrated below, the FTC has demonstrated that it will succeed on

the merits of its claims and that the balance of the equities favors injunctive relief.

1. The FTC is Likely to Succeed on the Merits

To demonstrate that it is likely to succeed on the merits, the FTC need only present

evidence that it has "some chance of probable success." FTC v. World Wide Factors, 882 F.2d

344, 347 (9th Cir. 1989) (citation omitted). Here, the overwhelming evidence shows that: (1)

Defendants engage in unfair and deceptive practices that violate Section 5(a) of the FTC Act; (2)

Defendants make unauthorized charges on consumers' credit and debit cards in violation of

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ROSCA; and (3) Defendants make unauthorized deductions from consumers' bank accounts in

violation of EFTA and Regulation E. The evidence also shows that the Individual Defendants

are individually liable for these practices and that Relief Defendant Zanelo should disgorge its

ill-gotten gains. Accordingly, the FTC is likely to succeed on the merits of its claims.

e. Defendants Are Violating the FTC Act

By deceptively obtaining consumers' payment information, charging them without

authorization, laundering those charges through merchant accounts opened in the name of

entities other than AH Media, and disputing chargeback requests using fraudulent

documentation. Defendants have violated Section 5(a) of the FTC Act, which prohibits "unfair or

deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a). Defendants' practices

are both deceptive and unfair.

i. Defendants' Practices Are Deceptive

An act or practice is deceptive if (1) there is a representation, omission, or practice, that

(2) is material, and (3) is likely to mislead consumers acting reasonably under the circumstances.

FTC V. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir. 1994); see FTC v. Cyberspace.com LLC,

453 F.3d 1196, 1199 (9th Cir. 2006). A representation, omission, or practice is material if it

"'involves information that is important to consumers and, hence, [is] likely to affect their choice

of, or conduct regarding, a product.'" FTC v. Cyberspace.com LLC, 453 F.3d 1196, 1201 (9th

Cir. 2006) (quoting/« re Cliff dale Assocs., Inc., 103 F.T.C. 110, 165 (1984)). Express claims, or

deliberately made implied claims, used to induce the purchase of a particular product or service,

are presumed to be material. Pantron I, 33 F.3d at 1096.

In determining whether a practice is likely to mislead consumers acting reasonably, the

Court determines the overall "net impression" that Defendants' representations make upon

consumers. Cyberspace.com, 453 F.3d at 1200. Fineprint disclosures do not overcome a

deceptive net impression. See Cyberspace.com, No. C00-1806L, 2002 U.S. Dist. LEXIS 25564,

*8-9 (W.D. Wash. July 10, 2002) (holding that a fine print disclosure was inadequate to escape

liability), affd, 453 F.3d at 1200 (collecting cases where deception found because fine print

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disclosures were inadequate). Consumer reliance upon express claims is presumptively

reasonable. FTC v. Five-Star Audio Club, Inc., 97 F. Supp. 2d 502, 528 (S.D.N.Y. 2000)

(citation omitted).

Here, Defendants have materially misled consumers about their "risk free" trials. At

every stage. Defendants misrepresent the price of the trial offer. Defendants falsely state that the

consumer will only pay for shipping and handling to receive a trial of Defendants' product. In

reality. Defendants charge consumers the full price, around $90, for a 30- or 45-day supply of the

product. This express representation is presumed to be material, and goes to a critical aspect of

the transaction: price. FTC Policy Statement on Deception., 103 F.T.C. 175, 182 (1983); Kraft,

Inc. V. FTC, 970 F.2d 311, 322 (7th Cir. 1992).

Defendants reinforce this misrepresentation by failing to adequately disclose several

material terms including: (1) the total cost of the product; (2) that consumers will be charged the

full cost of the trial product after 14 days; (3) that the consumer is automatically enrolled in a

continuity program; (4) the total cost of the continuity program shipments; and (5) the frequency

and duration of the recurring charges. Courts in this circuit addressing similar continuity plan

schemes have concluded that failing to disclose this information violates the law. In one case, a

district court found that "information that purchasers would be automatically enrolled in

continuity programs upon their purchase of the [products] is material, and Defendants' failure to

disclose this information to consumers is likely to mislead the consumers acting reasonably

under the circumstances." FTC v. John Beck Amazing Profits, LLC, 865 F. Supp. 2d 1052, 1074

(C.D. Gal. 2012). Another district court, in granting a preliminary injunction, found that

defendants who offered "sample bottles or one-month supplies of a product" likely violated the

law by failing to disclose material terms. FTC v. Health Formulas, LLC, No. 2:14-cv-01649,

2015 U.S. Dist. LEXIS 59387, at *28-29 (D. Nev. May 6, 2015). Describing conduct that

mirrors the Defendants' conduct in this case, the court observed that:

many of Defendants' websites do not adequately disclose that customers will be charged

the full price of the product if they do not cancel within fourteen days despite the fact that

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the offer often states that it is for a month's supply of product, or that customers will be

charged periodically for new shipments of product unless they affirmatively take action

to cancel.

In addition, Defendants misrepresent to consumers who have ordered a trial of

Defendants' product that, by clicking a "COMPLETE CHECKOUT" button, they will merely

finalize their order of the initial trial product. In fact, clicking the "COMPLETE CHECKOUT"

button typically adds another upsell product to the order, resulting in additional charges and

enrollment in yet another continuity program. Further, as with the original product, Defendants

fail to disclose material terms regarding the full price of the upsell product and associated

continuity plan.

ii. Defendants' Practices Are Unfair

An act or practice is unfair under Section 5 of the FTC Act if: (1) it causes, or is likely to

cause, substantial injury to consumers that (2) is not reasonably avoidable by consumers and (3)

is not outweighed by countervailing benefits to consumers or competition. 15 U.S.C. § 45(n).

"Substantial injury" is demonstrated where defendants do a "small harm to a large number of

people." FTC v. Neovi, Inc., 604 F.3d 1150, 1 157-58 (9th Cir. 2010) (quotation marks and

citation omitted). Harm is not reasonably avoidable where consumers could not make a free or

informed choice. Id. at 1158. An act or practice is not outweighed by countervailing benefits to

consumers or competition where it is not accompanied by an increase in services or benefits to

consumers, or by benefits to competition. FTC v. JKPubl'ns, Inc., 99 F. Supp. 2d 1176, 1201

(C.D. Cal. 2000).

Defendants charged consumers without their authorization, taking pains to hide

information about these charges behind tiny hyperlinks and nearly invisible text, often revealing

it only after consumers had already provided their billing information. The practice is unfair.

First, Defendants caused substantial injury, taking at least $42 million from over 100,000

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unsuspecting consumer victims."^ Second, these charges were not reasonably avoidable by

consumers, since Defendants used a host of practices to prevent consumers from realizing that

they would be charged. Neovi, 604 F.3d at 1158; Ideal Fin. Solutions, 2015 U.S. Dist. LEXIS

86348, at *30-31. Further, Defendants made it difficult for consumers to mitigate their injuries,

as Defendants set up roadblocks preventing them from receiving full refunds."^ Finally,

fraudulently separating consumers from their money has no countervailing benefits. See, e.g.,

FTC V. Amazon, No. C14-1038-JCC, 2016 U.S. Dist. LEXIS 55569, at *22 (W.D. Wash. Apr.

26, 2016) (in unauthorized billing case, "cost-benefit prong ... easily satisfied"); FTC v.

Inc21.com, 745 F. Supp. 2d 975, 1004 (N.D. Cal 2010) ("[l]t cannot be said that defendants'

'customers' benefitted at all from services that they never agreed to purchase, didn't know were

being provided to them, and never wanted in the first place."). The cost of Defendants' practice

of charging consumers without authorization, on the other hand, is significant and concrete:

monetary loss to consumers in the millions of dollars. It is well-established that such conduct

constitutes an unfair practice in violation of Section 5 of the FTC Act: "Courts regularly find

unauthorized billing to be unfair." Ideal Fin. Solutions, 2015 U.S. Dist. LEXIS 86348, at *30 &

nn.140-41 (collecting cases).

Van Wazer Decl. T19 at App. 201, Ex. 3 at App. 209-10; Dandashly Decl. ^ 135 at App. 305.

Consumer injury was substantial on an individual level as well; one consumer complained that

she lost nearly $180 to the AH Media Enterprise, which caused substantial hardship as she is a

senior citizen living on a fixed income, and is still payihg off the charges. Horsch Decl. ^ 14 at

App. 84. See also FTC v. Ideal Fin. Solutions, Inc., No. 2:13-cv-00143-JADGWF, 2015 U.S.

Dist. LEXIS 86348, at *30 (D. Nev. June 30, 2015) ("[Tjaking consumers' funds without

authorization causes substantial injury, even when the amount taken is relatively small.").

See supra Sections III.A.2,1I1.B.2, 11I.B.3; see also Ideal Fin. Solutions, 2015 U.S. Dist.

LEXIS 86348, at *31 (finding that defendants violated the FTC Act based on unauthorized

charges where "the consumers' ability to pursue potential avenues toward mitigating the injury

was obstructed by [defendant's] customer service staff....").

' See also FTC v. Global Mktg Grp., Inc., 594 F. Supp. 2d 1281, 1288-89 (M.D. Fla. 2008); JK

Publ'ns, Inc., 99 F. Supp. 2d at 1202-03; Neovi, 604 F.3d at 1157; FTC v. Commerce Planet Inc.,

No. SACV 09-01324-CJC(RNBx), 2011 WL 13225087, at *2 (C.D. Cal. Sept. 8, 2011).

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Defendants also unfairly injured consumers by engaging in credit card laundering.

Defendants ensured continuing access to the credit card networks by systematically and

egregiously making false statements to acquirer banks. Indeed, in merchant applications, they

went so far as to submit dummy websites to deceive payment processors about their practices.

Defendants then used these unlawfully-obtained merchant accounts to process consumer

payments, and transferred the money from the consumer sales to the AH Media FNB Account.

This allowed AH Media to evade the credit card networks' risk management rules, prolonging

Defendants' ability to process consumer payments, and dramatically magnifying the scope of

consumer injury. Consumers could not reasonably avoid the injury: consumers never authorized

the payments they made, and were in no position to prevent Defendants from furthering the fraud

by using shell companies to launder charges. Credit card laundering has no countervailing

benefit to consumers or to competition; on the contrary, credit card laundering undermines the

entire payment processing system and efforts to ensure its stability.

Additionally, Defendants unfairly injured consumers by submitting fraudulent

documentation to dispute consumer chargeback requests. In at least some cases. Defendants'

actions prevented consumers from receiving refunds and allowed Defendants to retain those

funds. Consumers could not avoid this harm; they could not predict that Defendants would

falsify documentation in order to prevent the consumers from receiving a refund. And, as with

credit card laundering, the use of false documentation has no countervailing benefits to

consumers or competition.

f. Defendants Are Violating ROSCA

Defendants' billing practices also violate ROSCA, which prohibits charging consumers

for goods or services sold online through a negative option feature like Defendants' continuity

plan, unless the seller meets certain conditions. A negative option feature is "'a provision under

which the customer's silence or failure to take an affirmative action to reject goods or services or

A violation of ROSCA is treated as a violation of a rule promulgated under Section 18 of the

FTC Act, 15 U.S.C. § 57(a). 15 U.S.C. § 8404.

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to cancel the agreement is interpreted by the seller as acceptance of the offer.'" FTC v. Credit

Bureau Ctr., LLC, 325 F. Supp. 3d 852, 862 (N.D. III. 2018) (quoting 16 C.F.R. § 310.2(w)).

Specifically, Section 4 of ROSCA, 15 U.S.C. § 8403, requires the seller (1) to clearly and

conspicuously disclose all material terms of the transaction, (2) to obtain the consumer's express

informed consent before making the charge, and (3) to provide a simple mechanism to stop

recurring charges.

Defendants have failed to satisfy all three of these requirements. First, Defendants fail to

disclose clearly and conspicuously the material terms of their continuity plans before obtaining

consumers' billing information. Instead, their terms, as another court in this Circuit described

with respect to similar disclosures, "are either buried in fine print on the payment page ... or are

stated in Terms and Conditions documents that consumers are not required to read." See FTC v.

Health Formulas, LLC, 2015 U.S. Dist. LEXIS 59387, at *48; cf. Barrer v. Chase Bank United

States, NA., 566 F.3d 883, 892 (9th Cir. 2009) ("clear and conspicuous disclosures" are

disclosures that a reasonable consumer "would notice and understand").

Second, Defendants routinely charge consumers' accounts on a monthly basis as part of a

continuity plan without obtaining their express informed consent. Because Defendants have not

disclosed to consumers the material terms of their offers, they do not obtain consumers' express

informed consent before charging them. Health Formulas, LLC, 2015 U.S. Dist. LEXIS 59387,

at *48. Moreover, after violating ROSCA in connection with the initial "trial" offer, Defendants

violate it again by failing to obtain express informed consent to the additional upsell charges

resulting from Defendants' deceptive upsell pages.

Third, Defendants fail to provide a simple mechanism for cancelling the continuity

plan.'^' See Health Formulas, LLC, 2015 U.S. Dist. LEXIS 59387 at *49. Even when

consumers do figure out the process to cancel and find the correct number to call, they report

121 See supra at Section III.A.2.

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difficulty in reaching Defendants' representatives, and are sometimes charged even after they

have cancel led.

g. Defendants Are Violating the EFTA and Regulation E

The EFTA and its implementing regulation. Regulation E, regulate the circumstances

under which a merchant may make regularly recurring debits from a consumer's bank account.

EFTA and Regulation E require that before a merchant may make such recurring debits, it must

obtain a written authorization signed or similarly authenticated by the consumer. 15 U.S.C.

§ 1693e(a); 12 C.F.R. § 205.10(b). For an authorization to be valid, the terms of the

preauthorization transfer must be "clear and readily understandable," and the authorization

"should evidence the consumer's identity and assent to the authorization." CFPB Official Staff

Cmt. to Reg. E, 12 C.F.R. Part 205, Supp. I, ^ 10(b), cmts. (5) and (6). Moreover, a copy of the

authorization must be provided to the consumer. 15 U.S.C. § 205.10(b). These protections

ensure that consumers' consent to recurring debits will be knowing and informed. A

consumer's rights under EFTA cannot be waived. 15 U.S.C. § 16931.

Defendants' business practices fail to comply with EFTA. Because Defendants do not

adequately disclose the terms of their continuity plan and that consumers will be charged

monthly, consumers did not knowingly authorize Defendants to make recurring debits from their

bank accounts. Moreover, consumers do not receive a copy of any purported authorization for

debits to their bank accounts.'^"*

2. The Balance of Equities Strongly Favors Injunctive Relief

The FTC's interest in protecting the public interest outweighs Defendants' interests in

continuing these deceptive practices. "[P]ublic equities receive far greater weight" than private

equities. FTC v. Warner Commc'ns, Inc.., 742 F.2d 1156, 1165 (9th Cir. 1984). Defendants have

operated their deceptive scheme since at least 2016, and have received over $42 million in illId.

See supra at ns.62-65.

'24 W

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gotten gains from consumers. Because the conduct is ongoing, it is nearly certain that future

violations will occur absent injunctive relief. The public's interest in immediately halting this

conduct and preventing the victimization of additional consumers far outweighs any interest

Defendants may have in continuing their unlawful practices. On the contrary, there can be "'no

oppressive hardships to defendants in requiring them to comply with the FTC Act, refrain from

fraudulent representation or preserve their assets from dissipation or concealment.'" FTC v.

World Wide Factors^ 882 F.2d at 347 (quoting and affirming district court's balance of equities).

Finally, as described in Section V below, each form of requested ancillary relief, including an

asset freeze and receivership, is warranted in light of Defendants' egregious, continuous

violations of the law and long-running attempts to evade scrutiny.

3. Defendants Block and Schill Are Individually Liable for Defendants'

Practices

Individual defendants may be held liable for injunctive relief where the FTC

demonstrates that (1) the corporation committed misrepresentations or omissions upon which a

person might reasonably rely, resulting in consumer injury, and (2) the individual defendant

participated directly in the unlawful acts or practices or had authority to control them. FTC v.

Fubl'g Clearing House, Inc., 104 F.3d 1168, 1170-71 (9th Cir. 1997); FTC v. Amy Travel Serv.,

Inc., 875 F.2d 564, 573 (7th Cir. 1989).

In order to hold individual defendants liable for monetary equitable relief, the FTC must

also show that the "individual had knowledge that the corporation or one of its agents engaged in

dishonest or fraudulent conduct, that the misrepresentations were the type upon which a

reasonable and prudent person would rely, and that consumer injury resulted." FTC v. Grant

Connect, LLC, 763 F.3d 1094, 1101 (9th Cir. 2014) (internal quotations omitted). To show

knowledge, "the FTC must show that a defendant had actual knowledge of material

misrepresentations, was recklessly indifferent to the truth or falsity of a misrepresentation, or had

125 See supra Section II.A.

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an awareness of a high probability of fraud along with an intentional avoidance of the truth." Id.

at 1101-02 (brackets and internal quotations omitted). "The FTC need not show that a defendant

intended to defraud consumers for that individual to be personally liable." Id. at 1102.

The evidence establishes a high likelihood that Block and Schill are liable for injunctive

and equitable monetary relief. The first element—that the corporation has engaged in unlawful

practices—is established for the reasons described above.

The second element is established because Block and Schill had both the authority to

control the corporation and participated in the unlawful acts and practices. Both Block and

Schill were fifty percent owners of AH Media, giving them the legal authority to control the

corporation. See FTC v. Am. Standard Credit Sys., Inc., 874 F. Supp. 1080, 1089 (C.D. Gal.

1994) ("An individual's status as a corporate officer and authority to sign documents on behalf

of a corporate defendant can be sufficient to demonstrate the requisite control.") Their

ownership stakes are particularly important given AH Media's closely-held nature and pervasive

fraud. Standard Educators, Inc. v. FTC, 475 F.2d 401, 403 (D.C. Cir. 1973) ("A heavy burden

of exculpation rests on the chief executive and primary shareholder of a closely held corporation

whose stock-in-trade is overreaching and deception."); see also FTC v. LoanPointe, LLC, No.

2:10-CV-335DAK, 2011 U.S. Dist. LEXIS 104982, at *26 (D. Utah Sept. 16, 2011) ("A

corporate officer is presumed to be in control of a small, closely held corporation, and assuming

the duties of a corporate officer is probative of an individual's participation or authority.")

Moreover, both individual defendants participated in the enterprise, receiving millions of dollars

from AH Media's corporate coffers. FTC v. Ivy Capital, Inc., No. 2:1 l-CV-283 JCM (GWF),

2013 U.S. Dist. LEXIS 42369, at *41 (D. Nev. Mar. 26, 2013) ("Participation can include an

individual working at and drawing a salary from the company, even if the individual is not

involved in day-to-day operations."), aff'din part, vacated in part, 616 Fed. Appx. 360 (9th Cir.

2015) (mem.) (affirming finding of individual liability but vacating remedy that would permit

double recovery from defendant).

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Both Block and Schill knew about the unlawful practices, at a minimum intentionally

avoiding the evidence of a high level of fraud. Block was centrally involved with the fraudulent

practices, acting as the authorized signatory for the AH Media FNB Account, as well as for

dozens of bank accounts related to the scheme, including those that are nominally held by the

shell companies. Block is also listed as an officer of the Wyoming LLCs,'^^ and coordinated the

establishment of these entities.'^^ He also registered and paid for the websites used to further

Defendants' scheme.'^® Moreover, Block coordinated the distribution of funds from the AH

Media FNB Account to himself, his holding company, Schill, and Zanelo.'^^

Schill had knowledge of the fraud by virtue of his ownership stake, collection of profits,

and the pervasive fraud of AH Media. Schill owned half of AH Media Group, and he and his

company Zanelo (which he set up using an AH Media email account) received more than $3.25

million from the scheme.'^® He had legal authority over AH Media and profited handsomely

from its misconduct as the company churned through hundreds of websites, dozens of shell

companies and merchant accounts with strikingly high chargeback rates, and was the subject of

numerous consumer complaints. There "were myriad red flags that would have led a reasonable

person to suspect that something was amiss" at AH Media, but at a minimum, Schill "continued

to turn a blind eye toward the problems." FTC v. NetworkServ's Depot, Inc., 617 F.3d 1127,

1140-41 (9th Cir. 2010) (finding individuals liable where they "failed to undertake even modest

due diligence" and deliberately constructed an information wall). Instead, despite "ample

opportunity to take action and discover the fraud," Schill, at the very least, "intentionally avoided

learning the truth, comfortable with the huge ... income" he received. J.K. Publications, Inc.,

99 F. Supp. 2d 1174, 1207 (C.D. Cal. 2000) (finding that, even assuming individual defendant

Dandashly Decl. 105-06 at App. 298, Exs. 55-57 at App. 826-33.

Dandashly Decl. 109-112 at App. 299, Ex. 59 at App. 848-55.

Dandashly Decl. ^ 160 at App. 311, Ex. 86 at App. 1117-31.

See Dandashly Decl. 121 at App. 277, Ex. 24 at App. 371 (LLC formation records showing

alan@ahmediagroup.net as contact for registered agent and sole authorized person); Van Wazer

Decl. ^ 10 at App. 201-02 (summarizing payments to Zanelo and Schill from AH Media).

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did not read paperwork she filled out, she had knowledge given was on notice of fraud given her

access to documents, "huge $4 million income," and red flags that the company was fraudulent).

C. The Relief Defendant Has Received Ill-Gotten Gains and Does Not Have a

Legitimate Claim to Those Assets

Relief Defendant Zanelo should not be permitted to keep more than $2 million in

unearned transfers it received from the unlawful corporate scheme. "[F]ederal courts can be

employed to recover ill-gotten gains for the benefit of the victims of wrongdoing, whether held

by the original wrongdoer or by one who has received the proceeds of the wrong." FTC v.

Transnet Wireless Corp., 506 F. Supp. 2d 1247, 1273 (S.D. Fla. 2007) (quoting CFTC v.

Kimberlynn Creek Ranch, 176 F.3d 187, 192 n.4 (4th Cir. 2002)). Indeed, "[t]he disgorgement of

funds received as a result of deceptive, unfair, or abusive practices is proper where 'it is

established that the relief defendant possesses property or profits illegally obtained and the relief

defendant has no legitimate claim to them.'" FTC v. Inc21.com Corp., 745 F. Supp. 2d 975,

1009 (N.D. Cal. 2010) (quoting FTC v. Think Achievement Corp., 144 F. Supp. 2d 1013, 1020

(N.D. Ind. 2000)).

Here, substantial profits from the fraud were shifted to Relief Defendant through repeated

direct transfers from the AH Media FNB account. Bank records show transfers in excess of $2

million from the AH Media FNB account to Zanelo's account.'^' There is no evidence that

Zanelo provided any services to the AH Media Enterprise. Zanelo has no legitimate claim to

Defendants' ill-gotten gains, which are subject to disgorgement and preservation for consumer

redress.

131 Van Wazer Decl. ^ 10 at App. 201-02, Ex. 5 at 219-20.

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V. AN EXPARTE TRO WITH ASSET FREEZE AND A RECEIVER IS

ESSENTIAL

The FTC is likely to succeed in proving that Defendants are engaging in deceptive and

unfair practices in violation of the FTC Act, ROSCA, and EFTA, and that the balance of equities

favors the public. Preliminary injunctive relief is thus justified.

Through the present application, the FTC seeks temporary and ancillary relief in order to

avoid continuing consumer injury while this action is pending, and to preserve the possibility of

consumer redress. 132 Achieving these dual aims requires the appointment of a temporary

receiver, an immediate freeze of Defendants' and Relief Defendant's assets, and expedited

discovery. Absent such relief, there is a substantial risk that Defendants will continue to operate

their deceptive scheme, destroy documents, and dissipate or conceal their ill-gotten assets in an

attempt to preclude satisfaction of any final order, including monetary relief.

A. Conduct Relief to Protect Consumers From Being Victimized During the

Pendency of This Case Is Appropriate in Light of Defendants' Pervasive

Illegal Conduct

To prevent ongoing consumer injury, the proposed TRO prohibits defendants from

continuing to engage in their unlawful conduct, including: misrepresenting the material terms of

an offer (Proposed Order § 1); failing to comply with ROSCA with respect to negative option

continuity plans (Proposed Order § 11); failing to obtain authorization required under EFTA

(Proposed Order § III); and misrepresentations to obtain merchant accounts and contest

chargebacks (Proposed Order § IV). These requested prohibitions do no more than require

Defendants to comply with the FTC Act, ROSCA, and EFTA, and are appropriate given

Defendants' long-running and pervasive violations of the law.

Specifically, the requested conduct prohibitions in the proposed TRO require only that the

Defendants comply with the FTC Act, ROSCA, and EFTA and Regulation E.

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B. An Asset Freeze and Appointment of a Receiver Are Warranted to Prevent

the Dissipation of Assets and Destruction of Evidence

As part of the permanent relief in this case, Plaintiff will seek equitable monetary relief,

including consumer redress or disgorgement of ill-gotten gains. To preserve the availability of

funds to allow for the possibility for monetary relief. Plaintiff requests that the Court issue an

order requiring the preservation of assets and evidence. See Proposed Order §§ VI (asset freeze),

V (requiring asset holders and third parties to preserve assets and materials), and IX-X (requiring

foreign asset repatriation). Appointing a receiver over the corporate defendant is also warranted

to effectuate asset protection and compliance with the requested injunction. See Proposed Order

§§ XIV-XXIII.

The requested relief is well within the Court's equitable authority. See, e.g. FTC v. U.S.

Oil & Gas Corp., 748 F2d 1431, 1432 (11th Cir. 1984) (finding that under Section 13(b) a

"district court has the inherent power of a court of equity to grant ancillary relief, including

freezing assets and appointing a receiver); FTC v. HN. Singer, Inc., 668 F.2d 1107, 1112-13 (9th

Cir. 1982) (finding a court's authority under Section 13(b) includes "all the inherent equitable

power ... for the proper and complete exercise" of the court's equitable jurisdiction).

Where a business is permeated by fraud, courts have found a strong likelihood that assets

may be dissipated during litigation. See, e.g. SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082,

1106 (2d Cir. 1972) ("Because of the fraudulent nature of appellants' violations, the court could

not be assured that appellants would not waste their assets prior to refunding public investors

money."). Likewise, in such circumstances a receivership may be necessary because "[t]o allow

Defendants to control their frozen assets and to operate their deceptive scheme would create an

unreasonable risk that effective relief would be frustrated." FTC v. Skybiz.com, Inc., No. 01-CV396-K(E), 2001 U.S. Dist. LEXIS 26175, at *33-34 (N.D. Okla. Aug. 31, 2001).

The appointment of a temporary receiver for the Corporate Defendant is also appropriate.

"The district court's exercise of its equity power in this respect is particularly necessary in

instances in which the corporate defendant, through its management, has defrauded members of

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the investing public." SEC v. First Fin. Group, 645 F.2d 429, 438 (5th Cir. 1981); see also In

the Matter of McGaughey, 24 F.3d 904, 907 (7th Cir, 1994) (appointment of receiver is "an

especially appropriate remedy in cases involving fraud and the possible dissipation of assets").

Defendants' conduct warrants an asset freeze and appointment of a receiver over the

Corporate Defendant. First, there is ample evidence that Defendants ran a fraudulent continuity

plan program that was wholly reliant on fraud. Hence, there is a particularly strong basis for

relief that will take control of the Defendants' operation—and its unlawful proceeds—out of the

hands of the Defendants. See Skybiz.com, 2001 U.S. Dist. LEXIS 26175, at *33-34.

Second, in addition to the fraudulent nature of Defendants' scheme, they have engaged in

a slew of evasive conduct—including the establishment of dozens of shell companies that were

used to fraudulently obtain merchant accounts and the creation of dummy websites used to

deceptively thwart chargeback disputes—indicating a substantial likelihood that assets will be

dissipated and evidence will be destroyed or spoiled if Defendants maintain control of their

enterprise.

Finally, Defendants' apparent funds appear to be a "mere pittance" compared to the more

than $42 million in revenue from consumer victims, and "it is extremely unlikely that the frozen

assets will be adequate to redress consumer injuries, which supports maintaining the asset

freeze." FTC v. Triangle Media Corp., No. 18cv 1388-MMA (NLS), 2018 U.S. Dist. LEXIS

144599, at *22 (S.D. Cal. Aug. 24,2018). Given that "defendants perpetrated a fraud on many

consumers and therefore are likely liable for a substantial sum in restitution and/or

disgorgement," and there is "ambiguity surrounding defendants' financial circumstance...a broad

asset freeze is appropriate." FTC v. Career Info. Serv's, Inc., No. l:96-CV-1463-ODE, 1996

U.S. Dist. LEXIS 21207, at *14 (N.D. Ga. June 21, 1996). This is particularly true given the

more than $6.7 million that has been transferred to the Individual Defendants and their

personally owned entities. FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1031

(7th Cir. 1988) (finding asset freeze for individuals appropriate where there was "a good deal of

shifting of assets" from the Corporate Defendants "to the individual defendants"); see also

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Johnson v. Couturier, 572 F.3d 1067, 1085 (9th Cir. 2009) (upholding asset freeze and observing

that an individual who has "impermissibly awarded himself funds that are not rightfully his "is

presumably more than capable of placing assets in his personal possession beyond the reach of a

judgment.")

In light of Defendants' systematic fraud, their wide-ranging attempts to evade detection,

and the relative paucity of funds available for redress or disgorgement, there is a high risk of

asset or evidence destruction absent strong temporary relief. Hence, the provisions in the

proposed order imposing an asset freeze, receivership, and allowance of an immediate access are

warranted to temporarily preserve assets and evidence.

C. The Court Should Enjoin Defendants From Destroying Evidence and Allow

Plaintiff to Take Limited Expedited Discovery

The proposed order contains a provision directing Defendants to preserve records,

including electronic records, and evidence. Proposed Order Section XII (requiring preservation

of records). It is appropriate to enjoin Defendants charged with deception from destroying

evidence, and doing so would place no significant burden on them. See SEC v. Unifund SAL,

910 F.2d 1028, 1040 n.l 1 (2d Cir. 1990) (characterizing such orders as "innocuous").

Plaintiff also seeks leave of Court for limited expedited discovery, including allowing

Plaintiff to seek discovery on the location of documents and assets and affirmative requirements

on Defendants to produce financial statements. See Proposed Order Sections VII(C)-(D)

(requiring financial institutions to provide information concerning frozen accounts), VIII

(financial disclosures required by Defendants), XI (permitting Plaintiff to obtain credit reports),

XIII (requiring Defendants to report new business activity), and XXIV (expedited discovery).

District courts are authorized to fashion discovery to meet the needs of the particular case.

Federal Rules of Civil Procedure 26(d), 33(a), and 34(b) authorize the Court to alter default

provisions, including applicable time-frames, that govern depositions and production of

documents. Narrow expedited discovery provisions reflect the Court's broad and flexible

authority in equity to grant preliminary emergency relief in cases involving the public interest.

Memo ISO ExParte Appl. for IRQ 41

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See, e.g. Semitool, Inc. v. Tokyo Electron Am., Inc., 208 F.R.D. 273, 276 (N.D. Cal. 2002)

(applying "good cause" standard in permitting expedited discovery, and noting "that courts have

recognized that good cause is frequently found in cases involving claims of infringement and

unfair competition"); Fed. Express Corp. v. Fed Espresso, Inc., No. 97-CV-1219RSP/GJD, 1997

U.S. Dist. LEXIS 19144, at *6 (N.D.N.Y. Nov. 24, 1997) (quoting Fed. R. Civ. P. 26(d)

commentary that early discovery "will be appropriate in some cases, such as those involving

requests for a preliminary injunction").

Here, expedited discovery is warranted to locate assets, identify documents, and ensure

compliance with the other provisions of the order. This is particularly true given the Defendants'

use of dozens of shell companies, merchant accounts, and shell owners—all of which raise issues

concerning the potential location of assets and materials, and pose a danger that Defendants will

likely attempt to circumvent any emergency relief that this Court grants.

D. The Temporary Restraining Order Should be Issued Ex Parte to Preserve the

Court's Ability to Fashion Meaningful Relief

The substantial risk of asset dissipation and document destruction in this case, coupled

with Defendants' ongoing and deliberate statutory violations, justified ex parte relief. Federal

Rule of Civil Procedure 65(b) permits this Court to enter ex parte orders upon a clear showing

that "immediate and irreparable injury, loss, or damage will result," if notice is given. See also

Reno Air Racing Ass'n. Inc. v. McCord, 452 F.3d 1126, 1131 (9th Cir. 2006) (noting, in patent

infringement context, that ex parte orders are proper in a "very narrow band of cases" where the

plaintiff shows "that defendants would have disregarded a direct court order and disposed of the

goods within the time it would take for a hearing ... and must support such assertions by

showing that the adverse party has a history of disposing of evidence or violating court orders or

that persons similar to the adverse party have such a history.").

There are compelling reasons that establish a likelihood that Defendants, if given notice,

will disregard a court order and destroy evidence or dissipate assets. As noted in Section IV.A

above, numerous courts have granted similar ex parte relief in cases involving continuity plan

Memo ISO Ex Parte Appl. for TRO 42

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frauds mirroring Defendants' operation. Here, the Defendants have already taken numerous

steps to circumvent the guardrails that would prevent them from continuing their fraud: using

shell companies to shield their true identify, processing payments across dozens of merchant

accounts to evade detection and replace accounts that get terminated for fraud, and using bogus

documentation to respond to credit card chargebacks. Defendants have shown that when faced

with compliance requirements or meritorious disputes, their answer is to double-down on their

fraudulent practices to keep the money coming in. Such conduct places this case in the small

category of matters where ex parte relief is appropriate.

VL CONCLUSION

For the reasons set forth above, the FTC respectfully requests that the Court grant its

motion for an ex parte TRO and require that Defendants show cause why a preliminary

injunction should not issue.

Dated: July 10,2019 Respectfully submitted,

Roberta Diane Tonelli

Emily Cope Burton

Colin A. Hector

Attorneys for Plaintiff

FEDERAL TRADE COMMISSION

Memo ISO Ex Parte Appl. for TRO 43

Case 3:19-cv-04022-JD Document 13 Filed 07/12/19 Page 49 of 53 
APPENDIX INDEX

Declaration/Exhibit Beginning Bates Number H

Carey Declaration FTC-TRO-OOOl

Consolini Declaration FTC-TRO-0018

Crump Declaration FTC-TRO-0046

Hisle Declaration FTC-TRO-0067

Horsch Declaration FTC-TRO-0082

Langere Declaration FTC-TRO-0093

Millikan Declaration FTC-TRO-OII2

Putterman Declaration FTC-TRO-0149

Ramirez Declaration FTC-TRO-0160

Rossie Declaration FTC-TRO-0194

Van Wazer Declaration FTC-TRO-0198

Exhibit 1 FTC-TRO-0203

Exhibit 2 FTC-TRO-0206

Exhibit 3 FTC-TRO-0208

Exhibit 4 FTC-TRO-0211

Exhibit 5 FTC-TRO-0218

Exhibit 6 FTC-TRO-0221

Exhibit 7 FTC-TRO-0225

Exhibit 8 FTC-TRO-0227

Gonzalez Declaration FTC-TRO-0235

Exhibit 9 FTC-TRO-0240

Exhibit 10 FTC-TRO-0241

Exhibit 1 1 FTC-TRO-0247

Exhibit 12 FTC-TRO-0251

Exhibit 13 FTC-TRO-0254

Exhibit 14 FTC-TRO-0256

Exhibit 15 FTC-TRO-0261

Dandashly Declaration FTC-TRO-0273

Exhibit 16 FTC-TRO-0323

Att. 1 TO Memo. ISO Ex Parte Motion iT)R TRO

Case 3:19-cv-04022-JD Document 13 Filed 07/12/19 Page 50 of 53 
Declaration/Exhibit Besinning Bates Number

Exhibit 17 FTC-TRO-0333

Exhibit 18 FTC-TRO-0335

Exhibit 19 FTC-TRO-0339

Exhibit 20 FTC-TRO-0347

Exhibit 21 FTC-TRO-0353

Exhibit 22 FTC-TRO-0356

Exhibit 23 FTC-TRO-0361

Exhibit 24 FTC-TRO-0370

Exhibit 25 FTC-TRO-0374

Exhibit 26 FTC-TRO-0378

Exhibit 27 FTC-TRO-0388

Exhibit 28 FTC-TRO-0392

Exhibit 29 FTC-TRO-0394

Exhibit 30 FTC-TRO-0410

Exhibit 31 FTC-TRO-0420

Exhibit 32 FTC-TRO-0422

Exhibit 33 FTC-TRO-0431

Exhibit 34 FTC-TRO-0434

Exhibit 35 FTC-TRO-0445

Exhibit 36 FTC-TRO-0517

Exhibit 37 FTC-TRO-0518

Exhibit 38 FTC-TRO-0520

Exhibit 39 FTC-TRO-0524

Exhibit 40 FTC-TRO-0532

Exhibit 41 FTC-TRO-0535

Exhibit 42 FTC-TRO-0553

Exhibit 43 FTC-TRO-0554

Exhibit 44 FTC-TRO-0562

Exhibit 45 FTC-TRO-0565

Exhibit 46 FTC-TRO-0573

A i t. 1 TO Memo. ISO Ex Parte Motion eor TRO

Case 3:19-cv-04022-JD Document 13 Filed 07/12/19 Page 51 of 53 
Declaration/Exhibit Beginning Bates Number

Exhibit 47 FTC-TRO-0652

Exhibit 48 FTC-TRO-0756

Exhibit 49 FTC-TRO-0757

Exhibit 50 FTC-TRO-0801

Exhibit 51 FTC-TRO-0805

Exhibit 52 FTC-TRO-0807

Exhibit 53 FTC-TRO-0814

Exhibit 54 FTC-TRO-0823

Exhibit 55 FTC-TRO-0826

Exhibit 56 FTC-TRO-0830

Exhibit 57 FTC-TRO-0834

Exhibit 58 FTC-TRO-0839

Exhibit 59 FTC-TRO-0848

Exhibit 60 FTC-TRO-0856

Exhibit 61 FTC-TRO-0860

Exhibit 62 FTC-TRO-0868

Exhibit 63 FTC-TRO-0881

Exhibit 64 FTC-TRO-0886

Exhibit 65 FTC-TRO-0890

Exhibit 66 FTC-TRO-0894

Exhibit 67 FTC-TRO-0896

Exhibit 68 FTC-TRO-0917

Exhibit 69 FTC-TRO-0928

Exhibit 70 FTC-TRO-0957

Exhibit 71 FTC-TRO-0966

Exhibit 72 FTC-TRO-0979

Exhibit 73 FTC-TRO-0980

Exhibit 74 FTC-TRO-0990

Exhibit 75 FTC-TRO-1038

Exhibit 76 FTC-TRO-1041

A rr. 1 TO Memo. ISO Ex Pari e Mo i ion i-or TRO

Case 3:19-cv-04022-JD Document 13 Filed 07/12/19 Page 52 of 53 
Declaration/Exhibit Beginning Bates Number

Exhibit 77 FTC-TRO-1044

Exhibit 78 FTC-TRO-1046

Exhibit 79 FTC-TRO-1048

Exhibit 80 FTC-TRO-1051

Exhibit 81 FTC-TRO-1053

Exhibit 82 FTC-TRO-1057

Exhibit 83 FTC-TRO-1087

Exhibit 84 FTC-TRO-1099

Exhibit 85 FTC-TRO-1 103

Exhibit 86 FTC-TR0-I I 16

Exhibit 87 FTC-TRO-1 132

Exhibit 88 FTC-TRO-1146

Exhibit 89 FTC-TRO-1 150

Exhibit 90 FTC-TRO-1265

Exhibit 91 FTC-TRO-1269

Exhibit 92 FTC-TRO-1353

Exhibit 93 FTC-TRO-1382

A i t. 1 TO Mumo. ISO Ex Par i e Motion for TRO

Case 3:19-cv-04022-JD Document 13 Filed 07/12/19 Page 53 of 53