FTC v. Crescent Publishing

Citation: Federal Trade Commission v. Crescent Publishing Group, Inc., 129 F. Supp. 2d 311 (S.D.N.Y. 2001).

Factual Background
The court considered allegations by the FTC and the Attorney General of New York that defendants violated Section 5 of the FTC Act and the analogous state law by offering “free tours” of pornographic sites, requiring the visitor to enter a valid credit card “to verify that they were over 18.”

But the website language, as revised from time to time, did not make it clear at what point the “free tour” ended and the charges started accruing. The charges piled up, and many customers &mdash; including some who said they had never visited the sites &mdash; complained to their credit card companies. The credit card companies investigated and then took action not to accept the charges from the defendant's websites.

Agency Actions
On August 23, 2000, plaintiffs filed suit against Crescent, 64 related companies and two individuals. Of the five counts, three were by the FTC under Section 5 and two by the Attorney General under §§349 and 350 of New York's General Business Law.

The parties agreed to the issuance of a preliminary injunction, while disagreeing with its terms. Judge Kaplan agreed that the preliminary relief was appropriate and would include:


 * Enjoining defendants, including the individuals, “from distributing or lending … any money to their officers, directors, shareholders or entities in which those persons have interests” (with the exception that salaries may be paid, but not increased).


 * With minimal exceptions, requiring the corporate defendants to transfer “all funds now or hereafter held in foreign accounts to accounts in New York branches of a bank or banks organized under U.S. law. …” (The defendants had bank accounts in Guatemala).


 * Allowing defendants to continue operations only after posting a bond in an amount determined by the court. The Commission asked for a bond of $30 million; defendants wanted to limit it to $5 million. The court decided on $10 million.