Â鶹´«Ã½

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

Whereas, plaintiff, the Â鶹´«Ã½ Trade Commission ("Commission") has filed its complaint pursuant to Section 13(b) of the Â鶹´«Ã½ Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), charging defendants with violations of Section 5 of the FTC Act, 15 U.S.C. § 45;

Whereas, the defendants deny the occurrence of any fact alleged in the Complaint or that they have engaged in any act or practice in violation of the FTC Act; and

Whereas, the parties are entering into this Consent Decree to resolve all matters of dispute between them in this action, on the following terms and conditions, without adjudication of any issue of fact or law.

NOW, THEREFORE, plaintiff and defendants having requested the Court to enter this Order, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED as follows:

FINDINGS

1. This Court has jurisdiction over the subject matter of this case and over the parties consenting hereto.

2. The Complaint states a claim upon which relief may be granted against defendants under Section 5 of the FTC Act, 15 U.S.C. § 45.

3. Entry of this Order is in the public interest.

SCOPE OF ORDER

This Order applies to future representations in advertising and promotional materials, including promotional seminars offered for free or for a nominal charge of one hundred dollars ($100) or less, such as the Financial Clinic offered by defendants prior to entry of this Order. This Order is not applicable to books, print, electronic, video and audio publications and instructional seminars published or presented by defendants and sold primarily at wholesale or retail, rather than primarily distributed for free.

DEFINITIONS

For purposes of this Order, the following definitions shall apply, unless otherwise indicated:

A. "Defendants" means Wade Cook Financial Corporation, Wade Cook Seminars, Inc., and their subsidiaries, successors and assigns, (hereinafter collectively referred to as "WCFC parties"). Provided however that Wade Bruce Cook, who is not a named defendants in this matter, enters into this Consent Decree and agrees to be bound by each of its provisions.

 

B. "Clearly and prominently" means as follows:

1. In an advertisement communicated through an electronic medium (such as television, video, radio, and interactive media such as the Internet and online services), the disclosure shall be presented simultaneously in both the audio and video portions of the advertisement. Provided, however, that in any advertisement presented solely through video or audio means, the disclosure may be made through the same means in which the ad is presented. The audio disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. The video disclosure shall be of a size and shade, and shall appear on the screen a sufficient length of time for an ordinary consumer to read and comprehend it. In interactive media the disclosure shall also be unavoidable and shall be presented before the consumer incurs any financial obligation.

 

2. In a print advertisement, promotional material, or instructional manual, the disclosure shall be in a type size and location sufficiently noticeable for an ordinary consumer to read and comprehend it, in print that contrasts with the background against which it appears. In multi page documents, the disclosure shall appear on the cover or first page.

 

3. In a promotional seminar the disclosure shall be provided to each seminar attendee in written form, in a single page document containing no other information, in a type size sufficiently noticeable for an ordinary consumer to read and comprehend it, in print that contrasts with the background against which it appears.

 

C. "Stock" means common stocks, bonds, and options or other derivatives interests in common stocks or bonds.

 

D. "Disclosure period" shall mean the period of four calendar quarters that ends not more than 150 days prior to the date of the representation that triggers the disclosure.

 

E."Rate of Return" means the amount of gain or loss in the stock brokerage accounts of the corporate defendants for the applicable disclosure period expressed as a percentage of the amount invested. The Rate of Return shall be calculated as follows:

1.At the end of the last day of each month, for each stock owned on the last day of the month, total the cost of each stock purchased during the disclosure period, the fair market value on the last day of the prior disclosure period of each stock owned on day one of the disclosure period, and the amount of cash in each of the subject brokerage accounts. Each of the twelve monthly totals shall be added together. The resulting sum shall be divided by twelve. The result of this division is the "average cost/value of securities."

 

2. At the end of the last day of the disclosure period, the realized gains and losses from all stock transactions closed out during the disclosure period shall be totaled. The result is the "realized gain or loss" for the disclosure period. For each stock purchased and sold within the disclosure period, the realized gain or loss shall be calculated by subtracting the cost of the stock from the sale price of the stock. For each stock owned on the first day of the disclosure period and sold during the disclosure period, the realized gain or loss shall be calculated by subtracting the fair market value of the stock at the end of the last day of the prior disclosure period from the sale price of the stock.

 

3. At the end of the last day of the disclosure period, the unrealized gains and losses from all stock transactions that were not closed out during the disclosure period shall be totaled based on the fair market value of such unsold stocks at the close of business on that day. The result is the "unrealized gain or loss" for the disclosure period. For each stock purchased during the disclosure period and held on the last day of the disclosure period, the unrealized gain or loss shall be calculated by subtracting the cost of the stock from the fair market value of the stock at the end of the last day of the disclosure period. For each stock owned on day one of the disclosure period and held on the last day of the disclosure period, the unrealized gain or loss shall be calculated by subtracting the fair market value of the stock at the end of the last day of the prior disclosure period from the fair market value of the stock at the end of the last day of the current disclosure period.

 

4. The realized gain or loss and the unrealized gain or loss for the disclosure period shall be totaled. The result shall be the "total gain or loss" for the disclosure period.

 

5. The total gain or loss shall be divided by the average cost/value of securities. The result of this division shall be the Rate of Return.

 

WCFC parties shall not engage in a concerted practice of removing cash assets within five (5) days from the end of the disclosure period from the subject brokerage accounts where the purpose or effect is to manipulate or significantly affect the Rate of Return, as opposed to removing cash assets for the purpose of applying such funds to a specific investment, expense or other specific use, or to the implementation of a specific investment strategy.

I.

IT IS THEREFORE ORDERED that WCFC parties are hereby permanently restrained and enjoined from:

A. In connection with the advertising, promotion, offering for sale, or sale of the Wall Street Workshop seminar or any other stock market investment seminar or program, making any representation, expressly or by implication, that WCFC parties have attained success trading in stocks using the trading strategies taught at the promoted seminar or program, or that consumers who attend the promoted seminar or program shall attain success trading in stocks using the strategies taught there, without disclosing clearly and prominently the Rate of Return achieved during the disclosure period. If WCFC parties have not traded during the disclosure period they shall disclose a Rate of Return of zero or disclose the fact that they have not traded during the prior twelve-month period. Whenever WCFC parties disclose the Rate of Return achieved during the disclosure period they shall make the following disclaimer: "Future results may vary."

 

In addition to the Rate of Return for the disclosure period, WCFC parties shall also make available on their web site, or make available upon request if they do not have a web site, their historical rates of return, for each of the three calendar years immediately preceding the calendar year in which a representation is made that triggers the Rate of Return disclosure. The three calendar years shall commence on January 1, 1999. Therefore, until 150 days past the last day of 2001, WCFC parties shall only be required to disclose the historical annual rate of return data accumulated up to that time.

 

In the event Wade Bruce Cook, through any corporation or other entity unrelated to the corporate defendants, makes a statement otherwise covered by Paragraph I.A of this Order, he shall disclose clearly and prominently the Rate of Return achieved during the disclosure period, based on the net gain or loss in his personal brokerage accounts or the brokerage accounts of the entity through which he is then doing business.

 

B. In connection with the advertising, promotion, offering for sale, or sale of the Wall Street Workshop seminar or any other stock market investment seminar or program, using an actual or hypothetical trade to illustrate a trading strategy, unless WCFC parties disclose, clearly and prominently, that the illustration does not reflect the Rate of Return earned by WCFC parties in the stock market, unless such is the case, and that a consumer who attends the seminar or program may not do as well when executing a similar trade. When an actual or hypothetical trade is used to illustrate a trading strategy with the disclosure required by Paragraph I.B, it shall not trigger the disclosure required by Paragraph I.A.

 

C. In connection with the advertising, promotion, offering for sale, or sale of the Wall Street Workshop seminar or any other stock market investment seminar or program, representing, expressly or by implication, that the testimonial of any person or any endorsement of the seminar or program represents the typical or ordinary experience of members of the public who attend the seminar or program, unless WCFC parties disclose, clearly and prominently, that testimonials reflect only one person's experience, that consumers who attend the seminar or program should not assume that the experience described necessarily reflects the testimonialist's overall rate of success, and that consumers who attend the seminar or program should not expect to achieve the same level of success. When a testimonial is used with the disclosure required by Paragraph I.C, it shall not trigger the disclosure required by Paragraphs I.A or I.B, except that any advertising or promotional item that contains four (4) or more testimonials shall also comply with Paragraph I.A. For purposes of this Order, "endorsement" shall mean "endorsement"as defined in 16 C.F.R. § 255.0(b).

 

D. Failing to disclose clearly and prominently prior to purchase by the consumer all material terms and conditions of any refund policy WCFC parties offer; or if WCFC parties do not offer refunds, failing to clearly and prominently disclose this fact prior to purchase by the consumer.

 

E. Making any representation, expressly or by implication, in connection with the advertising, promotion, offering for sale, or sale of any investment seminar or program unless at the time the representation is made WCFC parties possess and rely upon a reasonable basis that substantiates the representation.

 

F. In the event that material that is not within the scope of this Order is disseminated without charge in conjunction with advertisements, promotional seminars, or other promotional activities that are subject to this Order, failing to include in such advertisement, promotional seminar or other promotional activity the clear and prominent disclosure set forth in Paragraph I.A, whether or not such advertisement, promotional seminar, or other promotional activity contains any representation that is subject to the provisions of this Order.

 

G. Violating any requirement of the Â鶹´«Ã½ Trade Commission's Rule Concerning Cooling-Off Period for Sales Made At Homes Or At Certain Other Locations, 16 C.F.R. § 429.

CONSUMER REDRESS

II.

IT IS FURTHER ORDERED that:

A. Within sixty (60) days after entry of this Order, WCFC parties shall complete a review of their consumer files to identify each consumer who paid to attend the Wall Street Workshop but did not attend the Wall Street Workshop, and who asked for a refund of Wall Street Workshop tuition but did not receive it. Upon identification of each consumer, WCFC parties shall within ten (10) days mail to the consumer a check and release of claim for the amount of Wall Street Workshop tuition they paid. Upon claimant's cashing of such check, WCFC parties shall not have any further obligation to claimant for the purchase of the Wall Street Workshop.

 

B. Within sixty (60) days after entry of this Order, WCFC parties shall commence mailing each eligible consumer who paid to attend the Wall Street Workshop on or after January 1, 1997, and before January 1, 2000, the Notice and Proof of Claim, in the form shown on Attachments A and B, at the rate of two hundred (200) consumers each business day. Eligible consumer means each person who (1) paid tuition to WCFC parties to attend the Wall Street Workshop, (2) did not subsequently pay to attend any other seminar offered by WCFC parties, and (3) has not previously received a refund of Wall Street Workshop tuition from WCFC parties.

 

C. In the event WCFC parties receive a Proof of Claim within ninety (90) days after it has been mailed, then thirty (30) days after the postmarked return date of such Proof of Claim, WCFC parties shall evaluate the claimant's response as provided in Attachments C, D and E, filed under seal. Upon determination that such response meets the criteria established in Attachments C, D and E, and that such response is not false, WCFC parties shall mail to the claimant a check and release of claim for the amount of Wall Street Workshop tuition paid, less any actual gain made by the claimant from trading in stocks using the trading strategies taught at the Wall Street Workshop during the first twelve (12) months after attending the Wall Street Workshop. Upon claimant's cashing of such check, WCFC parties shall not have any further obligation to claimant for the purchase of the Wall Street Workshop. Any dispute between WCFC parties and any claimant as to the accuracy of the responses provided by the claimant in the Proof of Claim shall be resolved by a third party mutually agreed to by the parties, on the basis of written submissions, at the expense of WCFC parties.

 

D. In the event a claimant returns the Proof of Claim within ninety (90) days but fails to provide a full response, or to submit all required information, then WCFC parties shall send to the claimant within fifteen (15) days of the postmarked return date of the Proof of Claim from a notice detailing the information that has not been provided and advising the claimant that they must provide such information in full within thirty (30) days of the postmarked date of the notice. In the event that the claimant then provides all such information within thirty (30) days, WCFC parties shall then have fifteen (15) days from the postmarked return date to comply with the requirements set forth in Paragraph II.C. In the event that the claimant fails to provide the requested information within thirty (30) days, then WCFC parties shall have no further obligation to claimant under this Order for the purchase of the Wall Street Workshop.

 

E. WCFC parties shall keep all responses and documentation provided by claimants confidential except where disclosure is required by law.

 

F. Sixty (60) days after entry of this Order, and then every thirty (30) days thereafter until all obligations under Section II have been satisfied, WCFC parties shall provide to the Â鶹´«Ã½ Trade Commission an affidavit sworn to by two Directors of WCFC attesting that they have independently reviewed WCFC parties' compliance with the requirements of this Section, together with the names and addresses of 1) each person who received a refund pursuant to Paragraph II.A, and 2) all eligible consumers under the Order and each claimant who has submitted a Proof of Claim and the disposition of the claim. This report shall be provided in electronic computer readable form.

 

G. Upon five (5) days' notice, WCFC parties shall grant access to the Commission to review, and make copies at the Commission's expense, of all original records pertaining to compliance by WCFC parties with the requirements of Section II.

 

H. In the event of a default by WCFC parties in any payment due pursuant to Paragraph II, which default has not been cured within thirty (30) days of the date of default, Wade Bruce Cook shall personally make such payment.

GENERAL REQUIREMENTS

III.

IT IS FURTHER ORDERED that in connection with the advertising, promotion, offering for sale, or sale of any investment seminar or program, WCFC parties shall, for three (3) years from entry of this Order, maintain and upon request make available to the Commission for inspection and copying at Commission expense:

A. All advertisements, and promotional and sales materials, including all speaker and sales staff training materials;

 

B. All materials that were relied upon in making the claims contained in the advertisements, promotional, and sales materials, including speaker and sales staff training materials;

 

C. All materials in their possession or control including complaints and other communications with consumers or with governmental or consumer protection organizations that contradict, qualify, or call into question the claims made in advertisements, and promotional and sales materials, including speaker and sales staff training materials, or the basis relied upon for the claims.

 

D. Records that reflect, for every consumer complaint or refund request, whether received directly or indirectly or through any third party:

 

1. the consumer's name, address, telephone number and the dollar amount paid by the consumer;

 

2. the written complaint or refund request, if any, and the date of the complaint or refund request;

 

3. the basis of the complaint, including the name of any salesperson or seminar instructor or speaker complained about, and the nature and result of any investigation conducted concerning any complaint;

 

4. each response and the date of the response;

 

5. any final resolution and the date of the resolution; and

 

6. in the event of a denial of a refund request, the reason for the denial.

 

E. All brokerage account records, and other records, documenting and substantiating any Rate of Return disclosed in compliance with Paragraph I.A.

IV.

IT IS FURTHER ORDERED that WCFC parties, in connection with any business where (1) any defendant is the majority owner of the business or directly or indirectly manages or controls the business, and (2) the business engages in the sale of investment seminars or programs, or assists others engaged in these activities, are hereby permanently restrained and enjoined from:

A. Failing to take reasonable steps sufficient to monitor and ensure that all their agents, employees, consultants and independent contractors engaged in sales or other customer service functions or as seminar instructors or speakers at promotional seminars, comply with Paragraph I of this Order. Such steps shall include adequate monitoring of sales and promotional seminar presentations and customer service functions, establishing a procedure for receiving and responding to consumer complaints; and ascertaining the number and nature of consumer complaints regarding transactions in which each employee or independent contractor is involved.

 

B. Failing promptly to investigate any consumer complaint received by any business to which this Paragraph applies.

 

C. Compliance with this Section shall be deemed relevant evidence on the issue of whether WCFC parties are responsible for acts of a person identified in Paragraph IV.A that are alleged to violate this Order in any subsequent enforcement proceeding.

V.

IT IS FURTHER ORDERED that, for a period of three (3) years from the date of entry of this Order, WCFC parties shall:

A. Provide a copy of this Order to, and obtain a signed and dated acknowledgment of receipt of same, from each officer or director, for any business where (1) any defendant is the majority owner of the business or directly or indirectly manages or controls the business, and (2) the business engages in the sale of investment seminars or programs; and

 

B. Maintain for a period of three (3) years after creation, and upon reasonable notice, make available to representatives of the Commission, the original signed and dated acknowledgments of the receipt of copies of this Order, as required in Paragraph V.A.

VI.

IT IS FURTHER ORDERED that, so that compliance with the provisions of this Order may be monitored:

A. Sixty (60) days after the date of entry of this Order, WCFC parties shall provide a written report to the Commission, sworn to under penalty of perjury, setting forth in detail the manner and form in which WCFC parties have complied and are complying with this Order.

 

B. For the purposes of this Order, WCFC parties shall, unless otherwise directed by the Commission's authorized representatives, mail all written notifications or other communications to the Commission to:

 

Director, Northwest Region
Â鶹´«Ã½ Trade Commission
915 2^nd Avenue, Room 2896
Seattle, WA 98174

VII.

IT IS FURTHER ORDERED that, for a period of three (3) years from the date of entry of this Order, for purposes of determining compliance with this Order, WCFC parties shall permit representatives of the Commission, within five (5) business days of receipt of written notice from the Commission:

A. Access during normal business hours to any office or facility storing documents concerning any business where (1) any defendant is the majority owner of the business or directly or indirectly manages or controls the business, and (2) the business is engaged in the sale of investment seminars or programs, or in assisting others engaged in such business. In providing such access, WCFC parties shall permit representatives of the Commission to inspect all documents relevant to any matter contained in this Order; and shall permit Commission representatives to remove documents relevant to any matter contained in this Order for a period not to exceed five (5) business days so that the documents may be inspected, inventoried, and copied at the Commission's expense; and

 

B. To interview the officers, directors, and employees, including all personnel involved in responding to consumer complaints or inquiries, of any business subject to Paragraph VII.A. The person interviewed may have counsel present.

VIII.

IT IS FURTHER ORDERED that, within five (5) business days after receipt by WCFC parties of this Order as entered by the Court, WCFC parties and Wade Bruce Cook shall submit to the Commission truthful sworn statements, in the forms shown on Attachments F and G, that shall acknowledge receipt of this Order.

IX.

IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter to enable any of the parties to this Order to apply to the Court at anytime for such further orders or directives as may be necessary or appropriate for the interpretation or modification of this Order, the enforcement of compliance therewith or the punishment of violations thereof.

SO ORDERED, this ______ day of __________, 2000.

UNITED STATES DISTRICT JUDGE

The parties hereby consent to the terms and conditions of the Consent Decree as set forth above and consent to the entry thereof. The parties waive any rights that they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, amended by Pub. L. 104-121, 110 Stat. 847, 863-64 (1996).

FOR DEFENDANTS

_______________________________
DIRECTOR
Wade Cook Financial Corporation
14675 Interurban Ave. S
Seattle, WA 98168

NON-DEFENDANT

_______________________________
WADE BRUCE COOK

FOR PLAINTIFF

ELEANOR DURHAM
FEDERAL TRADE COMMISSION
915 2^nd Avenue, Room 2896
Seattle, WA 98174
206-220-4476