Federal Trade Commission v. CardFlex, Inc. et al

Filing 44

Stipulated PERMANENT INJUNCTION and Final Order Against Defendant Jeremy Livingston. Signed by Judge Miranda M. Du on 1/2/2015. (Copies have been distributed pursuant to the NEF - KR)

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UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
FEDERAL TRADE COMMISSION,
Plaintiff,
v.
CARDFLEX, INC., a California Corporation;
BLAZE PROCESSING, LLC, an Idaho limited liability
company;

CIVIL NO: 3:14-cv-00397

MACH 1 MERCHANTING, LLC, an Idaho limited
liability company;

[Proposed]
STIPULATED
PERMANENT
INJUNCTION AND FINAL
ORDER AGAINST
DEFENDANT JEREMY
LIVINGSTON

ANDREW PHILLIPS, individually and as an officer of
CardFlex, Inc.;
JOHN BLAUGRUND, individually and as an officer of
CardFlex, Inc.;
SHANE FISHER, individually and as a manager of
Blaze Processing, LLC, and Mach 1 Merchanting, LLC;
and JEREMY LIVINGSTON, individually and as a
manager of Blaze Processing, LLC, and Mach 1
Merchanting, LLC;
Defendants.

On July 30, 2014 Plaintiff, the Federal Trade Commission (“FTC” or the “Commission”),
filed its Complaint against CardFlex, Inc. (“CardFlex”), Blaze Processing, LLC, (“Blaze”), Mach
1 Merchanting LLC (“Mach 1”), Andrew Phillips, John Blaugrund, Shane Fisher and Jeremy
Livingston (“Defendants”), for a permanent injunction and other equitable relief in this action,
pursuant to Section 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 53(b).
The FTC and Jeremy Livingston (“Settling Defendant”) stipulate to the entry of this Order to
resolve all matters in dispute in this action between them.

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THEREFORE, it is ORDERED as follows:
FINDINGS
1.

This Court has jurisdiction over this matter.

2.

The Complaint charges that Settling Defendant participated in unfair acts or

practices in violation of Section 5 of the FTC Act, 15 U.S.C. § 45(a), by enabling merchants to
impose unauthorized charges to consumers’ credit and debit card accounts.
3.

Settling Defendant neither admits nor denies any of the allegations in the

Complaint, except as specifically stated in the Order. Only for purposes of this action, Settling
Defendant admits the facts necessary to establish jurisdiction.
4.

Settling Defendant waives all rights to seek appellate review or otherwise

challenge or contest the validity of this Order. Settling Defendant further waives and releases
any claim he may have against Plaintiff, its employees, representatives, or agents.
5.

Settling Defendant waives any claim that he may hold under the Equal

Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action through the
date of this Order, and agrees to bear his own costs and attorney’s fees.
6.

Settling Defendant waives all rights to appeal or otherwise challenge the

validity of this Order.
DEFINITIONS
For the purpose of this Order, the following definitions shall apply:
1.

“ACH Debit” means any completed or attempted debit to a Person’s

account at a financial institution that is processed electronically through the Automated Clearing
House Network.

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2.

“Client” means any Person (a) who obtains, directly or indirectly, from

Settling Defendant a merchant account that enables the acceptance of payments from a consumer
for goods, services, or charitable donations; or (b) for whom Settling Defendant act as a Sales
Agent, either directly or indirectly.
3.

“Corporate Defendant” and “Corporate Defendants” means Blaze

Processing, LLC (“Blaze”), Mach 1 Merchanting LLC (“Mach 1”), and their successors and
assigns.
4.

“Defendant” and “Defendants” means CardFlex, Blaze, Mach 1, Andrew

M. Phillips, John S. Blaugrund, Shane Fisher and Jeremy Livingston, individually, collectively,
or in any combination.
5.

“Independent Sales Organization” or “ISO” means any Person that (a) enters

into an agreement or contract with a Payment Processor to sell or market Payment Processing
services to a merchant; and (b) holds, directly or indirectly, either partial or full liability in the
event of losses related to the Payment Processing activities conducted by or on behalf of the
merchant.
6.

“iWorks” means the entities and individuals named as defendants in FTC v.

Jeremy Johnson, et al. No. 2:10-cv-2203-RLH-GWF (D. Nev., filed December 21, 2010), and
Big Bucks Pro, Inc.; Blue Streak Processing, Inc.; Bottom Dollar, Inc.; Bumble Marketing, Inc.;
Business Loan Success, Inc.; Cutting Edge Processing, Inc.; Diamond J. Media, Inc.; Ebusiness
First, Inc.; Ebusiness Success, Inc.; Ecom Success, Inc.; Excess Net Success, Inc.; Fiscal
Fidelity, Inc.; Funding Search Success, Inc.; Funding Success, Inc.; GG Processing, Inc.; GGL
Rewards, Inc.; Hooper Processing, Inc.; Internet Fitness, Inc.; Net Business Success, Inc.; Net
Commerce, Inc.; Net Discounts, Inc.; Net Fit Trends, Inc.; Network Agenda, LLC; Optimum

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Assistance, Inc.; Pro Internet Services, Inc.; Razor Processing, Inc.; Simcor Marketing, Inc.;
Summit Processing, Inc.; Unlimited Processing, Inc.; Xcel Processing, Inc., and any other entity
owned or controlled by Jeremy Johnson.
7.

“Payment Processing” means providing a Person, directly or indirectly, with

the means used to charge or debit accounts through the use of any payment mechanism,
including, but not limited to, Remotely Created Payment Orders, Remotely Created Checks,
ACH Debits, or debit, credit, prepaid, or stored value cards. Whether accomplished through the
use of software or otherwise, Payment Processing includes, among other things: (a) reviewing
and approving merchant applications for payment processing services; (b) providing the means
to transmit sales transaction data from merchants to acquiring banks or other financial
institutions; (c) clearing, settling, or distributing proceeds of sales transactions from acquiring
banks or financial institutions to merchants; or (d) processing Chargebacks or returned Remotely
Created Payment Orders, Remotely Created Checks, or ACH Debits.
8.

“Payment Processor” means any Person providing Payment Processing

services in connection with another Person’s sale of goods or services, or in connection with any
charitable donation.
9.

“Payroll Payment Services” means providing the means for an organization,

business, or government entity to issue payments directly to its employees, independent
contractors, or constituents as compensation for performances or services rendered, such as the
payment of officiating fees to sports officials, jury pay to jurors, and rodeo purses to rodeo
participants.
10.

“Person” means any natural person or any entity, corporation, partnership, or

association of persons.

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11.

“Remotely Created Check” or “RCC” means a check that is not created by

the paying bank and that does not bear a signature applied, or purported to be applied, by the
Person on whose financial account the check is drawn. A remotely created check is often also
referred to as a “demand draft,” “telephone check” or “preauthorized draft.” For purposes of this
definition, a remotely created check originates as a paper-based transaction, but can be processed
subsequently through electronic means (such as through check imaging or scanning) or through
non-electronic means.
12.

“Remotely Created Payment Order” or “RCPO” means a payment

instruction or order drawn on a Person’s financial account that is initiated or created by the payee
and that does not bear a signature applied, or purported to be applied, by the Person on whose
financial account the order is drawn, and which is deposited into or cleared through the check
clearing system. For purposes of this definition, unlike a Remotely Created Check, a Remotely
Created Payment Order does not originate as a paper-based transaction. A Remotely Created
Payment Order is created when a payee directly or indirectly enters financial account and routing
numbers into an electronic check template that is converted into an electronic file for deposit into
the check clearing system.
13.

“Sales Agent” means a Person that matches, arranges, or refers prospective

Clients or Clients to a Payment Processor or ISO for Payment Processing, but does not hold any
contractual liability in the event of losses related to the Payment Processing activities conducted
by or on behalf of Clients. As such, a Sales Agent may be involved in recommending a
particular Payment Processor or ISO to a prospective Client, forwarding to the Payment
Processor or ISO a prospective Client’s or Client’s merchant application, or negotiating rates and
fees charged by a Payment Processor or ISO, but a Sales Agent may not be involved in any

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Payment Processing and may not act as an ISO.
14. “Settling Defendant” means Jeremy Livingston.
15. The words “and” and “or” shall be understood to have both conjunctive and
disjunctive meanings.
I.
PROHIBITION AGAINST PAYMENT PROCESSING OR ACTING AS AN ISO OR
SALES AGENT
IT IS ORDERED that Settling Defendant, his successors and assigns, whether acting
directly or indirectly through any Person, subsidiary division, or other device, is permanently
restrained and enjoined from Payment Processing or acting as an ISO or Sales Agent for any
Client.
Provided, however, that this section shall not prevent Settling Defendant from providing
Payroll Payment Services.
Provided further, however, that this section shall not prevent Settling Defendant from
providing Payment Processing Services to organizations, businesses, or governments to whom
Settling Defendant provides Payroll Payment Services for the limited purpose of accepting
member dues in a union or bonafide trade association or athletic participation fees.
II.
MONETARY JUDGMENT
A. Judgment in the amount of $328,467.23 (Three Hundred Twenty-Eight Thousand, Four
Hundred Sixty-Seven Dollars and Twenty-Three Cents) is entered in favor of the
Commission against the Settling Defendant.
B. The judgment is fully suspended subject to the Subsections below.
C. The Commission’s agreement to the suspension of the judgment against Settling

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Defendant is expressly premised upon the truthfulness, accuracy and completeness of the
the sworn financial statements and related documents (collectively, “financial
representations” ) submitted to the Commission, namely:
1. The Financial Statement of Individual Defendant Livingston signed on May 14,
2014, including the attachments;
2. The sworn declaration of Individual Defendant Livingston signed on October 16,
2014; and
3. The additional documentation submitted via email from Individual Defendant’s
counsel, Jonathan O. Hafen, to Commission counsel Benjamin Davidson or Karen
S. Hobbs:
a. Dated May 20, 2014, attaching copies of Defendant’s bank statements
from 2011 to 2014;
b. Dated May 29, 2014, attaching corporate tax returns from 2011 to
2013;
c. Dated June 9, 2014, providing additional information and attaching
copies of Defendant’s individual tax returns for 2011 and 2012;
d. Dated July 23, 2014, providing additional information about Paragon
Enterprises LLC and Blackrock Partnership;
e. Dated October 3, 2014, attaching mortgage loan documentation; and
f. Dated October 16, 2014, attaching additional mortgage loan
documentation.
D. The suspension of the judgment will be lifted if, upon motion by the Commission, the
Court finds that the Settling Defendant failed to disclose any material asset, materially

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misstated the value of any asset, or made any other material misstatement or omission in
the financial representations identified above.
E. If the suspension of the judgment is lifted, the judgment becomes immediately due as to
the Settling Defendant in the amount specified in Subsection A above which the parties
stipulate only for purposes of this Section represents the unjust enrichment alleged in the
Complaint less any payment previously made pursuant to this Section plus interest
computed from the date of entry of this Order.
F. Settling Defendant relinquishes dominion and all legal and equitable right, title, and
interest in all assets transferred pursuant to this Order and may not seek the return of any
assets.
G. The facts alleged in the Complaint will be taken as true, without further proof, in any
subsequent proceeding by or on behalf of the Commission to enforce its rights to any
payment or monetary judgment pursuant to this Order in a nondischargeability complaint
in any bankruptcy case.
H.

The facts alleged in the Complaint establish all elements necessary to sustain an action
by the Commission pursuant to Section 523(a)(2)(A) of the Bankruptcy Code, 11
U.S.C. §523(a)(2)(A), and this Order will have collateral estoppel effect for such
purposes.

I. Settling Defendant acknowledges that the Taxpayer Identification Numbers (Social
Security Numbers or Employer Identification Numbers), which Settling Defendant
previously submitted to the Commission, may be used for collecting and reporting on any
delinquent amount arising out of this Order, in accordance with 31 U.S.C. §7701.
J. All money paid to the Commission pursuant to this Order may be deposited into a fund

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administered by the Commission or its designee to be used for equitable relief, including
consumer redress and any attendant expenses for the administration of any redress fund.
If a representative of the Commission decides that direct redress to consumers is wholly
or partially impracticable or money remains after redress is completed, the Commission
may apply any remaining money for such other equitable relief (including consumer
information remedies) as it determines to be reasonably related to Settling Defendant’s
practices alleged in the Complaint. Any money not used for such equitable relief is to be
deposited to the U.S. Treasury as disgorgement. Individual Defendant has no right to
challenge any actions the Commission or its representatives may take pursuant to this
Subsection.
III.
PROHIBITION ON USE
OF CONSUMER ACCOUNT INFORMATION
IT IS FURTHER ORDERED that Settling Defendant, whether acting directly or through
any Person, subsidiary, division, or other device, is permanently restrained and enjoined from:
A. Disclosing, using, or benefitting from iWorks customer information, including the name,
address, telephone number, email address, social security number, other identifying
information, or any data that enables access to a customer’s account (including a credit
card, bank account, or other financial account), which was obtained by any Settling
Defendant prior to entry of this Order; and
B. Retaining such customer information in all forms in their possession, custody, or control
within thirty (30) days after entry of this Order.
PROVIDED, HOWEVER, that customer information need not be disposed of, and may be
disclosed, to the extent requested by a government agency or required by a law, regulation, or

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court order.
IV.
COOPERATION
IT IS FURTHER ORDERED that Settling Defendant must fully cooperate with
representatives of the Commission in this case and in any investigation related to or associated
with the transactions or the occurrences that are the subject of the Complaint. Settling Defendant
must provide truthful and complete information, evidence, and testimony. Settling Defendant
must appear and must cause Corporate Defendants’ officers, employees, representatives, or
agents to appear for interviews, discovery, hearings, trials, and any other proceedings that a
Commission representative may reasonably request upon 5 days written notice, or other
reasonable notice, at such places and times as a Commission representative may designate,
without the service of a subpoena.
V.
ORDER ACKNOWLEDGMENTS
IT IS FURTHER ORDERED that Settling Defendant obtain acknowledgments of receipt
of this Order:
A. Settling Defendant, within 7 days of entry of this Order, must submit to the
Commission an acknowledgment of receipt of this Order sworn under penalty of
perjury.
B. For ten (10) years after entry of this Order, Settling Defendant for any business that
Settling Defendant, individually or collectively with any other Defendant, is the
majority owner or directly or indirectly controls must deliver a copy of this Order
to: (1) all principals, officers, directors, and LLC members and managers; (2) all

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employees, agents, and representatives who participate in conduct related to the
subject matter of the Order; and (3) any business entity resulting from any change
in structure as set forth in the Section titled Compliance Reporting. Delivery must
occur within seven days of entry of this Order for current personnel. For all others,
delivery must occur before they assume their responsibilities.
C. From each individual or entity to which Settling Defendant delivered a copy of this
Order, Settling Defendant must obtain, within 30 days, a signed and dated
acknowledgment of receipt of this Order.
VI.
COMPLIANCE REPORTING
IT IS FURTHER ORDERED that Settling Defendant make timely submissions to the
Commission:
A. 180 days after entry of this Order, Settling Defendant must submit a compliance
report, sworn under penalty of perjury:
1. Settling Defendant must:
i. Identify all telephone numbers and all physical, postal, email and
Internet addresses, including all residences;
ii. Identify the primary physical, postal, and email address and
telephone number, as designated points of contact, which
representatives of the Commission may use to communicate with
Settling Defendant;
iii. Identify all of Settling Defendant’s businesses by all of their names,
telephone numbers, and physical, postal, email and Internet

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addresses;
iv. Describe the activities of each business, including the goods and
services offered, and the involvement of any other Defendant (which
Settling Defendants must describe if he knows or should know due
to his own involvement);
v. Describe in detail whether and how Settling Defendant is in
compliance with each Section of this Order;
vi. Provide a copy of each Order Acknowledgement obtained pursuant
to this Order, unless previously submitted to the Commission;
vii. Identify all business activities, including any business for which
Settling Defendant performs services whether as an employee or
otherwise and any entity in which such Individual Defendant has
any ownership interest; and
viii. Describe in detail Settling Defendant’s involvement in each such
business, including title, role, responsibilities, participation,
authority, control, and any ownership.
B. For ten (10) years following entry of this Order, Settling Defendant must submit a
compliance notice, sworn under penalty of perjury, within 14 days of any change in
the following:
1. Settling Defendant must report a change in:
i. Any designated point of contact;
ii. The structure of any entity that Settling Defendant has any
ownership interest in or controls directly or indirectly that may

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affect compliance obligations arising under this Order, including:
creation, merger, sale, or dissolution of the entity or any subsidiary,
parent, or affiliate that engages in any acts or practices subject to
this Order.
iii. Name, including aliases or fictitious name, or residence address; or
iv. Title or role in any business activity, including any business for
which Settling Defendant performs services whether as an employee
or otherwise and any entity in which Settling Defendant has any
ownership interest, and identify the name, physical address, and any
Internet address of the business or entity.
C. Settling Defendant must submit to the Commission notice of the filing of any
bankruptcy petition, insolvency proceeding, or similar proceeding by or against
Settling Defendant within 14 days of its filing.
D. Any submission to the Commission required by this Order to be sworn under
penalty of perjury must be true and accurate and comply with 28 U.S.C. § 1746,
such as by concluding: “I declare under penalty of perjury under the laws of the
United States of America that the foregoing is true and correct. Executed
on:_____” and supplying the date, signatory’s full name, title (if applicable), and
signature.
E. Unless otherwise directed by a Commission representative in writing, all
submissions to the Commission pursuant to this Order must be emailed to
[e-mail] or sent by overnight courier (not the U.S. Postal Service) to:
Associate Director for Enforcement, Bureau of Consumer Protection, Federal

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Trade Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580. The
subject line must begin: FTC v. CardFlex, Inc.
VII.
RECORDKEEPING
IT IS FURTHER ORDERED that Settling Defendant must create certain records for 10
years after entry of the Order, and retain each such record for 5 years. Specifically, Settling
Defendant, for any business that Setting Defendant, individually or collectively with any other
Defendant, is a majority owner or controls directly or indirectly, must create and maintain the
following records:
A. Accounting records showing the revenues from all goods or services sold;
B. Personnel records showing, for each person providing services, whether as an
employee or otherwise, that person’s: name, addresses, and telephone numbers; job
title or position; dates of service; and, if applicable, the reason for termination;
C. Records of all consumer complaints and refund requests, whether received directly
or indirectly, such as through a third party, and any response; and
D. All records necessary to demonstrate full compliance with each provision of this
Order, including all submissions to the Commission.
VIII.
COMPLIANCE MONITORING
IT IS FURTHER ORDERED that, for the purpose of monitoring Settling Defendant’s
compliance with this Order, including the financial representations upon which the judgment was
suspended, and any failure to transfer any assets as required by this Order:
A. Within 14 days of receipt of a written request from a representative of the

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Commission, Settling Defendant must: submit additional compliance reports or
other requested information, which must be sworn under penalty of perjury; appear
for depositions; and produce documents for inspection and copying. The
Commission is also authorized to obtain discovery, without further leave of court,
using any of the procedures prescribed by Federal Rules of Civil Procedure 29, 30
(including telephonic depositions), 31, 33, 34, 36, 45, and 69.
B. For matters concerning this Order, the Commission is authorized to communicate
directly with Settling Defendant. Settling Defendant must permit representatives of
the Commission to interview any employee or other Person affiliated with any
Settling Defendant who has agreed to such an interview. The Person interviewed
may have counsel present.
C. The Commission may use all other lawful means, including posing, through its
representatives, as consumers, suppliers, or other individuals or entities, to Settling
Defendant or any individual or entity affiliated with Settling Defendant, without the
necessity of identification or prior notice. Nothing in this Order limits the
Commission’s lawful use of compulsory process, pursuant to Sections 9 and 20 of
the FTC Act, 15 U.S.C. §§ 49, 57b-1.
IX.
RETENTION OF JURISDICTION
IT IS FURTHER ORDERED that this Court retains jurisdiction of this matter for
purposes of construction, modification, and enforcement of this Order.

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2nd

January, 2015.

SO ORDERED, this ______ day of __________________________ , 2014.
_________________________________
United States District Judge

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