Bogus Business Opportunities Sellers Settle FTC Charges

A company that used false earnings claims, shills, and other misleading representations to sell a music business opportunity scam has agreed to settle Federal Trade Commission charges that the scheme violated federal laws. The settlements bar one defendant from engaging in any business opportunity or franchise businesses in the future, bar the other defendants from misrepresenting franchise or business opportunities, and provide $300,000 in consumer redress.

In June 2002, the FTC, Department of Justice, and 17 state law enforcement agencies launched “Project Busted Opportunity,” a law enforcement sweep targeting fraudulent work-at-home and business opportunity operations. As part of that sweep, the FTC filed a complaint in federal district court charging Associated Record Distributors, Inc. (ARD) of Aventura Florida, its principals Alfredo Susi and Russell MacArthur, and its former principals David Siegel and Brian Morgenstern, alleging that they violated the FTC Act when selling music distribution business opportunities. The settlements announced today end that litigation.

The FTC alleged that the defendants sent unsolicited commercial e-mail and placed ads in newspapers throughout the country representing that “People just like you are making $150,000 per year! What are they doing? Going around to popular stores in their local area, and restocking shelves of the HOTTEST SELLING products ever!” According to the FTC, consumers who responded to the advertisements reached a telemarketer who falsely promised potential investors a profitable business opportunity operating display racks offering compact discs and audio cassettes for sale in retail locations, and stated that they would recover their initial investment within three or four months. The FTC alleges that the defendants also falsely promised to find profitable locations for the music display racks, and referred the potential investors to phony references paid to lie about their success. At the outset of the case, the court granted the FTC a temporary restraining order and froze the defendants’ assets.

The proposed settlement with defendant Russell MacArthur bans him from advertising, promoting, or selling any franchises or other business opportunities, or from owning or working for any entity that engages in those activities. The settlement also prohibits MacArthur from making any material misrepresentations in connection with the sale of any goods or services and from violating the Commission’s Franchise Rule.

The settlement with the other defendants prohibits them from making deceptive claims, including earnings claims, in connection with the marketing or sale of any franchise or other business opportunity. The settlements also require the defendants to abide by the Franchise Rule and to pay substantially all their assets, which the court previously froze, to the FTC for redress to victimized consumers.

Specifically, the settlements with ARD, Susi, and MacArthur provide that those defendants will satisfy the judgment in part by transferring substantially all of their assets - $300,000 - to the court-appointed receiver for consumer redress. Should the court find that the defendants misrepresented their financial circumstances, they will be liable for the full amount of their ill-gotten gains, or $3.4 million. Finally, the settlements contain various recordkeeping provisions to assist the FTC in monitoring the defendants’ compliance.

The Commission vote to authorize the staff to file the proposed stipulated final judgment and order was 5-0. The settlements were filed in U.S. District Court for the Southern District of Florida and entered by the court May 21, 2003.

NOTE: The stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Stipulated final judgments have the force of law when signed by the judge.

Copies of the stipulated final judgments are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at http://www.ftc.gov . The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.