Dale Merritt, who was charged by the Federal Trade Commission along with his firm, Showcase Distributing, Inc., of Phoenix, Arizona, as part of a nationwide crackdown on business opportunity fraud, has agreed to post a $200,000 bond for the protection of his customers before offering any franchise or business venture for the next 10 years. The bond is included in a settlement that Merritt, who also has done business as VC Network, and Showcase have signed to settle the FTC charges. The settlement also bars Merritt and Showcase in the future from making a host of misrepresentations in future business opportunity sales, and requires them to comply with the FTC’s Franchise Rule, a pre-purchase disclosure rule designed to give potential franchisees a great deal of key information about the business, its officers, and their legal and financial history, as well as the names and addresses of former and current franchisees.
According to the FTC, Showcase and VC Network were offering pre-packaged businesses that consisted of vending machines for gourmet popcorn and other products. The FTC charged them with making a number of false claims about the earnings potential of purchasers as well as other aspects of the business, and also with using phony references to induce consumers to purchase the vending opportunities, which were sold for $11,995 and up.
The settlement announced today ends the litigation in this case, which was brought along with nearly 100 others as a part of “Project Telesweep” in July 1995. Project Telesweep was a nationwide crackdown by the FTC and state attorneys general and securities regulators to target the growing problem of business opportunity fraud. Many of the Project Telesweep cases were launched against defendants pitching vending machine and display rack distributorships, using false earnings claims and/or failing to give consumers critical pre-purchase information about the business opportunities, as required by the FTC’s Franchise Rule. Upon the announcement of Project Telesweep, the state and federal law enforcers issued a consumer bulletin cautioning consumers to check out business opportunities carefully, because fraud was on the rise. The bulletin specifically warns consumers about high earnings claims that are unsubstantiated and the use of “shills” or phony references, and urges consumers to insist on and to carefully review detailed disclosures about the business before investing any money.
Under the consent judgment Merritt and Showcase have signed, they are prohibited from violating the Franchise Rule and from misrepresenting any fact material to a consumer’s decision to purchase in any business venture they offer in the future. The settlement also prohibits them from making misrepresentations about, among other things:
- income, profits or sales volume;
- the authenticity of references or their comments;
- the ability of a locating company to find profitable locations for machines or racks; and
- the amount location owners will charge to locate machines or racks on their property when the consumer associates with a recommended charity.
Merritt, for 10 years, is prohibited from offering any business venture unless he first posts a $200,000 performance bond to insure against him violating the settlement in connection with such a offering. He also must clearly disclose the existence of the bond to his business venture customers.
The settlement does not require the payment of any funds for redress, but contains provisions that would permit the FTC to reopen the case should the defendants be found to have misrepresented their financial condition. The settlement also includes various reporting and recordkeeping requirements designed to assist the FTC in monitoring their compliance.
The Commission vote to accept the consent judgment for filing in court was 5-0. It was submitted to and approved by the U.S. District Court for the District of Arizona, in Phoenix, on July 1. The FTC’s Los Angeles Regional Office handled this Project Telesweep case for the Commission.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendants of law violations. Consent judgments have the force of law when signed by the judge.
Copies of the consent judgment, as well as the consumer bulletin and other documents associated with Project Telesweep, are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov
(FTC File No. X950054)
(Civil Action No. 95-1368-PHX-SMM)
Office of Public Affairs,
202-326-2161 or 202-326-2180
Los Angeles Regional Office,
11000 Wilshire Boulevard, Suite 13209,
Los Angeles, California 90024,