American Fortune 900, Strategies Telecom, Inc. Settle FTC Charges over High-Tech Investnment Claims

The Federal Trade Commission has negotiated settlements in two cases against firms pitching high-tech investments to consumers using allegedly false claims about the risk and profit potential of the investments, among other misrepresentations. One firm, American Fortune 900, Inc., of Westlake Village, California, offered general partnership investments that purpor tedly would derive income from various 900-number telephone lines. The second, Strategies Telecom, Inc., of Pompano Beach, Florida, was part of a common enterprise that offered investments in federally-issued paging licenses. The settlements follow charges filed in January 1996 against these two firms and 83 others for fraudulently pitching these and other types of high-tech investments. The crackdown, called Project Roadblock, was launched by the FTC and state securities regulators.

American Fortune 900:

This settlement resolves FTC charges that American Fortune, which claimed to be raising $4 million, falsely represented that investments in its 900-number venture were low risk and would produce substantial profits. In fact, the FTC alleged, American Fortune depleted a sub stantial portion of investors’ capital in paying sales commissions and other expenses, so the investment was not low risk. Moreover, the FTC alleged, the firm misrepresented the number of operational 900-number lines in which it had a financial interest. The settlement imposes a $2.544 million judgment against the firm, and prohibits it from making a variety of false claims in marketing any investment or telephone information service in the future. Specifically, the firm would be prohibited from falsely representing:

• the risk, profit potential, or past performance of any investment, or time when an investor is likely to begin receiving returns;
• that it is segregating funds to purchase a U.S. Treasury bond to protect investors’ principal;
• the number of telephone lines providing information services that it has acquired; or
• any other fact material to a consumer’s decision to invest.

The settlement also bars false representations of material facts in connection with the firm’s efforts to solicit charitable donations, or to entice consumers to enter contests for prizes or purchase any item or service through telemarketing. And, it prohibits the firm from transferring or selling its customer lists. It is unclear at this time how much of the $2.544 million judgment can be collected.

Finally, this settlement contains various recordkeeping and reporting provisions designed to assist the FTC in monitoring the firm’s compliance. It requires the court’s approval to become binding, and was filed along with a motion asking the court to permit interested parties to comment before the court rules on the settlement. (The other defendant in the American Fortune case, company principal Rory Cypers, entered into a settlement with the FTC to settle the charges against him in August. See Aug. 8, 1996 FTC news release.)

Strategies Telecom:

In this case, the FTC charged Strategies Telecom, two other firms and four individuals with participating in a scheme in which consumers were falsely told that purchasing Federal Communications Commission (FCC) paging licenses through the defendants’ application services would generate substantial profits, because they could sell or lease the licenses and they would not have to construct a paging system themselves. The FTC also charged that the defendants told consumers that the purchase was a low-risk, excellent investment, that no one can obtain multiple paging licenses directly from the FCC, and that the FCC requires applicants for paging licenses to conduct engineering studies, site analyses and other studies. These are all false claims, the FTC alleged. The role of Strategies Telecom in this scheme allegedly was to act as a corporate facade for the other defendants. (Charges against the other defendants in the case remain pending.)

The settlement would prohibit Strategies Telecom from making the challenged false claims, including claims that:

• consumers are likely to earn substantial profits through leasing, transferring or selling paging licenses; or
• consumers can derive income or profit from FCC-issued paging licenses without constructing a paging system themselves.

In connection with any telemarketing or investment offering, the firm would be prohibited from misrepresenting that it is a low-risk or excellent investment.

Based on a sworn financial statement from the firm, the settlement does not include any monetary payment, but it would permit the FTC to reopen the case and seek redress should the firm be found to have misrepresented its financial status. Finally, the settlement contain various reporting and recordkeeping provisions. This settlement also requires the court’s approval.

The Commission votes to approve these settlements for filing in court were 5-0. They were filed in federal district courts as noted below.

NOTE: These agreement are for settlement purposes only and do not constitute admissions by the defendants of law violations. Settlements have the force of law when signed by the judge.

Copies of the settlements, as well as other documents associated with these cases and with Project Roadblock, 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 FTC news as it happens, call the FTC NewsPhone at 202-326-2710. FTC news releases, consumer brochures and other documents also are available on the Internet at the FTC’s World Wide Web site at http://www.ftc.gov

American Fortune: FTC File No. X960011;
U.S. District Court for the Central District of California, in Los Angeles, Civil Action No. 96-305-RAP (RNBx); settlement filed on Sept. 18

Strategies Telecomm: FTC File No. X960082;
U.S. District Court for the SouthernDistrict of Florida, Miami Division, Case No. 96-6-81-CIV-Lenard; settlement filed on Sept. 19