All Snax, Inc., based in Colorado Spring, Colorado, and its president Harvey Waters, have agreed to pay a $20,000 civil penalty to settle federal charges that they failed to give potential investors a complete pre-purchase disclosure document about the business opportunity they sold and documentation to support claimed earnings, as required by the Federal Trade Commission's Franchise Rule. According to the FTC, the defendants sold display rack snack food distributorships. Under the provisions of the settlement, in addition to paying the civil penalty, the defendants also agreed to an injunction against violating the Franchise Rule.
The FTC’s Franchise Rule requires franchisors to give potential buyers detailed up-front disclosures about the financial and litigation history of their firms and their current and past franchisees, and also to provide documentation supporting any claims they make about future earnings.
The defendants sold display rack distributorships for snack food and related products, such as nuts, beef jerky, candy, cakes and cookies, using the trade name "All Snax." The defendants widely advertised and promoted their distributorships in newspapers and promotional materials at franchise and business opportunity shows throughout the United States. Investors paid from $7,500 to $49,500, depending upon the number of accounts and the level of assistance that the company promised to provide, relying on the defendants' claims that they would make as much as $100,000 to $5 million a year.
The complaint against the defendants alleged that their basic disclosure documents did not include all of the key information required by the FTC's Franchise Rule to help investors evaluate the franchise. Specifically, the complaint alleged that the defendants provided prospective investors with documentation that did not contain information about the business experience of the franchisor, the business experience of the principals, or the litigation history of the company. The documentation also did not contain the number of franchises, the names of current franchisees and information about the termination of franchises. In addition, the complaint alleged, All Snax failed to give investors an earnings claim document to substantiate its claims about the actual earnings of existing franchisees and the potential earnings of prospective franchisees.
The consent decree to settle these charges, which requires the court’s approval to become binding, would require All Snax and Waters to fully comply with all aspects of the FTC's Franchise Rule, prohibit them from making unsubstantiated earnings claims or misrepresenting any other material aspects of any franchise or business venture they offer, and mandates that the defendants pay a $20,000 civil penalty in eight installments. The settlement also contains standard reporting requirements designed to assist the FTC in monitoring the defendants' compliance.
The FTC vote to authorize filing of the proposed settlement was 5-0. The proposed complaint and consent decree were filed in the U.S. District Court for the District of Colorado, on September 27, 1996 by the Department of Justice at the FTC’s request. The FTC's Denver Regional Office handled the investigation.
NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent decrees have the force of law when signed by the judge.
Copies of the complaint and proposed consent decree 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 happens, call the FTC’s NewsPhone at 202-326-2710. FTC news releases and other documents also are available on the Internet at the FTC’s World Wide Web Site at http://www.ftc.gov
(FTC File No. 952 3087)
(Civil Action No. 96-B-2276)
Office of Public Affairs
Denver Regional Office
1961 Stout Street, Suite 1523
Denver, Colorado 80294