The Federal Trade Commission has reached settlements with two of three defendants in its case against the Los Angeles-based marketers of 900-number "turnkey" business ventures. The settlements bar Genesis One Corp., which does business as Bureau One, and its president, Vartouhi (Rose) Kistorian, from making false earnings claims and other misrepresentations of the type challenged by the FTC in the case, which was filed in federal district court in March 1996 along with several other cases as a part of "Project Buylines," a targeted campaign against 900-number business opportunity frauds. When the FTC had filed its charges in this case, it sought and won a court order putting Genesis under receivership. The receiver now holds some $400,000 in funds that will be distributed according to a court-approved plan.
The FTC had alleged in the case that the defendants falsely promised consumers huge returns on investments of $750 to $3,500 per phone line. The FTC also charged these and most other defendants caught up in Project Buylines with violating its Franchise Rule, a pre-purchase disclosure rule designed to help consumers fully analyze a business opportunity and avoid frauds. The Franchise Rule requires franchise sellers to give potential buyers a detailed disclosure document containing 21 categories of information about the business, its senior officers, the financial and legal history of the firm and its officers, and the names of current and former franchisees so consumers can call and/or visit them to check the veracity of the franchisor’s claims. If franchisors choose to make earnings claims, the rule also requires them to give potential franchisees a document laying out the substantiation for those claims.
The court has entered a default against the final defendant in the Genesis case, Ali Mostashari, the owner of Genesis, because he has not responded to the FTC complaint.
Specific provisions in the Genesis and Kistorian settlements bar:
- any misrepresentation about the likely sales, income or profit that an investor in any franchise or business opportunity will achieve;
- any misrepresentation about the sales, income or profit achieved by a current or former investor;
- any misrepresentation about the length of time it may take to recoup the purchase price or initial investment; and
- violations of the FTC’s Franchise Rule.
The Genesis settlement also includes a $5 million judgment. The FTC said it is unclear at this time how much of the judgment it will be able to collect for redress to consumers. Based on financial disclosure documents she supplied to the FTC, the settlement with Kistorian does not require any monetary payment, but it does contain a provision giving the FTC the right to reopen the matter should she be found to have misstated her financial situation.
The Commission vote to approve these settlements for filing in court was 5-0. They were filed Nov. 19 in U.S. District Court for the Central District of California, in Los Angeles, and were entered by the court on Nov. 21.
NOTE: This consent judgment for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the settlements 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, related documents 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. X960038)
(Civil Action No. 96-1516MRP(Mcx)
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