The Federal Trade Commission warned today that tens of thousands of consumers may be investing in fraudulent business opportunities for 900-number lines. The agency announced “Project Buylines,” which culminated in seven cases against the marketers of these “turnkey” prepackaged businesses. The FTC charged that some or all of the defendants in these cases made blatantly false earnings claims, and failed to give investors federally required pre-purchase information that may have tipped the investors off to the fraud. The marketers of these businesses own the 900-number lines and the programs that consumers will hear when calling the numbers, and represent that all investors have to do is advertise the lines and then take a portion of the revenues for themselves, the FTC said.
“Project Buylines targets the latest and hottest business opportunity fraud today -- the chance to operate your own 900-number line,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “We came across a huge number of ads for these scams as we did follow-up on Project Telesweep, the massive federal-state crackdown on display rack and vending machine ?biz opp’ frauds that netted nearly 100 cases last July. We found far fewer ads for vending opportunities after Project Telesweep, but the number of ads for 900-number business opportunities is skyrocketing.“Moreover, we believe these new 900-number businesses are even more enticing,” Bernstein said. “Unlike display rack or vending machine business opportunities where the investor has to service, restock and trouble shoot as many as 50-100 racks or machines, pay-per-call franchises marketers promise ?effortless’ revenue -- their pitch is that one need only purchase the lines, advertise, and wait for the profits to roll in.”
The cases the FTC announced today are against:
The defendants in these cases generally offer business ventures that consist of pay-per-call information or entertainment programs that consumers can access by calling 900 numbers. For a base price that varies from a few hundred to nearly $4,000, investors get a package that purportedly includes one or more 900-number lines, recordings of the programs and instructions consumers will hear when they call the lines, prepared advertisements and/or assistance in preparing and placing ads, and other technical support. The defendants all made claims that investors would make a great deal of money, the FTC alleged, citing in its complaint earnings claims ranging from a few thousand to more than $200,000 a year.
In the cases against the Genesis One, Innovative Telemedia and Gold Leaf Publishing defendants, the FTC charged that the earnings claims were false, noting that few, if any, investors made the promised amounts. In an additional charge against Innovative Telemedia, the FTC alleged that the marketer failed to pay its investors the agreed-upon portion of revenues from calls to the 900-number lines.
In every case except the one against Innovative Telemedia, the FTC also alleged that the defendants violated the FTC’s Franchise Rule. This is a pre-purchase disclosure rule designed to help consumers fully analyze a business opportunity and avoid fraud. The rule requires franchise sellers to give potential investors a basic disclosure document containing detailed information about the franchise, its senior officers, financial history, and the names of current and prior franchisees. 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 FTC charged that these defendants failed to provide these two documents, which may have given consumers information that would have led them to decide against purchasing the business opportunities.
In each case, the FTC is seeking court orders that would require the defendants to pay redress to injured investors or disgorge their illegal profits to the U.S. Treasury, and would bar the defendants from engaging in similar deceptive practices in the future. In the Genesis One and Innovative Telemedia cases, the FTC already has won temporary restraining orders halting the schemes, freezing the defendants’ assets and appointing receivers to manage the corporate entities’ financial affairs pending the outcome of trial.
The FTC votes to file the complaints detailing the charges in these cases were all 5-0. They were filed in various federal district courts around the country (see below), and hearings will be scheduled soon.
In the meantime, the FTC’s Bernstein warns consumers to be very wary of classified ads touting 900-number riches, especially when the business opportunity marketers fail to give consumers detailed written information about the business.“The FTC’s Franchise rule is, essentially, an anti-fraud rule,” Bernstein said. “It gives consumers a roadmap for checking out this kind of business opportunity so that they can inoculate themselves against being ripped off,” Bernstein said. “Consumers thinking of investing in a franchise-type business opportunity should view a company’s failure to provide the extensive pre-purchase information required by the rule as a harbinger of fraud.”
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. These complaints are not findings or rulings that the defendants have actually violated the law. The cases will be decided by the courts.
Copies of the complaints in these cases 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 Nos./Civil Action Nos.:
Genesis One Corp. -- File No. 952 3251/U.S. District Court for the Central District of California, Los Angeles, Civil Action No. CV-96-1516-MRP(MCX)
Innovative Telemedia, Inc. -- File No. 952 3273/U.S. District Court for the Southern District of Florida, West Palm Beach, Civil Action No. 96-8140 CIV-Ferguson
Bureau 2000 International, Inc. -- File No. 952 3459/U.S. District Court for the Central District of California, Los Angeles, Civil Action No. 96-1473-DT-(JR.)
William Szabo/Gold Leaf -- File No. 952 3455/U.S. District Court for the Middle District of Florida, Orlando, Civil Action No.96-226-Civ.-Orl-19
Pioneer Communications -- File No. 952 3458/U.S. District Court for the Central District of California, Los Angeles, Civil Action No. 96-1471-WMB-(RMC.)
J. P. Meyers Company, Inc. -- File No. 952 3468/U.S. District Court for the Eastern District of Pennsylvania, in Philadelphia, Civil Action No. 96-CV-1671
Ad-Com International, Inc. -- File No. 952 3492/U.S. District Court for the Central District of California, Los Angeles, Civil Action No. 96-1472-LGB (VAP.)