The Federal Trade Commission announced settlements in six more of the 34 cases it brought last July as a part of "Project Telesweep," which was a nationwide crackdown by federal and state regulators on business opportunity fraud. One of the settlements is with a firm that allegedly ran a sham better business bureau that consumers could call for information on other business opportunity marketers, some of which were targeted by the FTC in Project Telesweep cases. Among other things, the settlement in that case would prohibit the defendants from falsely implying that they are affiliated with a Better Business Bureau or the government. The settlements the FTC announced today are with:
These cases are among the nearly 100 filed by the FTC, the U.S. Justice Department, and business opportunity regulators in 20 state securities division and attorney general offices as a part of Project Telesweep. Several other cases already have settled. Law enforcement officials participating in Project Telesweep also issued an extensive consumer bulletin offering would-be investors in franchises and business opportunities numerous tips on how to avoid scams, and information about the FTC's Franchise Rule.
In several of the cases, the FTC charged, the defendants failed to offer potential purchasers of their business opportunities the basic disclosure document and earnings claims documentation as required by the Franchise Rule. This document gives potential franchise buyers detailed information about the franchise, its corporate officers and their legal history, and the names of current and prior franchisees. In addition, some of the defendants were charged with misrepresenting the potential earnings of franchise buyers and/or the amount of assistance they would provide investors in locating their display racks or vending machines, and with using phony references or "shills."
The proposed consent judgments to settle the charges in these cases require court approval to become binding. The settlements with the five companies marketing business opportunities require future compliance with the Franchise Rule, and prohibit the defendants making various false or misleading statements when offering any franchise or business opportunity. The FTC said information the companies would have provided in these federally-required documents may have tipped consumers off to the fraud.
Certain categories of false statements also would be specifically barred in one or more of the settlements, including false statements about the income, profit, sales volume that a buyer is likely to achieve or that is being achieved by current franchisees; the length of time it will take to recoup the investment, and the availability or existence of profitable locations. In addition, a statement that the identities of other investors cannot be disclosed due to privacy concerns would be barred by one settlement; the FTC's Franchise Rule specifically requires franchise sellers to include in the basic disclosure document the names of current and past franchisees so that potential buyers can contact them as references.
Firstlight is required to pay a $10,000 civil penalty under its settlement with the FTC. The settlements in the Telecommunications of America case will net $17,500 for a consumer redress fund, and the settlements in the United States Business Bureau case will result in $11,000 for redress. Other settlements contain provisions that would permit the FTC to reopen the cases and obtain additional funds for consumer redress, should the defendants be found to have mis- represented their financial condition. The FTC also noted that the Surface Science case represents the first franchise case in which the FTC was able to act before any actual sales were made and, thus, before any consumers lost their investments.
The proposed settlements were filed in appropriate federal district courts around the country (see below). All except the United States Business Bureau and Telecommunications of America settlements were filed by the Department of Justice at the FTC's request. The Commission votes to file them were 5-0.
NOTE: Consent judgments are for settlement purposes only and do not constitute admissions by the defendants of law violations. Consent judgments have the force of law when signed by a judge. Copies of the settlements and a Project Telesweep consumer bulletin 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