National Marketing, Inc., and its officer, Paul Woodward, have agreed to pay a $15,000 civil penalty to settle federal charges that they failed to give potential investors pre-sale disclosures about the business opportunity they sold and documentation to support claimed earnings, as required by the Federal Trade Commission's Franchise Rule. The defendants sold bulk candy using display racks placed in retail stores. This is one of the 22 cases filed by the Department of Justice for the FTC as part of Project Telesweep -- a nationwide crackdown by federal and state regulators on business opportunity fraud. Under the provisions of the settlement, the defendants also agreed to an injunction against violating the FTC Act and 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.
National Marketing is based in Bloomington, Minnesota. Purchasers paid $11,995 for a minimum start-up package of ten displays with candy, relying on the defendants' claims that they would make as much as $90,000 a year from ten displays.
Charges against National Marketing and Woodward were filed in July 1995 as part of “Project Telesweep,” a joint enforcement effort by the FTC and 20 state Attorneys General and securities regulators to crack down on deceptively-marketed business opportunity schemes. Project Telesweep snared nearly 100 marketers of vending machine business opportunities for failure to provide critical pre-purchase information to potential buyers. Many firms also were charged with making exaggerated earnings claims and false promises about the amount and type of assistance they would provide franchisees.
The complaint against the defendants alleged that they failed to give investors the key information required by the FTC's Franchise Rule to help investors evaluate the franchise. In addition, the defendants failed to give investors required substantiation for the earnings claims they made.
The consent order to settle these charges, which requires the court’s approval to become binding, would require National Marketing and Woodward to comply with the FTC's Franchise Rule, prohibit them from making false statements or misrepresenting material aspects of any franchise or business venture they offer, and mandates that the defendants pay a $15,000 civil penalty. The consent order also contains various reporting provisions designed to assist the FTC in monitoring compliance.
The FTC vote to authorize filing of the consent order was 5-0. It was filed at the FTC’s request by the Department of Justice in the U.S. District Court for the District of Minnesota, in Minneapolis, on September 30, 1996.
NOTE: This consent order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent orders have the force of law when signed by the judge.
Copies of the stipulated judgment and order, and other documents associated with Project Telesweep, 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
Bureau of Consumer Protection
Hugh Stevenson or Craig Tregillus
202-326-3511 or 202-326-2970
(FTC File No. X950089)
(Civil Action No. 3-95-640)