The Federal Trade Commission today announced a settlement agreement between Rowe International, Inc., the manufacturer of the popcorn vending machines sold by the defendants sued by the FTC in 1995 as part of Project Telesweep -- a nationwide crackdown on business opportunity fraud -- and the court- appointed receiver for the corporate defendants in that case. As part of the settlement, Rowe has agreed to pay at least $1.3 million to be used as redress for the purchasers of the Worldwide Marketing/Hollywood Pop business opportunity venture. The $1.3 million will be added to the $1.4 million settlement recently approved by the Commission with eight South Florida corporate defendants and two individual defendants in the FTC's case. The proposed settlement would also require Rowe to provide warranty work for the vending machines.
The FTC's complaint filed in the Hollywood Pop case named Steven F. Gelb, Frank Friedland, David Bernstein, Kevin Feldman, Worldwide Marketing and Distribution Company, Inc., doing business as Hollywood Pop; Titan Management Corp.; Mammoth Holding Corp.; Remote Assembly Corp.; Popcorn Flavors, Inter national Inc.; Popcorn Supply Company, Inc.; Planet Ice Cream, Inc.; Royal Imperial Ltd., Inc.; and Sutton Group of Palm Beach, Inc. The corporate defendants were based in Boca Raton, Florida. In this case, the FTC alleged that the four individuals, through a web of corporations, routinely defrauded consumers by misrepre senting the potential sales from the vending machines and the reliability of their machines, and by using phony references to induce consumers to purchase the vending machine opportunities they sold for an average of $20,000.
Charges against the Hollywood Pop defendants 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 opport unity schemes. Project Telesweep snared nearly 100 business opportunity marketers 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.
On October 23, 1996, the Commission announced a settlement to end the litigation against Gelb, Friedland and the corporate defendants. The case against the two other individuals, David Bernstein and Kevin Feldman, is still pending.
The settlement between Rowe International and the receiver resolves claims regarding Rowe's alleged failure to honor its warranty to the purchasers of the popcorn vending machines and violations of state trade practices laws. Rowe, based in Grand Rapids, Michigan, was not named in the FTC's complaint.
As a condition to the settlement agreement between Rowe and the receiver, and Rowe's payments of the $1.3 million, the FTC will release Rowe from any claims arising from its role in the Hollywood Pop operation, and any claims arising from another FTC case, FTC v. Wolf, in which Rowe manufactured the pizza ovens sold as a business opportunity. The FTC will withdraw its release if the settlement is not approved by the court, or if, for some other reason, the settlement does not become final.
Pursuant to the agreement, Rowe has already begun making monthly payments of $100,000 into an escrow account. It will pay $100,000 monthly for the next six months. Rowe will then make monthly payments of $50,000 for one year.
The settlement is in the form of a class action agreement. If more than 5 percent of the Hollywood Pop purchasers elect not to participate in this settlement agreement, Rowe can chose to rescind the agreement.
The Commission vote to authorize staff to execute a release of all claims against Rowe International was 5-0.
The proposed settlement agreement was filed in the U.S. District Court for the Southern District of Florida, Fort Lauderdale Division, on Dec. 16. It is subject to court approval.
Copies of the receiver's complaint, the settlement agreement 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.
(FTC File No. X950056)
(Civil Action No. 95-8422-CIV-Roettger)