In the first law enforcement action targeting fraudulent, unsolicited commercial e-mail -- spam -- the Federal Trade Commission has asked a federal district court judge to permanently prohibit the seller of an allegedly bogus business opportunity from making false promises to tout the scheme. The FTC charged that the spam messages and Internet homepage of Internet Business Broadcasting, Inc. contained false and misleading income claims.
"Unsolicited commercial e-mail -- 'spam' in Internet lingo -- is an irritant to consumers. When the spam makes false and misleading claims, it's more than irritating -- it's against the law," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "The rules for advertising by e-mail are the same as the rules for advertising through the regular mail: don't mislead or lie to consumers, or the FTC will come after you."
Internet Business Broadcasting and its principals claimed they operated "City Edition" Internet newspapers and sold opportunities to lease "billboards" or "banners" -- essentially, slots of classified or yellow page advertising space -- that would run on the Internet newspaper sites. In "spam" sent to would-be investors, the defendants claimed that investors in the billboards could sublease advertising space and earn a guaranteed return on their investment. Their spam messages touted the billboards as the "business opportunity [that] offers a solid return potential of 100.8% the first year with only a 25% occupancy rate," and guaranteed that 25% occupancy rate according to the FTC complaint. The spam messages directed prospective franchisees to the defendants' Internet home page or to their toll-free number. Both their spam and their Internet web site offered a "guaranteed" return on investment, or a full refund to investors. Consumers' investments ranged from $5,000 to $7,500.
Internet Business Broadcasting claimed that purchasers could reasonably expect to sublease 25 percent of their billboard, realizing earnings between $240 - $800 per month; a return of 100.8 percent of their investment within the first year; and a full refund if the promised levels were not reached. In fact, the FTC alleged, few purchasers achieved the levels of earnings claimed and the defendants did not provide a full refund. Therefore, the claims are false and misleading and violate federal law, according to the complaint.
In addition, according to the FTC, the business ventures sold by the defendants are franchises, as they are defined in the FTC's Franchise Rule.
The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing twenty categories of information, including information about the history of the franchisor, the terms and conditions under which the franchise operates, as well as the names and addresses of other franchisees. Disclosure of this information enables a prospective franchisee to assess any potential risks involved in the purchase of the franchise.
According to the FTC, the defendants failed to provide the required disclosure statements and failed to provide written substantiation for their earnings claims, in violation of the Franchise Rule.
The FTC has asked the court to bar future violations of the FTC Act and the Franchise Rule and to order refunds for franchisees.
Internet Business Broadcasting is a Nevada Corporation whose principal place of business is Rancho Cucamonga, California, but it did business nationwide. Thomas Maher, Dorian Reed and Audrey Reed were also named in the FTC complaint.
The Commission vote to file the complaint was 4-0, with Commissioner Mary L. Azcuenaga not participating.
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. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaint are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD 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 File No. 982 3000)