A federal district judge has issued a preliminary injunction, appointed a permanent receiver and frozen the assets of a company and three individuals that lured investors into paying as much as $10,000 to buy a business franchise that promised a fabulous return on their investment, but delivered little or nothing. Judge Christina A. Snyder acted on a complaint filed by the Federal Trade Commission that alleged that Inet International, its principal and managers claimed investors could earn $100,000, in their first year, marketing Internet access and Internet-related goods and services. The agency charged that most investors earned little or no income and has asked the court to bar future violations of federal law and to provide redress for consumers.
Inetintl.Com, Inc, a Santa Monica, California-based company doing business as Inet International; Craig A. Lawson, also known as Bob Bryan; Erik R. Arnesen; and Stanley R. Goldberg, also known as Geoff Stevens, were named in the FTC complaint.
According to the FTC, Inet claimed it offered franchisees the products, services and marketing support to become Internet service providers, making sales to the public through "affiliates." Inet offered the franchise businesses for fees starting at $3,000 and ranging up to $10,000, plus monthly “maintenance” fees of up to $250 a month. By placing ads in magazines and newspapers the franchisees were to solicit affiliates to purchase an Inet "Internet Business Marketing System" that would allow the affiliates to sell Internet access, as well as web site development, TV Internet boxes, computers and on-line dating services to the public. Inet claimed that franchisees could earn $100,000 in their first year of business and $300,000 in their second year selling these Internet-related products and services. In addition, Inet claimed that franchisees could obtain up to 100,000 Internet access subscribers, thereby earning up to $400,000 -- a number it described as "easily achievable and realistic." To prove their earnings claims, the defendants encouraged prospective investors to call purportedly “satisfied customers” who would support their claims.
According to the FTC, few, if any, investors achieved the income levels touted by the defendants and one or more of the the "satisfied customers" were actually shills. Both claims violate federal laws that bar false and misleading acts. In addition, the FTC charged the defendants with violating the FTC’s Franchise Rule, which requires that a franchisor provide prospective franchisees with a complete and accurate basic disclosure statement containing 20 categories of information, including information about the history of the franchisor, information about litigation by former franchisees that involves the franchisor/franchisee relationship, any state or Federal restrictive order that affects the franchisor/franchisee relationship, the terms and conditions under which the franchise operates, as well as information about other franchisees. Disclosure of this information enables a prospective franchisee to assess the potential risks involved in the franchise. The rule also requires that franchise sellers have a reasonable basis for any earnings or profit claims; that any earnings projections must be accompanied by the number and percentage of franchisees that have achieved the claimed result; and that specific documentation be provided to substantiate the claims.
According to the FTC, Inetintl.Com, Lawson and Arnesen failed to provide investors with accurate and complete disclosure documents, in violation of the Franchise Rule, including failing to disclose Lawson’s criminal record and failing to provide the names and addresses of at least 10 franchissees. In addition, the defendants failed to provide substantiation of their earnings claims.
The agency has asked the court to enjoin the defendants from violating the FTC Act and the Franchise Rule and to provide refunds to consumers.
The Commission vote to file the complaint was 5-0.
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-FTC-HELP (202-382-4357); 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. 972 3297)