Internet commerce site iMall and two former principals have agreed to pay $4 million to settle Federal Trade Commission charges that they made false earnings claims for Internet-based businesses they promoted and that they violated the Franchise Rule. Craig R. Pickering and Mark R. Comer, two past presidents of iMall, also would be barred for life from selling any Internet or pay-per-call business opportunity; barred for 10 years from selling franchises; required to post a $500,000 bond before selling certain types of business opportunities; and barred from violating the Franchise Rule. iMall would be permanently barred from violations of the Franchise Rule and from misrepresenting material facts about any business opportunity it promotes.
iMall operates an Internet shopping mall and hosts sellers of a variety of goods and services.
"A deceptive claim is a deceptive claim, whether it's on the Internet or in your local newspaper," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "This case sends two important messages: Marketers, back up your earnings claims. It's the law. Consumers, don't buy a pig in a poke. Check out business opportunities to make sure they're everything they claim to be."
Between July 1995 and August 1998, iMall marketed two Internet-related business opportunity programs using direct mail, radio ads, television informercials, a promotional cassette, and telemarketing calls designed to induce investors to attend free seminars where they would hear about the business opportunities. The iMall Opportunity Program offered investors the opportunity to become "consultants" and make money selling webpages on the iMall site. The Internet Yellow Pages (IYP) program offered investors the opportunity to make money selling advertising space on the IYP website contained within the iMall site.
Typically, the seminar presentations claimed that for a $2,995 fee and as little as five to 10 hours investment a week, iMall consultants could make between $2,000 and $20,000 a month. Potential IYP investors were told that for a $2,000 investment and a five to10 hour commitment a month, they could earn between $2,000 and $5,000.
According to the FTC, the earnings claims were false and misleading in violation of federal laws. Most investors did not earn nearly what the seminar leaders claimed they could. In addition, the business opportunities qualified as franchises. The FTC's Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure document containing 20 categories of information at least 10 business days prior to the execution of a purchase agreement or the payment of money. The Rule also requires a franchisor to have a reasonable basis for any earnings representations, and to disclose the material bases and assumptions upon which those representations are made. Investors in IYP and the iMall Opportunity program were not properly supplied with the documents required by the Franchise Rule.
Settlement of the FTC charges will permanently bar Pickering and Comer from "advertising, marketing, promoting, offering for sale or selling any Internet-related business venture or business opportunity" or pay-per-call business. In addition, they would be required to obtain performance bonds in the amount of $500,000 before selling any business opportunity. The settlement also would bar them for 10 years from selling franchises. They would be barred from future violations of the Franchise rule and from misrepresenting any fact material to a consumer's decision to purchase any service or product.
iMall and its agents and employees would be barred from violations of the Franchise Rule and from misrepresenting material facts about the income, profits or sales that can be or have been achieved through the use of any good or service or the length of time it will take to recoup the cost of a good or service. Finally, iMall will pay $750,000 and Pickering and Comer will pay a total of $3.25 million in consumer redress.
The Commission vote to accept the Stipulated Final Judgment and Order was 4-0.
NOTE: A Stipulated Final Judgment and Order for Permanent Injunction is for settlement purposes only and does not constitute an admission of a law violation. It was signed by the judge and entered by the court April 12, 1999.
Copies of the Stipulated Final Judgment and Order for Permanent Injunction are available from the FTC's web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.
(FTC File No. 972-3224)