Release Date: January 16, 2002
Life is a little sweeter today for hundreds of consumers nationwide who bought into an alleged candy vending machine business opportunity scheme run out of the New York area between 1998 and 2000. In settling its complaint against the defendant company and its principal, the Federal Trade Commission has secured more than $44,000 in consumer redress, strong injunctive relief, and a $1 million performance bond requirement. The Commission's complaint alleged that the defendants violated the FTC Act by misrepresenting how much purchasers could be expected to make on their investment, the quality of the machines that would be provided and how easily they could be repaired, and the availability of help in placing the machines in high-traffic locations. The Commission also charged the defendants with violating the Commission's Franchise Rule for failing to provide written disclosure documents within the time required.
The Commission's complaint was one of 68 law enforcement actions brought through "Operation Biz-illion$," a joint state-federal crackdown on business opportunity fraud that costs consumers tens of millions of dollars each year. The consent order settling the charges, filed January 3 in federal district court in New York City, names defendants Marketing & Vending Concepts, L.L.C. (Marketing & Vending) and the company's principal Michael Cavallo. The Commission separately moved to dismiss the complaint against a second defendant, Mitchell Jacoby.
"As this case and the others brought through Operation Biz-illion$ illustrate, no matter how sweet a business deal sounds, prospective entrepreneurs owe it to themselves to check it out thoroughly," said J. Howard Beales, Director of the FTC's Bureau of Consumer Protection. "Too often, claims can be exaggerated, leaving would-be business owners bitter and broke. Anyone who wants to buy into a business should get earnings claims in writing, talk to previous investors in person, and investigate before they invest."
The Commission's Complaint: According to the Commission's complaint - one of 13 filed by the FTC as part of Operation Biz-illion$ - Marketing & Vending and Cavallo ran a business opportunity scheme, pitching candy and vending machines and related operations to customers throughout the United States between late 1998 and the spring of 2000. The FTC alleged that the defendants made numerous misrepresentations in selling the business opportunities, including overstating the profitability of the opportunities and the quality of placement help that would be provided to the purchasers.
After purchasing one of the vending businesses, buyers found that the poor quality of the machines affected their potential profitability, although the defendants had represented that the machines were durable and of high quality. In addition to losing money when the machines were inoperable, buyers also found them to be more difficult to repair than the defendants had represented. In fact, some machines were in such disrepair that the investors had to stop using them altogether. Further, purchasers often found that recommended location assistance they were provided was poor at best, and that they could not get their machines placed in high-traffic areas. In combination, each of these actions, which the Commission contends violated the FTC Act, led most purchasers to lose their initial investment, according to the FTC.
Further, the FTC contends that the defendants failed to provide buyers with accurate and complete basic disclosure documents regarding their earnings claims within the time required by the Franchise Rule.
Terms of the Order: The consent order contains comprehensive provisions to ensure the defendants comply with the law if they choose to advertise and sell a business venture in the future. First, the order prohibits the defendants from misrepresenting any material facts regarding the level of sales or income that a purchaser can reasonably expect to make from such a business venture, and from misrepresenting the success that a particular locating company has had in placing the defendants' vending machines in profitable locations.
The order also prohibits the defendants from making any false or misleading statements regarding a variety of business-related factors, including: 1) prospective income, profit, or sales volumes likely to be achieved (or that prior purchasers have achieved); 2) the time it will likely take to recoup the purchase price of the business venture; 3) the independence or authenticity of third-party references; 4) the availability of profitable locations in the purchaser's area and the amount of competition within that territory; 5) the help that purchasers will receive; and 6) the terms and conditions of any assurances, refunds, or profitability guarantees made in connection with any recommended location service.
Next, the order prohibits the defendants from violating the Commission's Franchise Rule, enjoins them from making any earnings claims or projections without having a reasonable basis to do so, and prohibits them from selling, renting, leasing, or transferring customer lists they created in connection with any business venture or income-generating product or service.
In addition, the order requires Cavallo to post a $1 million performance bond before engaging in the advertising, promotion, or sale of any business venture or income-generating product or service. It also lifts the asset freeze currently imposed on the defendants and directs third parties holding assets to transfer them to the Commission within 10 days of receiving the order. Further, the order requires Cavallo to pay a total of $44,267 in consumer redress.
The Commission vote to approve the consent order with permanent injunctive and other relief was 5-0. It was filed in the U.S. District Court for the Southern District of New York on January 3, 2002.
NOTE: This stipulated judgment and order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the legal documents associated with these cases are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad
(FTC File No. X000023)
(Civil Action No. 00-Civ-1131 (AKH))