A businessman has settled Federal Trade Commission charges that he sold his greeting card display rack business opportunities by misrepresenting the potential earnings that consumers could make. The FTC also alleged he did not provide any disclosure documents to purchasers, as required. The settlement bars the businessman from making false earnings claims, using shills, and misrepresenting the profitability of secured locations in the future, and prohibits him from violating the Franchise Rule or Business Opportunity Rule.
Thomas E. Richardson, the man behind Mid-South Distributors, advertised his greeting card display rack business opportunities in classified ads in local newspapers, claiming that purchasers could earn as much as $65,000 a year. Based in Florence, Alabama, he sold distributorships in Georgia, Alabama, Tennessee, Mississippi, Florida, and Kentucky. Richardson promised potential purchasers that for an investment of $8,500 or more, they would receive everything they needed to start a business: an initial inventory of greeting cards, display racks for the cards, and profitable locations where he would supposedly place the cards and racks for the purchaser.
According to the FTC, consumers never earned anything close to the income levels they were promised. The Commission alleged that in almost every case, consumers made less than $100 per month. The highest earning purchaser only returned $2,006 for the entire year by investing in 20 locations. In addition, Richardson often did not provide his customers with the promised number of locations for their display racks. Typically, the locations he did provide were not in high traffic areas, and resulted in few greeting card sales for the consumers. Also, the FTC accused Richardson of not providing any of the disclosures that are required by the Franchise Rule.
The order entered by the court prohibits Richardson from making future false claims in connection with the sale of any business venture. In particular, he is prohibited from misrepresenting that: consumers who purchase a business venture are likely to earn substantial income; certain company selected references have purchased a business venture or will provide reliable descriptions of their experiences with the business venture; and locations have been secured or will be secured in geographic areas that will produce a high volume of sales.
The order also enters a monetary judgment of $901,402.89 – the total amount of money consumers paid, minus any refunds that were given. The judgment is suspended based on sworn financial disclosures. However, if it is found the defendant lied in those financial statements, then the full amount will be due.
The FTC brought this case as part of Project FAL$E HOPE$, a nationwide crackdown last December on bogus business opportunities by federal, state, and local authorities.
The Commission vote to authorize staff to file the stipulated final order was 5-0. The stipulated final order for permanent injunction was entered by the U.S. District Court for the Northern District of Alabama on May 31, 2007.
NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.
Copies of the stipulated final order 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 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/ftc/complaint.shtm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.