| DEBRA A. VALENTINE General Counsel ANN F. WEINTRAUB (AW 3080) UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. HI TECH MINT SYSTEMS, INC., a New York corporation, and RON DEPUOND (a/k/a THOMAS DEPUNG), individually and as an officer of HI TECH MINT SYSTEMS, INC., Defendants. CIVIL ACTION NO. COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF Plaintiff, the Federal Trade Commission (“FTC” or “the Commission”), for its complaint alleges: 1. The FTC brings this action under Sections 13(b) and 19 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 53(b) and 57b, to secure a permanent injunction, preliminary injunctive relief, rescission of contracts, restitution, disgorgement, appointment of a receiver, and other equitable relief for defendants’ unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the FTC’s Trade Regulation Rule entitled Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (“the Franchise Rule” or “the Rule”), 16 C.F.R. § 436. JURISDICTION AND VENUE 2. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345 and 15 U.S.C. §§ 53(b) and 57b. 3. Venue in the United States District Court for the Southern District of New York is proper under 28 U.S.C. §§ 1391(b) and (c) and 15 U.S.C. § 53(b). PLAINTIFF 4. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. 15 U.S.C. §§ 41 et seq. The Commission is charged, among other things, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission is authorized to initiate federal district court proceedings to enjoin violations of the FTC Act in order to secure such equitable relief as may be appropriate in each case and to obtain consumer redress. 15 U.S.C. §§ 53(b) and 57b. DEFENDANTS 5. Defendant Hi Tech Mint Systems, Inc. (“Hi Tech”), a New York corporation with its principal place of business at 271 Madison Avenue, Suite 804, New York, New York, promotes and sells vending machine business opportunity ventures. Hi Tech has transacted business in the Southern District of New York. 6. Defendant Ron Depuond (a/k/a Thomas DePung) is an officer, director, principal owner, or president of Hi Tech. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. He has transacted business in the Southern District of New York. COMMERCE 7. At all times relevant to this complaint, the defendants have maintained a substantial course of trade in the offering for sale and sale of vending machines business opportunity ventures, in or affecting commerce, as “commerce” is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS’ BUSINESS ACTIVITIES 8. Since in or about January 1997, the defendants have been engaged in a scheme to promote, offer to sell, and sell vending machine business opportunity ventures. Defendants advertise their venture in newspapers across the country. The advertisements typically offer vending machine distributorships that require few hours of work per week with net earnings of approximately $40,000 per year. For example, one of defendants’ advertisements states: “Absolutely nothing down. Net $40K/yr. Work 6-8hrs/wk. HERSHEY display distributorship. 1-800-287-5748, 24 hrs.” 9. When consumers respond to the advertisements, they receive defendants’ sales presentation for packages of vending machine business opportunity ventures. Defendants tell prospective purchasers, both orally and in written materials, that Hi Tech’s “4 in 1” package gives them four different ways to make money. Defendants tell prospective purchasers that they can make money through the vending machines, which would vend York Peppermint Patties, and through commissions earned via the dissemination of three “Take-Ones” and forms: a) applications for a Visa card or MasterCard; b) applications for Hotel Express, a discount travel club; and c) Ballot Box entry forms, where people would enter to win a free car, trip, or money. 10. The prices for defendants’ packages of 22 to 61 machines range from $6,800 to $14,999. Defendants represent to prospective purchasers, both orally and in written materials, that they can make income or profits ranging from $51,900 to $145,668 per year. After buying one of defendants’ business opportunity packages, purchasers’ earnings do not come close to reaching the promised income or profits. 11. As a further inducement, defendants recommend locator companies to purchasers. Defendants represent to purchasers that the locator companies have already secured locations for their vending machines. In many instances defendants characterize these locations as “hot spots” in which purchasers’ vending machines and display apparatus would earn them money even faster. After buying defendants’ business opportunity venture, numerous purchasers have learned from the locators that they had never secured any locations for their vending machines and displays. VIOLATIONS OF SECTION 5 OF THE FTC ACT 12. Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), prohibits unfair or deceptive acts or practices in or affecting commerce. 13. Misrepresentations of material fact constitute unfair or deceptive acts or practices prohibited by Section 5(a) of the FTC Act. COUNT ONE 14. In the course of offering for sale and selling vending machine business opportunity ventures, defendants have represented, directly or by implication, that purchasers buying defendants’ “4 in 1” package of vending machines, Visa card or MasterCard applications, Hotel Express applications, and Ballot Boxes, can reasonably expect to achieve a specific level of earnings, such as a total annual income of $51,900 to $145,668, and that such figures are accurate estimates of the sales or income purchasers can reasonably expect. 15. In fact, few, if any, purchasers attain the specific level of earnings represented by the defendants, and such figures are not accurate estimates of the sales or income purchasers can reasonably expect. 16. Therefore, defendants’ representations as set forth in Paragraph 14 are false and misleading and constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT TWO 17. In the course of offering for sale and selling vending machine business opportunity ventures, defendants have represented, directly or by implication, that they will provide purchasers with the “Take-One” Visa or MasterCard applications, Hotel Express applications or Ballot Box forms. 18. In fact, in numerous instances, purchasers have not received the “Take-One” Visa or MasterCard applications, Hotel Express applications or Ballot Box forms from defendants as promised. 19. Therefore, defendants’ representations as set forth in Paragraph 17 are false and misleading, and constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT THREE 20. In the course of offering for sale and selling vending machine business opportunity ventures, defendants have represented, directly or by implication, that certain locating companies they provide or recommend are successful in placing business venture purchasers’ vending machines in profitable locations a substantial portion of the time. 21. In fact, in numerous instances, the locating companies that the defendants provide or recommend are not successful in placing purchasers’ vending machines in profitable locations a substantial portion of the time. 22. Therefore, defendants’ representations as set forth in Paragraph 20 are false and misleading, and constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT FOUR 23. In the course of offering for sale and selling vending machine business opportunity ventures, defendants have represented, directly or by implication, that the recommended locating companies have secured preexisting locations, many of which defendants represent to be “hot spots,” by obtaining the consent of store owners with high traffic locations in the prospective purchaser’s geographic area for the placement of vending machines. 24. In fact, in numerous instances, despite such representations, the recommended locating companies have not secured such pre-existing locations or “hot spots” in the prospective purchaser’s geographic area for the placement of vending machines. 25. Therefore, defendants’ representations as set forth in Paragraph 23 are false and misleading, and constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). THE FRANCHISE RULE 26. The business opportunity ventures sold by defendants are franchises, as “franchise” is defined in Section 436.2(a) of the Franchise Rule, 16 C.F.R. § 436.2(a). 27. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing twenty (20) categories of information, including information about the history of the franchisor, the terms and conditions under which the franchise operates, and information about other franchisees. 16 C.F.R. § 436.1(a)(1) - (a)(20). Disclosure of this information enables a prospective franchisee to assess potential risks involved in the purchase of the franchise. 28. The Franchise Rule additionally requires: (1) that the franchisor have a reasonable basis for any oral, written, or visual earnings or profit representations made by a franchisor to a prospective franchisee, 16 C.F.R. § 436.1(b)(2), (c)(2) and (e)(1); (2) that the franchisor provide to prospective franchisees a document containing information substantiating the earnings claim, 16 C.F.R. § 436.1(b)-(e); and (3) that the franchisor, in immediate conjunction with any generally disseminated earnings claim, disclose the material basis (or the lack of such basis) for the earnings claim and include a warning that the earnings claim is only an estimate. 16 C.F.R. § 436.1(e)(3)-(4). 29. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. 57a(d)(3), and 16 C.F.R. § 436.1, violations of the Franchise Rule constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). VIOLATIONS OF THE FRANCHISE RULE COUNT FIVE 30. In numerous instances in connection with the offering of franchises, as “franchise” is defined in the Rule, 16 C.F.R. § 436.2(a), defendants have failed to provide prospective franchisees with disclosure documents, or with accurate and complete disclosure documents, within the time period required by the Franchise Rule, thereby violating Section 436.1(a) of the Rule, 16 C.F.R. § 436.1(a), and Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT SIX 31. In numerous instances in connection with the offering of franchises, as “franchise” is defined in the Rule, 16 C.F.R. § 436.2(a), defendants have made earnings claims within the meaning of the Rule, 16 C.F.R. § 436.1(b)-(e), but have failed to provide prospective franchisees the earnings claim document required by the Rule and have failed to disclose the information required by the Rule in immediate conjunction with such claims, thereby violating Sections 436.1(b)-(e) of the Rule, 16 C.F.R. § 436.1(b)-(e), and Section 5 of the FTC Act, 15 U.S.C. § 45. CONSUMER INJURY 32. Consumers in many areas of the United States have suffered substantial monetary loss as a result of defendants’ unlawful acts or practices. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers and harm the public interest. THIS COURT’S POWER TO GRANT RELIEF 33. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to grant injunctive and other ancillary relief, including consumer redress, disgorgement and restitution, to prevent and remedy any violations of any provision of law enforced by the Federal Trade Commission. 34. Section 19 of the FTC Act, 15 U.S.C. § 57b, authorizes this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from defendants’ violations of the Franchise Rule, including the rescission and reformation of contracts, and the refund of money. 35. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by the defendants’ law violations. PRAYER FOR RELIEF WHEREFORE, plaintiff requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, and pursuant to its own equitable powers:
Respectfully Submitted, Debra A. Valentine Michael J. Bloom Rhonda J. McLean Ann F. Weintraub (AW 3080) Dated: August 13, 1998 |