(Mini Snacks--4/18/95) (Mini Snacks--4/18/95)
Mini Snacks, Inc., and John Sanchez and Tim McCarty, corporate officers, have agreed to pay $100,000 in consumer redress to settle Federal Trade Commission charges that they misrepresented the earning potential and other aspects of their vending machine franchises and failed to provide key pre-purchase information to potential franchisees in violation of the FTC's Franchise Rule. The settlement also would prohibit the defendants from misrepresenting or making unsubstantiated claims about any aspect of any business venture they promote and would require them to comply with the Franchise Rule in the future.
Mini Snacks, based in Salt Lake City, marketed franchises for candy and snack vending machine businesses nationwide through newspaper advertising and at franchise shows. It formerly was known as Vend Tech, Inc.
According to the FTC complaint detailing the charges, the defendants represented that franchise investors would recover their initial investments quickly, and easily earn high profits -- up to $1,890 per machine -- while working only a few hours a week. In fact, the complaint alleges, few if any purchasers attained the sales levels claimed by the defendants and most purchasers never even made back the cost of their initial investments. The defendants sold the machines for $749 each, but offered volume discounts.
In addition, Mini Snacks, Sanchez and McCarty allegedly claimed that there were numerous high-traffic locations available for machines and that assistance in identifying locations would be provided through "locators." The defendants also claimed that the machines require little maintenance or repair and that they would be delivered within weeks after payment of a substantial deposit, according to the complaint.
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In fact, few high-traffic, profitable locations were available for the vending machines; the "locators" did not, in many instances, secure such locations for investors; the machines experienced many maintenance and repair problems; and, in numerous instances, the machines were delivered late or not at all, the complaint states.
The complaint also alleges Franchise Rule violations. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing 20 categories of information, including information about the history of the franchisor, litigation history, the financial condition of the franchise, the terms and conditions under which the franchise operates, as well as information about other franchisees. If a franchisor chooses to make earnings claims, the rule requires the franchisor to have a reasonable basis for those claims and also to provide a document to potential franchisees containing that substantiation. The FTC charged the defendants with violating both the basic disclosure requirements and the earnings substantiation and disclosure requirements.
Under the proposed consent order to settle the charges, Sanchez, McCarty and Mini Snacks have agreed to pay $100,000 over two years for consumer redress. In addition, they would be prohibited from making any misrepresentations to potential investors in business opportunities, including misrepresentations about projected profits or earnings, the availability of profitable locations, the services of locators, the performance characteristics of their vending machines or the delivery schedules for machines or parts. All representations they make regarding any business venture would have to be based on competent and reliable evidence. The defendants also would be required to provide prepurchase disclosure documents that comply with the Franchise Rule; to possess a reasonable basis for any representations they make about specific levels of sales, income or profits; and to otherwise comply with the rule.
The investigation was conducted by the FTC's Seattle Regional Office, which received assistance from state law enforcement agencies, including the Utah Department of Commerce's Division of Consumer Protection. The settlement requires the court's approval to become binding.
It was filed in the U.S. District Court for the Western District of Washington, in Seattle, on April 17. The Commission vote to file it was 5-0.
NOTE: This consent order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent orders have the force of law when signed by the judge.
Copies of the complaint and consent order, as well as a free FTC brochure that offers tips for consumers thinking of investing in franchises, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
(FTC File No. 932 3291)
(Civil Action No. C95-0581)