Satellite Broadcasting Corporation, of Irvine, California, two related companies, and two individuals have been charged by the Federal Trade Commission with falsely representing to investors nationwide the opportunity to market and distribute Direct Broadcast Satellite television programming to homes and businesses in various counties in Georgia. The FTC alleged that the company has, through telemarketing, touted its investment opportunity as a "low-risk," "instant income" venture, and falsely told some investors that it had already acquired the rights to market DIRECTV, Inc. programming. At the FTC's request, a federal district court has temporarily halted the allegedly deceptive telemarketing scheme, frozen the defendant's assets to preserve funds for consumer redress, and appointed a receiver to take control of the companies.
In addition to Satellite Broadcasting Corporation, the FTC's complaint names as defendants Satellite Systems, Inc., Satellite Broadcasting Royalty Trust, and company officers T. Michael Haws and Allan Wells (also known as Joe Champion). This is another in a series of FTC cases challenging the allegedly deceptive promotion of investments in new communications technologies.
Direct Broadcast Satellite (DBS) technology permits the transmission of video and sound programming directly to homes. In order to receive DBS programming, consumers install a satellite dish, a decoder box and a remote control device, and then subscribe to programming from one of three providers of DBS in the United States.
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According to the FTC's complaint detailing the allegations in this case, DIRECTV, Inc. is currently the largest provider of DBS service in the country. In 1992, DIRECTV and the National Rural Telecommunications Cooperative (NRTC), a non-profit corporation owned by hundreds of rural electric and telephone companies, entered into a licensing agreement allowing the NRTC, for a limited time, to distribute to NRTC members exclusive marketing rights to DIRECTV for certain rural counties. Other entities were allowed to apply for "affiliate" status with the NRTC and acquire distribution rights to market DIRECTV in a rural county, conditioned on approval by DIRECTV.
As part of their sales pitch, according to the FTC's complaint detailing the charges, the defendants have made numerous false claims about their rights to market DIRECTV programming in one or more rural Georgia counties, including such statements as:
- Satellite Systems, Inc. "is currently applying" for a license from the NRTC to market and distribute DIRECTV programming in Lowndes County, Georgia
- an investor in the Satellite Broadcasting Royalty Trust would be "buying into a DIRECTV franchise"; and
- "We own" the rights to distribute DIRECTV programming in a southern Georgia county.
According to the FTC complaint, the defendants solicit consumers to invest $10,000 to $25,000 each and represent that investors will receive quarterly income distributions derived from DIRECTV subscriber fees. In addition, the defendants allegedly have, among other things, represented to potential investors that:
- an investment in the Satellite Broadcasting Royalty Trust will earn returns of 14.05 percent in the first year, increasing to 73.99 percent in the fifth year;
- investing in the Satellite Broadcasting Royalty Trust promises "instant income," "instant cash," and an "instant return"; and
- "This is far from a high risk investment." The complaint charges that the defendants in fact, do not possess, and are unlikely to acquire, the marketing rights to distribute DIRECTV programming in any county, and thus, an investment in their venture is in fact a high-risk investment in which consumers are virtually certain to lose all of their money.
The FTC's complaint asks the court to issue an injunction that permanently prohibits the defendants from making the alleged misrepresentations in connection with the advertising, sale or promotion of Direct Broadcast Satellite ventures or any other investment offering in the future. The FTC also is seeking redress for investors.
The FTC filed its complaint, under seal in the U.S. District Court for the Central District of California, in Los Angeles on April 17. The seal was lifted this morning, and hearing on the FTC's request for a preliminary injunction is set for April 28. The Commission vote to file the complaint was 5-0.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated and that a proceeding is in the public interest. The complaint is not a finding or ruling that the law has actually been violated. The case will be decided by the court.
Copies of the complaint are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
(Civil Action No. SACV-95-336 (LHM)(EEX))
(FTC File No. 952 3173)