Software Concepts, Inc., a Chandler, Arizona-based seller of computer software display rack franchises, has agreed to settle charges that it failed to provide disclosure documents and other required information to prospective buyers of the franchises, in violation of the Federal Trade Commission's Franchise Rule. Under the proposed settlement, Software Concepts and its president, James Crabtree, Jr. would be prohibited from violating the Franchise Rule in the future.
The FTC's Franchise Rule requires franchise sellers to give potential buyers a detailed disclosure document containing information about the business, including the cost of operating the franchise, the terms and conditions under which the franchise operates, and the background and experience of the key franchise executives. If franchise sellers choose to make claims about earnings potential for franchisees, they must have a reasonable basis for the claims, and must provide a document to potential franchisees substantiating them.
According to the FTC's complaint detailing the charges, Software Concepts violated the rule by failing to provide prospective franchisees with the required disclosure document identifying information about existing franchisees, and the earnings document.
Based on the defendants' financial disclosures, the proposed settlement would not require them to pay any civil penalties. Should the documents later be found to misrepresent their financial condition, the settlement would permit the Commission to reopen the matter and seek civil penalties.
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The Commission vote to authorize the filing of the complaint and proposed settlement was 4-0. They were filed April 18 in U.S. District Court for the District of Arizona in Phoenix by the Department of Justice, on behalf of the FTC.
NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.
The FTC has available free copies of brochures that may help consumers who are interested in obtaining a franchise -- "Business Opportunity Scams: Vending Machines and Display Racks," and "Franchise and Business Opportunities."
Copies of the complaint, proposed consent decree and the brochures are available from the FTC's Public Reference Branch, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
(FTC File No. 932 3277)
(Civil Action No. CIV 95-0070-PHX-SNM)