A Federal Trade Commission settlement in a business opportunity fraud case will net approximately $360,000 for the consumers who invested thousands of dollars each to own display racks featuring "Dr.'s Choice" diet tablets and other vitamin products for placement in various retail outlets. The settlement also would ban the defendants in the case from engaging in any telemarketing and from selling franchises or other business opportunities in the future. The settlement resolves FTC charges that, in selling the franchises, the defendants -- two companies and five individuals -- misrepresented the earnings of potential investors, the success of current rack owners, and the availability of profitable retail locations for the display racks and products; furnished phony references to back up their claims; and failed to make key pre-purchase disclosures required by the FTC's Franchise Rule. Most consumers never even earned back their initial investment, the FTC said.
The FTC filed its complaint in the case in federal district court in August 1994. The complaint names Florida-based Southeast Necessities Company, Inc., which has done business as Dr.'s Choice, its director, Janice Zoyes, and Michael Zoyes, David Kallen and Germaine Easley; and Allstate Locating, Inc. and its president, Marc Kallen. The Commission won a court order halting the alleged deception, freezing the defendants' individual and corporate assets and appointing a receiver over the corporations to manage their financial affairs, pending the outcome of the case.
According to the complaint, Dr.'s Choice advertised franchises for the display racks in newspapers nationwide, promising consumers earnings such as $36,000 a year from 10 racks, furnishing the phony references and claiming that Allstate would provide assistance in finding and establishing locations for the display racks. Allstate then made false claims that it had lined up profitable locations and that it would find new, more profitable locations if investors did not achieve the promised earnings, the FTC alleged. Other allegations concerned violations of the FTC's Franchise Rule, which requires franchisors to provide potential buyers with a detailed disclosure document containing information about the history of the franchise, its officers, cost information and the names of other franchisees in the area. If franchisors make claims about earnings, the rule requires them to provide franchisees another document containing the substantiation for those claims.
The proposed consent judgment to settle these charges, which requires the court's approval to become binding, would permanently prohibit all the defendants from engaging in tele marketing and from selling any franchise or business opportunity. The settlement also would prohibit them from transferring or selling their customer lists, unless required to do so by law or court order. These bans are warranted given the defendants' histories of engaging in telemarketing fraud, the FTC said. In addition, Janice Zoyes, Michael Zoyes, David Kallen and Easley would be prohibited from using aliases or otherwise misrepre senting their true identities in business dealings or publicly filed documents.
To redress the alleged consumer injury, the settlement would require the individual defendants to pay $160,000 collectively and the corporate defendants to turn over approximately $200,000 in assets held by the receiver. If practical, the funds will be used to provide refunds to consumers who purchased the business opportunities; otherwise it will be deposited in the U.S. Treasury as disgorgement. The settlement would permit the FTC to reopen the case to obtain more redress should the defendants be found to have misrepresented their financial conditions.
Finally, the settlement contains various reporting provisions that would assist the FTC in monitoring the defendants' compliance.
The Commission vote to file the proposed consent judgment was 5-0. It was filed in U.S. District Court for the Southern District of Florida, Fort Lauderdale Division, on Sept. 14, 1995.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Two free FTC brochures -- titled 'Franchise and Business Opportunities' and 'Business Opportunity Scams: Vending Machines and Display Racks'-- describe the FTC's work in this area and offer important investor advice. Copies of the brochures and the consent judgment and other documents associated with the case at hand are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov
(FTC File No. X940075) (Civil Action No. 6848-CIV-Hurley)