The Federal Trade Commission has negotiated settlement agreements with the three individual defendants named in the FTC's business opportunity fraud case against Second Income, Inc. and Silver Shots, Inc. that will put at least $80,000 into a redress account for defrauded investors. As one of more than 80 cases filed in a nationwide crackdown by federal and state law enforcers on business opportunity fraud, the FTC had charged these defendants with making false claims about potential earnings, profitable locations and compliance with state licensing laws, in the course of selling their vending machine game business opportunities to consumers. The settlements, which also include prohibitions on the alleged deceptive claims, are with Alan L. Rosofsky, Glenn Rosofsky and M. David Silverman, all officers and owners of one or both of the firms.
The defendants are based in Baltimore, Maryland. The business opportunities they promoted included the chance to own and collect money from coin operated machines called the "Water Bloop" quarter machine and the "Silver Shots Countertop Cash Machine." In its complaint detailing the charges, filed in July, the FTC charged that the defendants falsely claimed that purchasers could earn as much as $300 per month per machine and make up to a 300 percent return on their investment within a year. Few, if any, investors attained such levels, the FTC alleged. The defendants also misrepresented that their locating companies typically were successful in placing the vending machines in profitable locations, and that they had obtained the consent of various merchants to place the machines in their stores, the complaint states. Moreover, contrary to the defendants' alleged claims, the Water Bloop and Silver Shots vending machines do not comply with some states' registration, licensing and other laws, the FTC charged.
The complaint also alleges that the defendants violated the FTC's Franchise Rule, which requires franchisors to give potential purchasers a detailed disclosure document containing 20 categories of information about the history of the franchisor and other franchisees. The defendants failed to provide complete and accurate disclosure documents at least 10 days prior to purchase, the FTC charged.
The proposed consent judgments to settle the FTC charges against the individual defendants would prohibit them, in connection with the offering of any franchise or business opportunity, from making any false or misleading statement including. They specifically would bar false or misleading claims about:
- the income, profits or sales volume likely to be achieved by the purchaser, or that has been achieved by other purchasers;
- the ability of a locating company to find profitable locations;
- the existence of retail establishments that have agreed to serve as locations for the franchise or business opportunity:
- the terms and conditions for finding new locations to replace unprofitable ones; and
- the degree and types of assistance the defendants provide franchisees.
The settlements also would ban the individual defendants from violating the FTC's Franchise Rule, and from transferring their customer lists.
In addition, the settlements would require the defendants to transfer all stock or ownership interest in the corporate defendants, and they include certain reporting requirements that would assist the FTC in monitoring the defendants' compliance.
The settlement Alan Rosofsky signed would require him to pay $30,000 in redress, a payment secured by his ownership in real property, and to assign to the FTC his claim on the proceeds from a $50,000 insurance policy on which the receiver in this case is attempting to collect. Silverman would be required to pay $50,000 in redress within five days. Although Glenn Rosofsky would not be required to pay any redress, he would not be permitted to offer another franchise or business opportunity without first posting a $1 million performance bond for the protection of his future customers, under his settlement with the FTC. If distribution of consumer redress proves impractical, the funds will be turned over to the treasury.
The Commission vote to accept the proposed settlements for filing in court was 4-0, with Chairman Robert Pitofsky recused. They were filed today in U.S. District Court for the District of Maryland, Northern Division, in Baltimore, and require the court's approval to become binding.
NOTE: These consent judgments are for settlement purposes only and do not constitute admissions by the defendants of law violations. Consent judgments have the force of law when signed by the judge.
In connection with Project Telesweep, the FTC and the North American Securities Administrators Association, which represents states' securities regulators, issued a consumer bulletin describing some of the typical claims made by fraudulent business opportunity marketers, suggesting a number of steps for consumers to take to protect themselves. Copies of the bulletin, other documents associated with Project Telesweep, and the proposed consent judgments in this case 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. P950073)