Chase McNulty Group, Inc., and its officers, have agreed to settle Federal Trade Commission charges that they engaged in a variety of deceptive practices, in connection with the marketing of investments in a new wireless communications technology called Interactive Video and Data Service (IVDS). The FTC alleged that the defendants misled investors as to the profitability of the investment, the use of investor proceeds, the capital necessary to develop IVDS systems, and the technological capabilities of such systems. As part of the settlement, each of the individual defendants have agreed to post a $350,000 performance bond before engaging in the telemarketing of any product or service, unless they are employed by a regulated broker-dealer, commodities futures trader, or insurance agency. The individual defendants also have agreed to turn over virtually all of their significant assets and the corporate defendant has agreed to a judgment of $1 million. The settlement also prohibits all defendants from making false representations in connection with the sale of any investment, or telemarketed product or service.
The Commission's complaint, filed in federal court in April 1995, named as defendants Chase McNulty Group, Inc.; E. Lee Elliott, also known as Lee Elliott Mask; Anthony L. Rick; and Jeffrey D. Trotter. Chase McNulty is based in St. Petersburg, Florida.
IVDS is a technology that will allow consumers who subscribe to send and receive data by wireless transmission through units linked to their television sets. IVDS cannot broadcast a moving video image, but can be used for ordering merchandise shown on TV, banking, viewer polling, games or other purposes. The Federal Communications Commission (FCC) uses an auction process to award two IVDS licenses per market to the highest bidder and, to date, has awarded licenses in the nation's 300 most-populous markets. No IVDS system currently is operational. IVDS license-holders will need to compete with other interactive TV service providers such as cable and phone companies.
This case is one in a long series of FTC cases challenging the deceptive marketing of investments in emerging communications technologies using FCC licenses.
Under the settlement, the defendants are prohibited from making the types of misrepresentations alleged in the FTC's complaint, in connection with the sale of any investment or telemarketed product or service. Specifically, the defendants are prohibited from falsely representing:
- the amount of consumer funds allocated for the stated business purpose of the investment or telemarketed service or product;
- the amount of consumer funds used to pay defendants' profits and expenses;
- the profit potential or risk associated with the investment or telemarketed product or service, including the use of escrow funds, need for additional capital, technological capabilities and estimated value or profitability; and
- any other fact material to a consumer's decision to purchase any investment or telemarketed product or service.
The order also requires the defendants to disclose the actual costs of obtaining any wireless communications system or license that forms the basis for any investment or telemarketed product or service; and if representations about profit and risk are made, the actual amount of consumers' funds allocated for the defendants' profit and the expenses of defendants' telemarketing or sales operation.
In addition, the order requires defendants Elliot, Rick and Trotter to post a $350,000 bond before engaging in the telemarketing of any product or service, unless they are employed by a regulated broker-dealer, commodities futures trader, or insurance agency. The bond would be effective for the duration of such telemarketing and for at least three years after the defendants stop such a business.
Finally, the order requires the individual defendants to transfer virtually all of their significant assets to the FTC or the court-appointed receiver for Chase McNulty, including $67,000 in cash and tangible assets to the FTC for consumer redress, and $93,000 to the receiver because those assets rightfully belong to the receivership. The order also includes a judgment of $1 million against the corporate defendant, Chase McNulty. The FTC said it is not clear at this point how much of that judgment can be collected.
The order also contains various recordkeeping provisions to assist the FTC in monitoring the defendants' compliance with the order.
The Commission vote to file the stipulated final judgment was 5-0. The stipulated final judgment was entered by the court on Jan. 31, 1996.
NOTE: This final judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Judgments have the force of law when signed by the judge.
The FTC has issued two consumer brochures offering tips and cautionary notes on "Investing in Interactive TV Licenses" and "Telecommunication Scams Using FCC Licenses" which are available for free. Copies of the brochures and the proposed settlement 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 202- 326-2502. To find out the latest FTC news as it is announced, call the FTC's 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. 942 3252; Civil Action No. 95-524-T25E)