Soft Drink Dispensing Machines Franchisor to Pay $100,000 to Settle FTC Charges

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Fresh-O-Matic Corporation, a St. Charles, Missouri-based company that markets soft-drink vending machines business opportunities at franchise trade shows nationwide, has agreed to pay $100,000 to settle Federal Trade Commission charges that it failed to provide key information to potential purchasers of its business opportunities. The pre-purchase information is required by the FTC's Franchise Rule, which is designed to help investors make informed decisions. The FTC further alleged that Fresh-O- Matic misrepresented the potential earnings investors would realize and the site location assistance they would provide, in violation of the FTC Act. In addition to paying $100,000, the proposed settlement would prohibit the defendant from violating the FTC Act and the Franchise Rule in the future.

Fresh-O-Matic markets business opportunities which involve the sale, installation and servicing of canned soft-drink vending machines. Consumers purchase a Fresh-O-Matic distributorship plan, which includes a certain number of soft drink machines, coin sorters, instructional information and specific location assistance. Consumers pay from $8,950 to more than $40,000 for the distributorships, depending on the number of machines included in the selected plan. The defendant has made both written and oral claims to prospective purchasers regarding potential earnings and profits, the FTC alleged.

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 the earnings claims.

The complaint against Fresh-O-Matic alleges that its basic disclosure document omitted refund information, reference names, and audited income statements, among other violations. Fresh-O- Matic also allegedly failed to give purchasers an earnings claim document containing substantiation for the earnings claims they made.

The complaint also alleges that the defendant violated the FTC Act by misrepresenting the level of income that prospective franchisees could expect and misrepresenting the assistance it would provide in finding locations for the machines. Franchisees did not, in numerous instances, achieve the claimed earnings, and the assistance Fresh-O-Matic provided was inadequate to secure placement locations, the FTC charged.

The proposed consent decree to settle the charges would require Fresh-O-Matic to comply fully with the provisions of the Franchise Rule, and would prohibit it from making unsubstantiated earnings claims or misrepresenting any other material aspects of a franchise or business opportunity.

The order would require Fresh-O-Matic to pay $100,000 for consumer redress, with the first payment due within 10 days and the second payment due within 6 months. If the Commission determines that redress is impracticable, the funds would be paid to the U.S. Treasury.

The settlement also contains standard reporting requirements necessary to assist the Commission in monitoring Fresh-O-Matic's compliance.

The Commission vote to authorize the filing of the proposed settlement was 5-0. The proposed complaint and consent decree were filed in the U.S. District Court for the Eastern District of Missouri, in St. Louis, on Feb. 14. The FTC's Dallas Regional Office handled the investigation.

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.

Two free brochures -- titled "Franchises and Business Opportunities" and "A Consumer Guide to Buying a Franchise" -- explain the FTC's Franchise Rule in more detail and offers advice to those considering investing in such a business. Copies of the brochures, as well as the complaint and consent order 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 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:


(FTC File No. 932 3204)
(Civil Action No.96-CV-315-CAS)

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