Three of the Cases Net Civil Penalties
The Federal Trade Commission announced settlements with four more of the 34 cases it brought as part of "Project Telesweep," a nationwide federal-state crackdown on business opportunity fraud. The settling defendants -- Global Gumballs, Inc.; Summit Communications, Inc.; Kenneth Sterling, president of American Vending Group, Inc.; and Modern Management Systems, Inc. -- have agreed to injunctions barring future violations of the FTC's Franchise Rule. In addition, three of the settling defendants have collectively agreed to pay $67,000 in civil penalities: Modern Management has agreed to pay a $7,000 civil penalty, Global Gumballs has agreed to pay a $50,000 civil penalty, and Summit Communications has agreed to pay a $10,000 civil penalty, under their settlements with the FTC.
The FTC's Franchise Rule requires franchisors to give potential buyers detailed up-front disclosures about the financial and litigation history of their firms and their current and past franchisees, and also to provide documentation supporting any claims they make about earnings.
"Project Telesweep" snared nearly 100 marketers of vending machine business opportunities for failure to provide critical pre-purchase information to potential buyers. Many firms also were charged with making exaggerated earnings claims and false promises about the amount and type of assistance they would provide franchisees.
The settlements the FTC announced today, which require the court's approval to become binding, have been negotiated with:
- Global Gumballs, Inc., based in Fairhope, Alabama, and its officers Tim McCarty and Michelle Smith, sold gumball vending machine routes for $5,985 for three machines. Purchasers purportedly could earn $16,320 - $24,000 per year for 10 machines;
- Summit Communications, Inc., based in North Miami, Florida, and its president Mitchell R. Newman, sold pay telephone vending franchises, with a single outdoor telephone costing $1,795. The defendants claimed that purchasers could earn as much as $2,000 to $8,000 a year per telephone purchased;
- Kenneth Sterling, president of American Vending Group, Inc. (American Vending, based in Deerfield, Beach, Florida, has defaulted.) The company sold display rack vending opportunities for single-serving instant cappuccino and other gourmet coffees under the name "Gourmet Cafe" for a minimum investment of $5,494 for 10 displays. Purchasers purportedly could earn $25-30,000 a year with 20 displays. Although this settlement does not require the payment of a civil penalty, it would permit the FTC to ask the court to reopen the matter should the defendant be found to have misrepresented his financial condition; and
- Modern Management Systems, Inc., doing business as Nationwide Vending, and its president, Margaret Reed Small. Modern Management, based in Deerfield Beach, Florida, sold counter-top snack vending machines for $5,600 or more, and claimed purchasers could earn as much as $28,000 a year with eight machines.
The consent orders to settle these charges, would prohibit the defendants from violating the FTC's Franchise Rule, and prohibit them from making false statements or misrepresenting material aspects of any business venture they offer. The consent orders also contain various reporting provisions designed to assist the FTC in monitoring compliance.
The FTC votes to authorize filing of the consent orders settling these cases were 5-0. They were filed at the FTC’s request by the Department of Justice in federal district courts as noted below.
NOTE: These consent orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Consent orders have the force of law when signed by the judge.
Copies of the consent orders and other documents associated with Project Telesweep 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 happens, call the FTC’s NewsPhone at 202-326-2710. FTC news releases and other documents also are available on the Internet at the FTC’s World Wide Web Site at http://www.ftc.gov
(Global Gumballs -- (FTC Matter No. X950085) / filed in the U.S. District Court for the Southern District of Alabama, in Mobile, on June 4, 1996. Civil Action No. 95-0539-P-C)
(Summit Communications -- (FTC Matter No. X950099) / filed in the U.S. District Court for the Southern District of Florida, in Miami, on May 28, 1996. Civil Action No. 95-CIV-1485 Graham)
(American Vending -- (FTC File No. X950083) / filed in the U.S. District Court for the Southern District of Florida, in West Palm Beach, on May 21, 1996. Civil Action No. 95-6640-CIV-Hurley)
(Modern Management -- (FTC File No. X950088) / filed in the U.S. District Court for the Southern District of Florida, in Miami, on April 29, 1996. Civil Action No. 96-CV-6643-Ferguson)
Hugh Stevenson or Craig Tregillus
202-326-3511 or 202-326-2970