Utah Seller of Home Based Business "Starter Kits" Charged with Misrepresenting Earnings, Profits

The Federal Trade Commission filed suit today against FreeCom Communications, Inc.; Financial Freedom Report, Inc.; Elevã, Inc.; Silent Salesforce, Inc.; American Home Business Association, Inc.; and FFR Marketing, Inc., all of Salt Lake City, charging that the companies and their principals misrepresented the earnings potential to consumers who purchased their $495 home-business "starter kits." The FTC alleged that defendants used program-length television commercials ("infomercials") and mailings to urge consumers to attend their seminars, which were conducted throughout the United States. According to the FTC, it was at these seminars that the defendants induced consumers to purchase the starter kits by making claims that each of the business ventures it was selling was a proven money-maker. The FTC has asked the court to order a permanent halt to the alleged misrepresentations, to order an asset freeze to preserve funds for consumer redress, and to appoint a receiver to take control of the companies.

Commenting on the FTC’s action today, which follows a joint Federal-State investigation with the office of the Utah Attorney General, Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection said, “Anyone can be lured by slick sales pitches, or testimonials of success. Honest people, trying to earn a living by working for themselves, can be duped by promises of making big-time easy money. However, few, if any consumers, actually earn substantial income from these business ventures.”

Utah’s Attorney General, Jan Graham, said, “Our office has been concerned about the high potential for fraud in home business seminars for several years. I appreciate the FTC’s eagerness to have the Utah Attorney General’s Office work with them on this multi-million dollar case involving not only Utah victims, but victims from across the country.”

In addition to the corporate defendants, the FTC's complaint names as defendants Mark 0. Haroldsen, Robert V. Brazell, Don S. Gull, and Kelly Haroldsen, all of Salt Lake City. All these individuals, at various times, were officers, directors and/or shareholders in some or all of the defendant corporations.

According to the FTC, since 1992, the defendants have promoted and sold home-based business opportunities, such as, the resale of distressed merchandise, vending machines, color-change T-shirts, the sale of discount travel memberships, vitamins, scholarship search services, and estate planning, through its infomercials, print advertisements, mail-pieces, telephone solicitations, and/or seminars.

According to the complaint, the defendants have represented through print advertisements and mail-pieces that the defendants offered proven business opportunities, that consumers could expect to earn substantial income through one of the home-based businesses, and that speakers at the seminars have earned substantial income through one of these businesses. For example, some of the defendants' print advertisements and mail pieces have contained statements such as:

”Allen came to our conference, one like you're being invited to. Now he works for himself ... out of his home ... and pays himself a salary three times more than his former employer paid. Last year Allen earned: over $200,000. (His first year he earned: $111,000).”

Further, according to the FTC's complaint, the defendants relied on the purported experiences of numerous specific people, including the presenters at the seminars, to convey the impression that consumers can successfully start and operate one or more of the home-based business ventures sold by the defendants. For example, some of the sales presenters made such statements as:

"I have a gentleman ...He makes, unless it rains on a Saturday, every Saturday at the flea market, he makes two to three thousand a Saturday. Part time. How much does that equate to? Eighty to $100,000? How many of you would like to be in that boat? Are we reaching figures you're comfortable with? Okay.”

According to the FTC, few, if any, consumers who purchased the business ventures made any substantial money. Moreover, the FTC alleged the testimonials used by the defendants in their sales presentations, infomercials, advertisements, and promotional materials did not reflect the typical or ordinary experiences of consumers who have purchased a business venture from the defendants, and that such representations were false and misleading. Finally, the FTC alleged that, in numerous cases, the defendants falsely depicted that certain persons (whose stories are described in defendants' sales presentations, advertisements, promotional materials, and by defendants' telemarketers) have achieved a certain level of success by using one or more of defendants' business ventures.

The FTC has asked the court to permanently prohibit the defendants from making, or to assist others in making, the types of representations as alleged in the complaint, to order the defendants to rescind contracts with, and refund money to consumers.

The FTC filed its complaint in the U.S. District Court for the District of Utah, Central Division, in Salt Lake City today. This matter is handled by the FTC's Regional Office in Denver. (The FTC received assistance with this case from the Utah Attorney’s General Office and the Utah Department of Commerce.) The Commission vote to authorize the filing of the complaint was 5-0.

NOTE: The Commission authorizes the filing of a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that a defendant actually has violated the law. The case will be decided by the court.

Copies of the complaint 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's World Wide Web site is at: http://www.ftc.gov

(Civil Action No.: 2: 96CV-0492)
(FTC Matter No. 932 2362)