Eight South Florida corporations and two individuals, sued by the Federal Trade Commission as part of a nationwide crackdown on business opportunity fraud, have agreed to pay approximately $1,400,000 for consumer redress to settle federal charges. The FTC had alleged that they made numerous misrepresentations in the sale of their popcorn vending machine business opportunities, and failed to give potential investors either the pre-sale disclosures about their business opportunities or the documentation to support claimed earnings required by the FTC's Franchise Rule. In addition to paying $1,400,000 as part of the settlement, the defendants also agreed to an injunction against future misrepresentations and Franchise Rule violations.
The FTC’s Franchise Rule requires franchisors to give potential buyers detailed up-front disclosures about their current and past franchisees, the financial and litigation history of their firms, and substantiation for any representations they make about earnings.
The settlement announced today is with Steven F. Gelb, Frank Friedland, Worldwide Marketing and Distribution Company, Inc., doing business as Hollywood Pop; Titan Management Corp.; Mammoth Holding Corp.; Remote Assembly Corp.; Popcorn Flavors, International Inc.; Popcorn Supply Company, Inc.; Planet Ice Cream, Inc.; Royal Imperial Ltd., Inc.; and Sutton Group of Palm Beach, Inc. The corporate defendants were based in Boca Raton, Florida.
Today's settlement ends the litigation in this case against Gelb, Friedland and the corporate defendants. The case against the two other individuals, David Bernstein and Kevin Feldman, is still pending.
Charges against the corporate defendants, Gelb, Friedland, Bernstein and Feldman were filed in July 1995 as part of “Project Telesweep,” a joint enforcement effort by the FTC and 20 state Attorneys General and securities regulators to crack down on deceptively marketed business opportunity schemes. Project Telesweep snared nearly 100 business opportunity marketers 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.
In the complaint filed in federal district court detailing the allegations in this case, the FTC alleged that the four individuals, through a web of corporations, routinely defrauded consumers by misrepresenting the potential sales from the vending machines and the reliability of their machines, and by using phony references to induce consumers to purchase the vending machine opportunities they sold for an average of $20,000.
The consent judgment to settle these charges, which requires the court’s approval to become binding, would require the corporate defendants, Gelb and Friedland to comply with all aspects of the FTC's Franchise Rule. In addition, the settlement would prohibit them from making false statements or misrepresenting material aspects of any franchise or business venture they offer, including the specific misrepresentations made in this case, and would prohibit them from making any misrepresentation in the sale of any product, service or investment opportunity through telemarketing.
In addition, the order would permanently remove Gelb and Friedman as officers of the defendant corporations and transfer all control and management of the corporations to the court-appointed receiver. The defendants would be banned from providing any identifying information about the victims of their alleged scam to anyone other than a law enforcement authority.
Also, under the terms of the proposed settlement, all of the defendants would be required to pay a total of approximately $1,400,000 for consumer redress. Defendant Gelb would be required to pay $64,000 and Friedland would be required to pay $45,500. This would be added to the sums of $650,000 from assets already repatriated from the defendants' off-shore accounts and approximately $650,000 of other assets in control of the court-appointed receiver.
The settlement also includes various reporting and recordkeeping provisions designed to assist the FTC in monitoring the defendants' compliance.
The Commission vote to authorize filing of the stipulated final judgment and order was 5-0. The proposed consent judgment was filed in the U.S. District Court for the Southern District of Florida, on October 21, 1996. It is subject to court approval.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the stipulated final judgment and order, 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
Brenda A. Mack
Office of Public Affairs
(FTC File No. X950056)
(Civil Action No. 95-8422-CIV-Roettger)