Foreign Nationals Used Technology to Make it Appear They Were Based in the U.S.
A Costa Rican operation that used Voice over Internet Protocol (VoIP) services, shell corporations, aliases, and shills to con U.S. consumers into investing in a bogus business opportunity has been halted by a U.S. District Court at the request of the Federal Trade Commission. The court has issued a temporary restraining order barring the false claims, freezing the defendants’ assets, and appointing a receiver, who shut down the toll-free and U.S. phone lines used to market the scheme.
“With the advent of Internet telephony, the days when consumers could rely upon a phone number to know where the person they call is located have come and gone,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “You may think you are calling an established American business, but you are talking to an overseas scam artist. Consumers should never rely solely on what they are told or shown by sellers of franchise or business opportunities, and should always investigate the opportunity with their own eyes.”
The defendants used classified ads and a Web site to advertise their coffee display rack franchises. They claimed that in exchange for payments from $18,000 to$85,000, they would provide customers with what they needed to operate a successful coffee display rack business, including assistance in finding profitable locations for the racks. According to the company’s Web site, it was located in Las Cruces, New Mexico and had been in business since 1994.
According to the FTC’s complaint, the scam actually was based in Costa Rica, but the defendants used VoIP services to obscure the location of the business and make it appear that they were operating from New Mexico. The complaint also alleges the company has been operating for months, not years, as claimed on the Web site.
The FTC’s complaint alleged the defendants made false claims about earnings potentials, locations available for the display racks, and company-selected references. The complaint further
alleged the defendants did not make certain disclosures required in the initial disclosure documents and in advertising that contained earnings claims.
Representatives selling the franchises for the defendants claimed that consumers would make no less than $1,055.60 per week if they operated a 13-display rack venture. The FTC alleged such claims were false. As part of the sales pitch, representatives assured consumers that numerous retail locations were already lined up in their local area – another claim the FTC alleged was untrue. Representatives referred prospective buyers to “satisfied purchasers.” The references echoed earnings claims made by the representatives for the company and spoke highly of the location service. The FTC charged, however, that often the references were simply shills, paid by the company for endorsements, using prepaid cell phones to make it appear purchasers were operating successful coffee display routes throughout the United States.
The FTC complaint named as defendants USA Beverages, Inc,; Dilraj Mathauda, also known as “Dan Reynolds;” Sirtaj Mathauda; Jeff Pearson, also known as “Paul Clayton”; David Mead; and Silvio Carrano.
The U.S. district court judge granted an ex-parte temporary restraining order, asset freeze, immediate access, and the appointment of a receiver. The TRO also prohibits the defendants from the six law violations alleged in the FTC’s complaint.
The FTC received invaluable assistance in this matter from the office of the New Mexico Attorney General.
For those interested in purchasing a legitimate business opportunity or franchise, the FTC offers useful facts, such as “Franchise and Business Opportunity FAQs,” available at http://www.ftc.gov/bcp/franchise/faq1.htm.; “Franchise and Business Opportunities,” available at http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv07.htm; and “Could 'Biz Opp' Offers Be Out For Your Coffers?,” available at http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv02.shtm.
The Commission vote to authorize staff to file the complaint was 4-0. The complaint was filed under seal in the U.S. District Court for the Southern District of Florida. The seal was lifted November 15, 2005.
NOTE: The Commission files 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 the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaint are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft,and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
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