DEFENDANTS' BUSINESS ACTIVITIES
11. The defendants have been engaged in a common course of conduct designed to sell
business opportunities to consumers for substantial sums. Specifically, the defendants
have sold to investors Internet "billboards" or "banners," which purportedly consist of
multiple slots of classified or yellow page advertising space that appear in the Internet
newspapers that the defendants purported to operate on web sites located on the World
Wide Web (or "Web"). For an additional fee, the defendants have also purported to secure
advertisers to sublease the billboard space from the consumer, collect the rental income
earned, and disburse it (minus their management fee) to the consumers.
12. The defendants have induced potential purchasers to invest in the business opportunity
by sending "spam," or unsolicited advertisements as electronic mail via the Internet. The
defendants' electronic mail advertisements have included income guarantees. For example,
in one such advertisement, the defendants have promised that "monthly income with
Internet billboards [is] guaranteed," that the defendants' "business opportunity offers a
solid return potential of 100.8% the first year with only a 25% occupancy rate," and that
the defendants "guarantee a 25% occupancy rate . . . ." The advertisement further directs
consumers to contact the defendants' home page, located on the Web at "www.ibb.com,"
and/or to call their toll-free telephone number.
13. At their home page, the defendants have further stressed the income guarantee.
Pursuant to their so-called "Media/Occupancy Guarantee," which is set forth in their
"Master Lease" on their home page, the defendants have promised that, if the consumer
hires IBB to act as the "managing agent" of his billboard, IBB "guarantees as the Lease
Manager to achieve a twenty-five percent (25%) occupancy rate within six months
following the media start up period." The defendants have further represented that
"[f]ailure of IBB to produce a 25% occupancy rate within the specified time period or
reasonable proof of advertising shall entitle the Master Leaseholder to recover 100% of the
lease price paid . . . ."
14. Consumers who have called the toll-free telephone number contained in the defendants'
electronic mail advertisements and/or on their home page, have received a sales pitch from
the defendants' telemarketers. Through these sales pitches, the defendants' telemarketers,
including defendant DORIAN REED, have further induced the consumer into buying a business
opportunity by representing the amount of money the consumer can reasonably expect to
earn. The telemarketers have been under the direct control and supervision of individual
defendants THOMAS MAHER, DORIAN REED, and AUDREY REED.
VIOLATIONS OF SECTION 5 OF THE FTC ACT
COUNT ONE
15. In the course of offering for sale and selling their Internet billboard business
opportunities, the defendants have represented, expressly or by implication:
A. that purchasers can reasonably expect to achieve a specific level of
earnings, such as an occupancy rate of 25%; earnings between $240-$800 per
month; and a return of 100.8% within the first year; and
B. that the defendants will provide a full refund of purchasers' investment if
the defendants do not achieve the guaranteed 25% occupancy rate.
16. In truth and in fact:
A. few, if any, purchasers achieve the specific level of earnings claimed by the
defendants; and
B. in numerous instances, when the defendants do not achieve the guaranteed
25% occupancy rate, and purchasers seek a refund, the defendants do not
provide a full refund of the purchasers' investment.
17. Therefore, the defendants' representations as set forth in Paragraph 15 are false and
misleading and constitute deceptive acts or practices in violation of Section 5(a) of the
FTC Act, 15 U.S.C. § 45(a).
VIOLATIONS OF THE FRANCHISE RULE
18. The business ventures sold by the defendants are franchises, as "franchise" is defined in
Section § 436.2(a) of the Franchise Rule, 16 C.F.R. 436.2(a).
19. In the course of offering for sale or selling franchises, the defendants have provided, or
represented they will provide, significant assistance to the purchasers in the purchasers'
method of operation.
20. The Franchise Rule requires a franchisor to provide prospective franchisees with a
complete and accurate basic disclosure statement containing twenty categories of
information, including information about the history of the franchisor, the terms and
conditions under which the franchise operates, as well as the names and addresses of other
franchisees. 16 C.F.R. §§ 436.1(a)(1)-(20). Disclosure of this information enables a
prospective franchisee to assess any potential risks involved in the purchase of the
franchise.
21. The Franchise Rule additionally requires that the franchisor provide to prospective
franchisees a document containing information substantiating any oral, written, or visual
earnings or profit representations it makes to a prospective franchisee. 16 C.F.R. §§
436.1(b)-(e).
22. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), and 16 C.F.R. § 436.1,
violations of the Franchise Rule constitute unfair or deceptive acts or practices in or
affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
COUNT TWO
23. In numerous instances, in connection with the offering and promotion of franchises, as
"franchise" is defined in the Franchise Rule, 16 C.F.R. § 436.2(a), defendants THOMAS
MAHER, AUDREY REED, and IBB have:
A. failed to provide prospective franchisees with a basic disclosure statement,
thereby violating Section 436.1(a) of the Rule, 16 C.F.R. § 436.1(a), and Section
5(a) of the FTC Act, 15 U.S.C. § 45(a); and
B. made earnings claims within the meaning of the Franchise Rule, 16 C.F.R. §§
436.1(b)-(e), but have failed to provide prospective franchisees with the
earnings claim document required by the Franchise Rule, thereby violating
Sections 436.1(b)-(e) of the Rule, 16 C.F.R. §§ 436.1(b)-(e), and Section 5(a) of
the FTC Act, 15 U.S.C. § 45(a).
CONSUMER INJURY
24. Consumers in many areas of the United States have suffered substantial monetary loss
as a result of defendants' unlawful acts or practices. Absent equitable relief by this Court,
defendants are likely to continue to injure consumers and harm the public interest. (From ftc.gov )
_______________________________________________________________________
Mr. Reed has informed the company that, although he was aware that the
FTC had initiated action in February, 1998, he thought the matter was resolved and he was unaware that the FTC had taken any
further action or sought a judgement as described in the article. Mr. Reed stated: "More than one year ago I received the
complaint from the FTC. I personally responded without the aid of a lawyer and I denied all allegations. I have heard nothing
since I responded and I assumed the matter was taken care of last spring."
(From go2net.newsalert.com ) |
