Markets Wired

At the request of the Federal Trade Commission, Judge Charles A. Pannell, Jr. of the U.S. District Court for the Northern District of Georgia, Atlanta Division, has issued an order finding that several Georgia-based defendants violated the FTC Act and the Commission’s Franchise Rule and Business Opportunity Rule by pitching fraudulent ink cartridge business opportunities to consumers. The court order entered against Holiday Enterprises, Inc., and its principals Richard J. Morrell and Richard J. Cascario, permanently bars them from similar violations in the future and requires them to pay $8.98 million for consumer redress. The order also requires a relief defendant in the case to pay $250,000 for financially benefitting from the scheme.

The Commission’s Complaint

In its original complaint, filed in December 2006 as part of “Project Fal$e Hope$,” the FTC charged that Holiday Ink, Inc. sold ink cartridge display racks by misrepresenting that purchasers would earn a substantial income, misrepresenting the locations available for the racks, and using shills to reinforce those false claims. The FTC also charged that the defendants did not provide complete and accurate disclosure documents, did not provide an earnings claim disclosure, and did not have a reasonable basis for their earnings claims. Consumers invested a minimum of $7,950 for three racks, and up to $55,950 for 20 racks, to take part in the business opportunity.

The Summary Judgment

The summary judgment against the defendants, granted by the court and filed on February 5, 2008, states that the Commission provided ample proof that Holiday Ink, et al., violated the FTC Act by “routinely and knowingly” making material misrepresentations to consumers in connection with their sale of business opportunities. These misrepresentations included the assertion that consumers could earn substantial income by buying one of the defendant’s business opportunities and that buyers would receive ink cartridge display racks and cartridges through which they could derive “substantial income and guaranteed profits.”

The court found the defendants had no substantiation for such claims, and also misrepresented that they would provide buyers with “high-traffic, high-volume” locations in which to place their display racks and that they had “references” who were successful and profitable distributors. In fact, the “references” were nothing more than employees of the defendant or unsuccessful distributors. The court also found that the defendants violated the FTC’s Franchise Rule in a variety of ways, including failing to make required disclosures about the company and its principals, failing to disclose information on litigation in which they have been involved since 2001, and failing to provide potential buyers with the names of previous buyers of their business opportunity. The court also found defendants Morrell and Cascario individually liable for their knowing participation in the deceptive acts of the corporate defendant, and relief defendant NMC Properties, Inc., liable for its ill-gotten gains.

Through the summary judgment, the court permanently barred defendant Morrell from promoting, advertising, marketing, offering to sell, or selling any franchise, business opportunity, or business venture. The judgment permanently barred both individual defendants from making, or assisting others in making any statement or representation of material fact in connection with the sale of any venture, franchise, business opportunity, or other product or service. The court also barred the defendants from violating the Franchise Rule and the Business Opportunity Rule in the future and from distributing their customer information. In addition, it entered an $8.98 million monetary judgment against them, along with a separate $250,000 judgement against relief defendant NMC properties.

Finally, to prohibit the individual defendants from suing consumers who filed complaints against them, the court barred them from filing any lawsuit, arbitration or other action – and from enforcing any judgment or award obtained before or after the order is entered – against any of their customers or franchisees.

Copies of the court order for summary judgment and related documents can be found as a link to this press release on the FTC’s Web site. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click: http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.