Property Inspection Franchisors Agree To Post $300,000 Bond To Protect Future Franchisees under Settlement with FTC

Two Connecticut franchisors, charged by the Federal Trade Commission with making false claims in the course of selling their franchises for property inspection services, each have agreed under a settlement of those charges to post a $300,000 bond to protect future customers before getting involved over the next three years in a business that sells any kind of franchise or business opportunity. The settlement negotiated by the FTC also would address the agency’s charges by prohibiting Joseph D. Raffone and Vita L. Raffone, as well as the companies through which they offered the property- inspection franchises -- Mortgage Service Associates, Inc.; MSA Nationwide Field Services, Inc.; and J.D. Raffone Associates, Inc. -- from giving potential franchisees false information about the kind of income or profits they’re likely to achieve, and also from misrepresenting the terms for remitting payments to franchisees. The settlement also would require each of the corporate and individual defendants to comply with the FTC’s Franchise Rule, a key pre-purchase disclosure rule that gives potential franchisees a wealth of information for evaluating the purchase of a franchise.

The FTC had filed charges in this case as a part of Project Telesweep, the first-of-its-type federal-state crackdown on telemarketing fraud, which was announced in July 1995. This project targeted fraudulent and deceptive sales of franchises and business opportunities, and resulted in more than 100 law enforcement actions nationwide. Several FTC consumer education materials regarding franchises and business opportunities are available at Consumerline on the FTC’s web site at http://www.ftc.gov (no period). "A Consumer Guide to Buying a Franchise" and "Franchises and Business Opportunities" are among these brochures, which offer information about the Franchise Rule and the types of disclosures it requires as well as tips on avoiding business opportunity fraud.

The defendants in the Mortgage Services Associates case are all based in the New Haven, Connecticut, area. According to the FTC complaint detailing the charges, the defendants offered a business system whereby franchisees provided for the inspection of commercial or residential real property on behalf of customers who were interested in buying delinquent mortgages or unoccupied real estate. The FTC charged the defendants with violating the FTC Act by misrepresenting both the likely earnings of potential franchisees and also the amount franchisees would receive for each inspection they conducted. According to the complaint, the defendants also violated the FTC’s Franchise Rule by leaving out of required disclosure documents certain information about their litigation history and about current and terminated franchisees, by failing to have a reasonable basis for their earnings claims, and by failing to give franchisees a document containing substantiation for the earnings claims they were making.

The proposed consent judgment the defendants have signed to settle these charges would prohibit them from engaging in similar law and rule violations, require them to comply with the Franchise Rule, impose the three-year bond requirement on the individual defendants, and bar all defendants from selling or transferring their franchise customer lists. The judgment also contains various reporting and record keeping provisions that would assist the FTC in monitoring the defendants’ compliance.

The Commission vote to authorize staff to file the proposed consent judgment in court was 5-0. It was filed this morning in U.S. District Court for the District of Connecticut, in Hartford, and requires the court’s approval to become binding.

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 proposed consent judgment, as well as other documents and consumer brochures 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 is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases, many related documents and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC File No. X950049)
(Civil Action No. 3:95CV01362(AVC))