Bogus Business Opportunity Sellers Settle FTC Charges

Operators of a bogus business opportunity scheme that marketed franchises to sell herbal capsules they claimed could neutralize or detoxify the effects of alcohol have agreed to settle Federal Trade Commission charges that their claims were deceptive and misleading and their business practices violated the FTC’s Franchise Rule. The defendants will pay approximately $64,000 to settle the FTC charges. In addition, the settlement will bar the defendants permanently from selling any alcohol reducing agent; misrepresenting any product or service; offering or selling any business venture; selling their customer lists; and violating the Franchise Rule.

Florida-based Business Opportunity Center, Inc., Market Systems, Ltd., Natural Health Systems, Inc., Progressive Products, Inc., and their principals, Diane M. Jonas, Paul A. Jonas, James W. Raim, Robert Brian Roemer, Tami Brennan McClure, Paul S. Janus and Richard A. Herbert, M.D., were targeted as part of a March, 1996 sweep of bogus business opportunity schemes. At that time nearly 100 cases were filed by the FTC, the U.S. Justice Department and business opportunity regulators in 20 state securities divisions and attorney general offices as part of Project Telesweep. Law enforcement officials participating in Project Telesweep also issued an extensive consumer bulletin offering would-be investors in franchises and business opportunities tips on how to avoid scams, and information about the FTC’s Franchise Rule.

The FTC filed suit against the defendants at that time in the U. S. District Court for the Southern District of Florida asking for a Temporary Restraining Order, a Preliminary Injunction and an asset freeze, pending trial. The FTC motion was granted by the court, which appointed a receiver for the business assets. The settlements would resolve the charges against defendants McClure, Janus, Herbert and Progressive.

In its complaint, the FTC alleged that defendants sold herb-filled "Neutrahol" capsules -- touted as a quick remedy to alcohol consumption -- through vending machines located in bars and other establishments where alcoholic beverages are sold. Point of purchase ads claimed that "Neutrahol" had been approved for use by the Food and Drug Administration and that its active ingredient had been proven effective in neutralizing alcohol in a Harvard University study. The agency alleged that the defendants targeted people who feared being arrested for drunk driving by posting signs on the machines about the high cost of driving under the influence of alcohol.

In addition to direct sales, the defendants deceptively marketed the opportunity to purchase and place "Neutrahol" vending machines as a business venture to consumers, according to the FTC complaint. The defendants failed to provide basic disclosure and earnings claims documents, in violation of the Franchise Rule, the complaint says.

The agreement to settle the charges would require payment of approximately $64,000 in consumer redress or disgorgement and bar the settling defendants from:

• selling, recommending or assisting any other person to sell any alcohol reducing agent or business venture involving any health product;
• misrepresenting the safety or efficacy of any product or service;
• misrepresenting governmental review or approval of any product or service or the results of any studies or tests;
• disclosing the identity of the persons who bought franchises to sell "Neutrahol" machines; or
• violating the Franchise Rule.

The Commission vote to accept the proposed consent judgments was 5-0. They were filed in the U.S. District Court for the Southern District of Florida and are subject to court approval.

NOTE: These consent judgements are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the settlements and other case documents are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov and also 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 File No. X950 048)
(Civil Action No. 95-8429-CIV-Zloch)