FTC Case Against Marketers of Advertising Business Opportunity Ends in Settlements, Default Orders

A federal district court in St. Louis, Missouri, has issued an order banning Joseph and Thelma Hayes and Automated Guest Directories, Inc. from marketing or helping others to market any business venture in the future. The default order was issued after the defendants failed to respond to Federal Trade Commission charges that they used deceptive claims in marketing their business opportunity, which involved the sale of advertising on directory boards placed in hotel lobbies. The individual defendants did business under the name Retail Sales & Marketing, and offered their business opportunities for $30,000.

The FTC alleged that these defendants, as well as additional defendants Allan O'Hearn and Ann Fox, made false earnings claims and false representations about the location assistance that would be provided to consumers who purchased the business in placing their directories. For example, the defendants claimed that they had established relationships with national hotel chains, such as Marriott, Sheraton and Ramada hotels, the FTC said. In addition, the FTC charged, the defendants violated the FTC's Franchise Rule, a pre-purchase disclosure rule that requires sellers to give potential buyers detailed information about the business and its officers. The FTC previously reached settlements with O'Hearn and Fox under which they are prohibited from engaging in similar deceptive practices and from violating the Franchise Rule in the future.

The FTC filed its charges in this case in November 1996 as part of Operation Missed Fortune, a federal-state crackdown on business opportunity fraud that netted more than 75 law enforcement actions against marketers pitching pre-packaged small businesses, work-at-home schemes and pyramid scams. In announcing the crackdown, the FTC and authorities from the 25 participating states warned consumers to be wary of tactics often used by unscrupulous marketers to sell business opportunities, including making high earnings claims that are unsubstantiated, and pointing consumers to "shills," or phony references, who are paid by the marketers to give positive reviews of the business. The FTC suggested that consumers get a list of all persons who have bought into the opportunity and, wherever possible, actually visit the sites of their businesses. Additional tips are included in FTC brochures titled "Franchise and Business Opportunities," "Wealth Building Scams," and "Work-At-Home Schemes," which are available on the FTC's web site at www.ftc.gov and also from its Public Reference Branch at the address listed below.

The FTC noted that the default judgment against the Hayes and Automated Guest Directories also includes a $465,000 judgment for consumer redress, but said that it is unclear how much of that judgment can be collected. The settlements with Fox and O'Hearn do not require monetary payments for redress to consumers, based on these defendants' financial disclosures.

The FTC votes to authorize filing of the settlements with Fox and O'Hearn were both 5-0. They were filed in U.S. District Court for the Eastern District of Missouri, in St. Louis.

NOTE: A 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.

The same court issued the default judgment against the other defendants on Aug. 18.

Copies of the settlements and default judgment, as well as the FTC consumer brochures, are available from the FTC's 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. X970003)

(Civil Action No. 4:96CV02162 SNL)