FTC Announces "OPERATION VEND UP BROKE": States and Feds Stop Business Opportunity Scams

In an ongoing campaign to combat vending machine scams, law enforcement officials in 10 states, together with the Federal Trade Commission, today announced "Operation Vend Up Broke" -- a sweep netting 40 enforcement actions against fraudulent vending business opportunities that offer lucrative earnings. The joint sweep targets the perennial plague of vending opportunities sold as sure-fire money-makers.

"We've named this joint enforcement sweep "Operation Vend Up Broke" because that's exactly what happens to vulnerable consumers victimized by the promoters' false claims," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Every year, thousands of consumers literally end up broke after investing in purportedly lucrative vending opportunities."

"A consumer's best shot at evaluating a potential 'deal' is to visit prior purchasers to see whether their experience lives up to the claims," Bernstein emphasized. "You can't rely on supposedly satisfied consumers supplied by the seller," she said, "because all too often they are 'singers' paid to give a favorable reference."

The FTC announced the filing of four cases as part of "Operation Vend Up Broke" -- including one filed under seal and one that will be litigated for the Commission by the Department of Justice. In addition to the FTC cases, the 10 states participating in the sweep -- Florida, Indiana, Illinois, Kentucky, Maryland, Michigan, Nebraska, Oklahoma, Texas and Washington -- contributed a total of 36 enforcement actions against promoters of vending opportunities. The Attorneys General of Florida, Indiana, Kentucky, Maryland, Michigan, Tennessee and Texas, were joined by the Florida Department of Agriculture and Consumer Services, Illinois Secretary of State Securities Division, Nebraska Department of Banking and Finance, Oklahoma Department of Securities and Washington Securities Division in taking action.

The FTC charged the four companies with failing to provide the required documents to substantiate their earnings claims. It also charged three of the companies with violating the Franchise Rule by misrepresenting the earnings potential of their business opportunities. The Franchise Rule is a pre-purchase disclosure rule intended to give potential buyers key information about a business opportunity, including the legal and financial history of the seller and its principal officers. Specifically, the rule requires franchisors to provide a detailed document containing this information prior to sale and, where franchisors make claims about the earnings of franchisees, to provide another document containing the substantiating evidence for those claims. In three of the cases, the FTC also charged that the defendants violated the FTC Act which prohibits unfair and deceptive practices. In one case, the defendants have agreed to pay $50,000 in consumer redress to settle the FTC charges.

The FTC filed complaints in the appropriate district courts against the following:

Vendors Financial Services (VFS) -- based in Englewood, Colorado -- sells combination snack and soda vending machine business opportunities ranging in price from $2,840 for one vending machine and one professionally-acquired location, to $42,800 for 20 machines and 20 professionally-acquired locations. The defendants advertised their business opportunities in classified sections of newspapers nationwide. The ads typically read:

Local Vending Route For Sale

Make BIG $. Call 1-800-350-VEND

Once consumers called the 800 number, VFS telemarketers induced them to buy the defendants' business opportunity by misrepresenting the availability of profitable locations where the consumer could place their machines and the potential earnings the consumer could make. The defendants also give consumers the names and telephone numbers of phony references -- "singers" or "shills" -- who supported the false earnings claims. (In continuing to name allegedly phony references as defendants, the FTC named Tom Davis, also known as Richard McLaughlin, as a defendant, alleging that he acted as singer and as a telemarketer.) The FTC alleged that the defendants violated the FTC Act by making false and misleading claims about the earnings potential, the availability of lucrative locations, and the authencity of its references, and violated the Franchise Rule by failing to provide the required disclosure documents.

The complaint, which was filed in the U.S. District Court for the District of Colorado in Denver, on August 24, 1998, names as defendants Vendors Financial Services, Inc., also doing business as T & H Management, Inc., Samuel John Levine, Jay Samuel Levine and Tom Davis, also known as Richard McLaughlin. The FTC received valuable assistance from the Englewood Police Department and the Colorado Office of Attorney General during the course of this investigation.

PVI, Inc., doing business as Photo Vend International -- based in Hollywood, Florida -- sells digital photo vending machines for approximately $10,000 each. These machines allow consumers to take 16 postage stamp-sized digital high quality color photos of themselves and have the photos superimposed on various themed backgrounds. The vending machine then prints out the photos as color stickers. The defendant made oral and written earnings claims to potential investors -- via e-mail, telephone presentations and in their promotional materials, but failed to provide either a basic disclosure document or an earning claims document in violation of the Franchise Rule.

The complaint, which was filed by the Department of Justice at the request of the FTC in the U.S. District Court for the Southern District of Florida, in Fort Lauderdale, on September 1, 1998, names as the defendant PVI, Inc., doing business as Photo Vend International.

MII Investments Corp. -- based in Bradley, Illinois -- markets franchises for the sale of insulin injection devices. Consumers paid in excess of $12,000 for this franchise, based on the defendants' promise of a ready market and proven earnings.

MII Investments and its president Gary W. Moore, have agreed to pay $50,000 in consumer redress to settle FTC charges that they made a variety of false and misleading claims to induce sales of area distributorships for the "Freedom Jet" needle-free insulin injection system for diabetics. According to the FTC, the defendants, in their promotional materials, promised potential investors "profits of over $300,000 per year" but did not have the earnings claim document to back up that claim. The FTC also alleged that the defendants failed to provide basic disclosure documents which prevented purchasers from contacting existing distributors and learning about their failed businesses. The proposed settlement would prohibit the defendants from future violations of the FTC Act and the Franchise Rule and would require them to pay $50,000 within ten days after the order is approved by the court. The settlement also contains various recordkeeping and reporting provisions that will assist the FTC in monitoring the defendants' compliance.

The complaint and proposed settlement, which was filed in U.S. District Court for the Northern District of Illinois, Eastern Division, in Chicago, on September 1, 1998, names as defendants MII Investment Corp., d/b/a Moore's Industries, Inc., and Gary Warren Moore. The proposed settlement is subject to court approval.

The fourth case was filed under seal on August 18, 1998 in Federal District Court for the Southern District of New York. The court's seal has not been lifted.

The Commission vote to file the individual complaints in the appropriate district court was 4-0. The Commission vote to file the complaint and proposed settlement with MII Investments was 4-0. The Commission vote to authorize staff to refer the Photo Vend complaint to the Department of Justice for filing was 4-0.

NOTE: The Commission authorizes the filing of a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant actually has violated the law. The case will be decided by the court.

NOTE: The 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 news release, the individual complaints, MII's proposed settlement and other documents associated with "Operation Vend Up Broke" are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD 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.

Media Contact:

For information about the state actions, call the following state press contacts:  

Florida Attorney General Office: Joe Bizzaro, 850-487-0984

Florida Dept. of Agriculture: Liz Compton, 850-922-7913

Indiana Attorney General Office: Richard Schneider, 317-232-6351

Illinois Secretary of State Securities: David Urbanek, 217-782-5984

Kentucky Attorney General Office: Jennifer Schaaf, 502-696-5300

Maryland Attorney General Office: Frank Mann, 410-576-6357

Michigan Attorney General Office: Chris DeWitt, 517-373-8060

Nebraska Dept. of Banking & Finance: Barb Biffle, 402-471-2171

Oklahoma Dept. of Securities: Gerri Stuckey, 405-280-7721

Texas Attorney General Office: Ron Dusek, 512-463-2050

Washington Securities Division: Deborah Bortner, 360-902-8760  

(VFS -- FTC File No.982 3129; Civil Action No. 98-N-1832)
(Photo Vend -- FTC File No. 982 3508; Civil Action No. 98-6935)
(MII Investment -- FTC File No. 962 3209; Civil Action No. 98-C-543)