Court Halts Pre-Paid Telephone Cards Scam Following FTC Charges

A federal District Court has ordered a temporary halt to the allegedly deceptive sales practices of a Hollywood, Florida company and its principals selling "talking" vending machines and pre-paid telephone cards. The order follows Federal Trade Comission charges that the defendants, collectively referred to as the "Tashman Group," made numerous false representations in the promotion and sale of their vending machine business opportunities. Specifically, the FTC alleged that the defendants misrepresented the earnings potential, the exclusivity of territorial rights, the availability of prime locations for the machines within the prescribed territory, and the reliability of the prepaid telephone cards being sold. In addition, the FTC alleged that the defendants failed to provide prospective investors with accurate disclosure documents, in violation of the FTC’s Franchise Rule. At the FTC’s request, the court also has frozen the defendants’ assets to preserve funds for possible redress, and appointed a receiver to manage the defendants’s business operations.

Pre-paid phone cards offer a way to make long distance telephone calls even without access to a home telephone. With a phone card, the user is able to make long distance calls, including international calls, from any telephone.

The FTC’s complaint detailing the allegations in this case names as defendants Telecard Dispensing Corp. ("TDC"), Stephen I. Tashman, Stephen M. Mishkin, Ernest F. Lockamy, Michael S. Dundee and Harris M. Cohen. (Three of the defendants were named in a previous FTC case.)

According to the complaint, since early 1995, the defendants advertised on national radio stations that prospective purchasers could make $25,000 or more a year by investing in the defendants' business venture. Once consumers responded to the ads by calling the toll-free number, the TDC sales representatives induced them to buy the defendants' business ventures by misrepresenting the potential earnings the consumer could make; the level of assistance the defendants would provide in placing the vending machines in suitable locations; and the availability of profitable locations where the machine could be placed. The defendants also gave consumers the names and telephone numbers of paid references -- "shills" -- who supported the false earnings claims. In fact, the FTC alleged, the defendants misrepresented both the potential earnings from the machines and the availability and profitability of the locations where the machines will be placed.

In addition, the FTC alleged that the defendants violated the Franchise Rule by failing to provide complete and accurate disclosure documents. The Franchise Rule is a pre-purchase disclosure rule intended to give potential investors 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. The FTC complaint alleges that defendants failed to provide this information.

The FTC’s complaint asks the court to order a permanent halt to the alleged deceptive practices and to order that redress be paid to injured customers.

The Commission vote to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Southern District of Florida, Fort Lauderdale Division, on September 29, 1998 under seal. The seal was lifted on October 1. The FTC’s Atlanta Regional Office handled the investigation.

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 defendants have actually violated the law. The case will be decided by the court.

Copies of the complaint are available 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. FTC news releases and other materials also are available on the Internet at the FTC’s web site at http://www.ftc.gov

(FTC File No. 982 3197)
(Civil Action No. 98-7058-CIV)