Medical Billing Telemarketers to Post Bond Before Engaging in Business Opportunity Ventures

Four individuals and two corporations, operating in Reno, Nevada, that were cited by the Federal Trade Commission as part of "Project Housecall," have agreed to settle FTC charges. According to the terms of the settlement, each of the individual defendants must post a $200,000 performance bond before participating in the sale of any franchise or business venture. In its complaint, the FTC alleged that the defendants misrepresented, among other things, the earnings potential of their medical and dental billing business opportunity, and violated the FTC's Franchise Rule. In addition to the bond requirement, the defendants are prohibited from future violations of the Frachise Rule.

In December 1997, the FTC announced “Project Housecall” -- a federal/state mini-sweep to crack down on the bogus practices of medical billing business opportunity operators. The FTC filed its complaint in federal district court naming Steve Shelton, Lynne Shelton, Gary White, Leslie White, National Electronic Healthcare Corporation, and Electronic Healthcare Products, Inc. According to the FTC, the defendants sold billing center packages, consisting of the defendants’ software, training and other assistance to consumers who were supposed to start a business and earn substantial income by electronically processing insurance claims for doctor and dentist clients. The complaint alleged that the defendants misrepresented the earnings potential of their medical and dental billing center opportunities. They also violated the Franchise Rule by failing to provide prospective purchasers with a complete and accurate disclosure document or an earnings claim document.

In addition to the $200,000 performance bond, the settlement, which was signed by the judge, permanently prohibits the defendants from making misrepresentations of any material fact in connection with the sale of any franchise or business venture. It also prohibits violations of the Franchise Rule –- 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.

The settlement further prohibits the defendants from misrepresenting any material fact relating to performance or attributes in connection with the sale of any product or service. In addition, the settlement requires a $80,000 judgment against Steve Shelton and Lynne Shelton and a $100,000 judgment against each of the remaining defendants if the Commission finds that they provided false financial information.

Finally, the settlement contains various other recordkeeping provisions to assist the FTC in monitoring the defendants’ compliance.

The Commission vote to file the stipulated final judgment was 4-0. The stipulated final judgment was filed in the U.S. District Court, District of Nevada, in Reno, on November 13, 1998 and signed by the judge on that date. The FTC’s Denver Regional Office handled the investigation.

NOTE: This consent judgment is for settlement purposes only and does 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 news release, the stipulated final judgment and other documents associated with "Project Housecall" are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 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 Matter No.: X980006)
(Civil Action No.: CV-N-97-712-ECR (RAM))