Two Florida Display Rack Franchisors Settle FTC Charges;

Cigar Manufacturers Outlet, Inc., based in Sunrise, Florida, and its president, Jose Ernesto San Martin, have agreed to settle Federal Trade Commission charges that they failed to provide the pre-sale disclosures required by the FTC's Franchise Rule to prospective purchasers of their cigar display rack business opportunities. In a separate action, Bruce Feinstein, an officer of the Cigar Factory Outlet, Inc., based in Boca Raton, Florida, has also agreed to settle charges of Franchise Rule violations. The Department of Justice, at the request of the FTC, filed a suit against the defendants as part of "Project Biz-illion$," a nationwide crackdown on fraudulent business opportunities. Under the terms of the two settlements, the defendants are prohibited from violating the Franchise Rule and making false and misleading representations in connection with the sale of business opportunities.

The settlements announced today end the litigation in these cases, which were among 22 cases the FTC referred to the DOJ for filing as part of "Project Biz-illion$," a multi-prong state/federal attack on traditional business opportunity scams. These cases, like most of the "Project Biz-illion$" actions, were launched against defendants that advertised in the classified section of daily newspapers to peddle payphone, vending machine, display rack, and work-at-home scams.

According to the FTC, the defendants' promotional materials and advertisements in both cases suggested specific levels of earnings that prospective purchasers could expect to achieve, but did not provide prospective purchasers with an earnings claim document containing written substantiation for the claims, as the Franchise Rule requires. The complaints also alleged that the defendants failed to provide prospective purchasers with a basic disclosure document that included the names, addresses and telephone numbers of prior purchasers, as required by the Rule to help potential purchasers protect themselves from false profitability claims.

Under the terms of the settlements, which were approved by the court, the defendants are prohibited from future violations of the Franchise Rule; making false and misleading representations in connection with the sale of business opportunities; and selling their customer lists. The settlements do not require payment of any funds, but contain provisions that would allow the FTC to reopen the cases should the defendants be found to have misrepresented their financial status. Finally, the settlements contain various recordkeeping and reporting requirements designed to assist the FTC in monitoring the defendants' compliance.

The Commission vote authorizing staff to refer the two separate settlements to DOJ for filing was 5-0. The stipulated judgments and orders were filed in the U.S. District Court for the Southern District of Florida, in Miami, by the Department of Justice, and approved by the court.

NOTE: This stipulated judgment and order 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 legal documents associated with these cases 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. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad.

(Cigar Factory - FTC Matter No. X000067; Civil Action No. 00-6209-CIV-GRAHAM/TURNOFF)
(Cigar Manufacturers -- FTC Matter No. X000068; Civil Action No. 00-6210-CIV-GRAHAM/TURNOFF)