Morrones Italian Ice Franchisors Settle Franchise Rule Case

Two individuals and a series of Philadelphia-based corporations that sold Morrone’s Italian Ice & Homemade Ice Cream franchises have agreed to pay $100,000 in redress to settle Federal Trade Commission charges that they made false earnings claims and failed to provide an adequate franchise disclosure document, in violation of the FTC’s Franchise Rule. Under the terms of the settlement, defendant Stephen D. Aleardi, also known as Steve Aleardi, and his company, Franchise Consultants Corp., doing business as Franchise Consultants Group, are banned from advertising, marketing, promoting, or selling any business venture. In addition, the settlement prohibits all of the defendants from future violations of the FTC Act or the Franchise Rule. The FTC filed its complaint against John J. Morrone, III; Stephen D. Aleardi; Morrone’s Water Ice, Inc.; Ice America Corporation; Water Ice Systems, Inc.; JMS Sales, Inc.; and Franchise Consultants Corporation in June 2002 as part of the "Project Busted Opportunity" law enforcement sweep. The FTC, the Department of Justice, and 17 state law enforcement agencies launched "Project Busted Opportunity" to target fraudulent work-at-home and business opportunities.

In its complaint, the FTC alleged that the defendants marketed Morrone’s franchises through newspaper ads and on the Internet. According to the FTC, the defendants typically sent brochures to prospective franchisees that included claims that the franchise were "a proven profit maker." Defendant Aleardi allegedly met in person with consumers who responded to the marketing materials and made substantial earnings claims at these meetings. The FTC alleges that consumers purchased Morrone’s franchises for an initial fee of $15,000 to $20,000, but did not earn the substantial incomes promised. The Commission’s complaint alleged that the defendants: misrepresented that purchasers of their franchises were likely to earn substantial incomes; made false earnings claims to potential buyers; failed to provide prospective purchasers with a complete and accurate disclosure document; and failed to provide the required earnings claim disclosures.

The settlement bans defendant Aleardi and his wholly-owned marketing company, Franchise Consultants Corporation from selling business ventures. The settlement also prohibits defendant Morrone, as well as the remaining corporate defendants, from making false earnings claims that violate the FTC Act and from failing to comply with the Franchise Rule. The settlement requires Morrone and his corporations to place any initial franchise fees received in the next five years in escrow. The settlement provides that a purchaser who files a demand for arbitration or an action in state or federal court within one year of opening his or her store and who notifies the escrow agent can recover the escrowed funds after obtaining a final determination in his or her favor.

In addition to requiring a $100,000 payment for consumer redress, the settlement contains an avalanche clause that entitles the FTC to a $752,500 judgment – the total of the franchise fees paid by injured consumers – if the court finds that the defendants made material misrepresenta-tions or omissions in their sworn financial statements. Finally, the settlement contains various recordkeeping and reporting requirements to assist the FTC in monitoring the defendants’ compliance.

The Commission vote to authorize staff to file a stipulated injunction and order was 5-0. The settlement was filed in the U.S. District Court for the Eastern District of Pennsylvania, in Philadelphia, on April 14, 2003. The order was signed by the judge on April 15, and entered on April 16, 2003.

NOTE: This stipulated injunction and order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated injunctions have the force of law when signed by the judge.

Copies of the stipulated injunction and order 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, 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/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. X020068)
(Civil Action No. 02-3720)