Florida Man Banned for Three Years from Selling Business and Franchise Opportunities

Grover Stewart, Senior Operations Manager of Nationwide Premium Cigar Distributors Corporation, has agreed to settle Federal Trade Commission charges that he, as well as other Nationwide Premium defendants, failed to provide the pre-sale disclosures required by the FTC to prospective purchasers of their cigar and humidor business opportunities. The settlement bans Stewart for three years from selling franchises and business ventures, and requires him to post a $100,000 bond before selling business opportunities in the future. In addition to the ban and bond requirements, the settlement prohibits Stewart from violating the Franchise Rule and from making false and misleading representations in connection with the sale of business opportunities.
The Department of Justice (DOJ), at the request of the FTC, filed a lawsuit in June 2002 against Nationwide Premium, based in Hallandale, Florida, and Alvin Blish and Grover Stewart, also known as Lee Stewart, as part of “Project Busted Opportunity.” The FTC, the DOJ and 17 state law enforcement agencies launched the Project Busted Opportunity law enforcement sweep to target illegal work-at-home schemes.

The Nationwide Premium defendants sold cigar and humidor business opportunities to franchisees for a package price. The business opportunities included cigars, humidors, cigar cutters, point-of-sale material, and initial advice from the defendants. According to the FTC, the defendants’ representatives advised potential distributors to use a locating company that supposedly guaranteed that consumers would achieve four cigar sales per day per location. The FTC alleged that Stewart and other Nationwide Premium representatives solicited prospective franchisees by placing ads in newspapers with statements such as: “AAA COHIBA CIGAR ROUTE, Route Need Local Dist./ 48 Locations $5k Per Week/Potential.” When prospective customers called in response to the ads, Nationwide Premium employees allegedly made similar earnings claims.

The FTC’s complaint alleged that the defendants did not provide prospective purchasers with an earnings claim document containing written substantiation for the claims made, as required by the Franchise Rule. The complaint also alleged that the defendants did not have a reasonable basis for the earnings claims, in violation of the Franchise Rule. The complaint further 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. In agreeing to settle the case against him, Stewart did not admit liability for any of the claims made in the complaint.

The settlement announced today bans Stewart for three years from selling franchise and business ventures, and requires him to post a $100,000 bond before selling business opportunities in the future. The settlement also prohibits Stewart from misrepresenting any fact affecting a consumer’s decision to purchase any franchise, business venture, or income-generating product or service. Specifically, the settlement prohibits him from misrepresenting:

• the income or profit that a purchaser is likely to achieve;
• the income or profit actually achieved by prior purchasers;
• the length of time likely for a purchaser to recoup the entire purchase price or investment;
• the independence or authenticity of any third-party references provided to potential purchasers;
• the amount of competition within, or a purchaser’s territorial rights to, any geographic territory; and
• the availability of profitable locations in a purchaser’s geographic area.

The order also prohibits him from selling his customer lists.

The settlement also contains a suspended $90,000 judgment against Stewart. If the court finds later that Stewart misrepresented his financial condition, the $90,000 will be due immediately. Finally, the settlement contains various recordkeeping provisions to assist the FTC in monitoring the defendant’s compliance.

The Commission vote to authorize the staff to file the proposed stipulated judgment and order was 4-1, with Commissioner Orson Swindle dissenting. In his dissenting statement, Commissioner Swindle stated, “I have voted against the settlement with Grover Stewart because the relief is likely to be insufficient to prevent him from engaging in future wrongdoing. It also is unlikely to deter others from engaging in similar illegal practices. Given Stewart’s consistent pattern of unlawful conduct in the sale of business ventures and the resulting consumer injury, I believe a far more effective remedy would be to permanently ban him from promoting or selling franchises and business ventures.”

In a separate statement, Commissioner Mozelle Thompson “voted to accept the proffered settlement with Grover Stewart.” Commissioner Thompson stated however, that he shares Commissioner Swindle’s concerns about the adequacy of the negotiated relief. “In the future, where a defendant is a recidivist, I would prefer that Commission and Department of Justice settlement orders provide for stronger relief,” Thompson said.

The settlement was filed in the U.S. District Court, Southern District of Florida, and signed by the judge on March 29, 2004.

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

Copies of the stipulated judgment and order, as well as other documents pertaining to “Project Busted Opportunity,” 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. 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 Matter No. X020090; Civil Action No. 03-60237-CIV-ALTONAGA)