FTC Halts Internet Kiosk Sales

A U.S. district court judge has stopped the allegedly illegal practices of an “Internet kiosk” business opportunity and frozen the assets of the companies and their principals following Federal Trade Commission charges that their income claims were deceptive and their location- assistance offers were false. The FTC will seek an order permanently banning the defendants from selling business opportunities, barring them from violating the FTC Act and the Commission’s Franchise Rule, and providing consumer redress.

The defendants told consumers they could use the kiosks to start their own business, promising them a substantial income and help finding high-traffic, high-volume profitable locations for the machines. According to the FTC, consumers typically lost the money they invested, and the defendants rarely, if ever, delivered the terminals to profitable locations.

The machines sold were public-access Internet terminals, mounted computers that accepted payment in exchange for access to the Internet that could be placed in public areas. The defendants ran television and radio ads selling the terminals, making claims like, “You simply receive a monthly check for all the wireless revenue generated at your location. . . There is unlimited income potential. . . Prime locations are available now.” The ads then provided a toll-free number to call for more information. Over the phone, salespeople made additional false claims, according to the FTC. Salespeople made claims such as, “a 142% return on investment in the first year,” “locations include convention centers, military bases, hotels, malls, hospitals – high-traffic, high-volume locations,” and that $1,000 to $2,000 per month per kiosk could be expected in revenue. In many cases, buyers were told the machines would be delivered to the location within two weeks to 45 days after purchase.

Customers paid from $10,000 to $15,000 for one kiosk, up to $100,000 for multiple kiosks. Their terminals, however, were rarely, if ever, delivered and installed in profitable areas. In many cases, the terminals consumers bought were never delivered at all. And, when terminals were delivered, it was hardly ever within the promised time period. Although the defendants did supply the required disclosure document for franchises, it was missing crucial information, including information on all of the corporate officers (specifically, information on criminal charges against one officer’s), the names and addresses of consumers who had bought into the business venture, and any information about how long it would take to place a terminal. Finally, the FTC claimed that the defendants had no support for the earnings claims they made. Typically, buyers lost their entire investment.

The FTC’s complaint names as defendants Transnet Wireless Corporation and its president Bradley Cartwright; Nationwide Cyber Systems, Inc. and its president Farris Pemberton; and Paul Pemberton, who directed day-to-day operations at the companies, which are based in Florida. The complaint also names Margaret Pemberton as a relief defendant – someone who is not accused of wrongdoing, but has allegedly received ill-gotten gains and does not have a legitimate claim to them.

The Commission vote to authorize staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Southern District of Florida on September 26, 2005 under seal, with the seal lifted on October 11, 2005. The judge granted a temporary restraining order, an asset freeze, and the appointment of a receiver.

NOTE: The Commission files 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 defendant has actually violated the law. The case will be decided by the court.

Copies of the complaint 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 hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.