Seller of Distributorship Programs for Snack Foods Violated Franchise Rule

James L. Roche has agreed to settle Federal Trade Commission charges that he misrepresented earnings claims, success rates, and the amount of training and support he would provide to prospective purchasers of his snack food distributorship programs. In addition, Roche has agreed to settle charges that he violated the FTC’s Franchise Rule by failing to provide prospective franchisees with the earnings claims documentation required by the rule. According to the FTC, through his now-defunct company, Cerritos, California- based Allied Snax, Inc., Roche widely advertised and promoted his brokerage and franchise distributorships in newspapers and magazines throughout the United States and charged initial fees ranging from $3,000 to more than $39,000. As part of the settlement to the charges, Roche has been permanently banned from any involvement in the sale of franchises or other business ventures.

The FTC's Franchise Rule requires that a franchisor provide prospective franchisees with a complete and accurate basic disclosure statement, containing 20 categories of information, including information about the history of the franchisor, information about litigation by former franchisees that involves the franchisor/franchisee relationship, any state or Federal restrictive order that affects the franchisor/franchisee relationship, the terms and conditions under which the franchise operates, as well as information about other franchisees. Disclosure of this information enables a prospective franchisee to assess the potential risks involved in the franchise. The rule also requires that franchise sellers have a reasonable basis for any earnings or profit claims; that any earnings projections must be accompanied by the number and percentage of franchisees that have achieved the claimed result; and that specific documentation be provided to substantiate the claims.

The FTC’s complaint detailing the charges in this case alleges that Roche, in the course of selling Allied’s franchises and distributorships, represented to prospective purchasers that:

• existing Allied Snax franchisees or distributors had typically made specific levels of gross or net income;
• he would provide comprehensive training and support to the franchisees and distributors; and
• he would provide the services of individuals who establish accounts that would generate sales that are consistent with the earnings claims made.

According to the FTC’s complaint, these representations were false and misleading because existing franchisees and distributors did not make the levels of income represented, nor has Roche provided the comprehensive training and support he promised. Further, the retail accounts established by Roche were incapable of supporting the level of earnings claimed by the defendants.

Additionally, the FTC charged that Roche failed to provide prospective franchisees with the basic disclosure document, and failed to provide all additional required disclosures within the times required by the FTC’s Franchise Rule.

The settlement to the charges permanently bans Roche from advertising, promoting, offering for sale, or selling, or assisting others in advertising, promoting, or selling any franchise or business venture. Although the settlement does not require Roche to pay consumer redress, if it is found that he has misrepresented his financial condition, the FTC may reopen the matter and ask the court to order Roche to provide redress to injured consumers.

The FTC filed its complaint and settlement in the U.S. District Court for the Central District of California, in Los Angeles, on May 24. The settlement was approved by the judge on May 31. The Commission vote to authorize filing of the complaint and settlement was 5-0. This matter is being handled by the FTC’s regional office in San Francisco.

NOTE: This consent judgement is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the complaint are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 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 news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(Civil Action No.: SACV 96-481 LHM (Eex))
(FTC Matter No. 942 3132)