Operation "Yankee Trader" Targets Bogus Vending Machine Business Opportunities

Stillwater Vending Limited, Global Locating Services, Inc., and their principals, Joel and Jeffrey Salvatore, are the latest targets of the Federal Trade Commission’s crackdown on bogus business opportunities. According to a preliminary injunction issued by a federal district court in Concord, New Hampshire, each of the defendants is prohibited from making false representations in connection with the sale of candy vending machine business ventures.

In a complaint filed on August 7, 1997, the FTC charged that the defendants, who sold candy vending machines as business opportunities, had exaggerated earnings claims; misrepresented the quality of the machines and the amount of assistance they would provide investors in locating them in profitable sites; used "shills" to provide testimonials; misrepresented the amount and type of candy they would provide; and failed to provide consumers with certain key information required by the FTC’s Franchise Rule.

Stillwater and Global are located in Salem, New Hampshire and were targeted as part of "Operation Yankee Trader", a multi-state law enforcement initiative aimed at fraudulent vending machine business opportunity firms. As part of this operation, Connecticut, New Hampshire and Maine officials also have taken action against several vending machine sellers located outside the Northeast that are targeting New England consumers.

All of the defendants agreed to the entry of the preliminary order, which was issued on September 9, 1997. The order will be in effect pending the outcome of a trial on the FTC allegations. In addition to prohibiting false representations in the sale of candy vending machine business opportunities, the injunction freezes the defendants’ assets and requires them to post a bond if they continue to sell candy vending machine ventures. The FTC has asked the court to issue a permanent injunction against the defendants in order to halt the scam and provide redress for consumer victims.

According to the complaint detailing the charges, ads touting the vending machines as an investment that could return high rates of income ran in newspapers across the country, in radio ads and through a direct mail campaign. A typical ad claimed:

"A MAJOR name brand vending rte avail. in Portland

Earn $8-12K per month minimum investment. 800-477-8363"

The defendants claimed that consumers could expect to achieve specific levels of earnings, such as $1,200 per month, and that such figures were "average estimates" of the earnings an investor could expect. They provided "references" to interested investors who they claimed could provide reliable descriptions of their experiences as investors. They claimed they provided "locator" services to help investors find profitable sites to place their vending machines, and pledged that if the site was not profitable, they would relocate the machines. In fact, according to the complaint, few, if any, of the investors reached the earnings level promised; the references weren’t investors, themselves, but shills; and the promised locator services were not provided. Claims about the "high quality" of the vending machines led investors to believe that they would require little maintenance. In fact, the vending machines are not high quality, did not perform in a reliable manner and required significantly greater maintenance than investors were led to believe, according to the complaint. The defendants also misled investors about the costs of locating the machines, delivery dates, the amount and quality of the candy and other material to be provided to investors, causing consumers unanticipated expenses and substantial delays, the complaint says. In addition, they failed to make disclosures specifically required by the FTC’s Franchise Rule.

The Commission vote to authorize the staff to file the complaint was 5-0. It was filed in U.S. District Court for the District of New Hampshire. The case was filed with the invaluable assistance of the New Hampshire Attorney General’s Office and the Salem, NH, Police Department.

The FTC has developed five brochures, a consumer alert and a tip sheet to help consumers avoid business opportunity fraud. Copies of the consumer information, as well as the complaint in this case, are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov and 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 File No. 972 3055)
(Civil Action No. 97-386-JD)