Florida-Based Defendants Settle FTC Charges Over Toy Display Rack Franchises

Lake Park, Florida-based Carousel of Toys USA, Inc. is out of business and company director Kelie Brodzinski has agreed not to front for any fraudulent franchisor in the future, following resolution of Federal Trade Commission charges against them. The FTC had brought a case in federal district court against Carousel and Brodzinski in late July, alleging that they used deceptive and false claims to sell their business opportunity, which consisted of display racks featuring Disney and other trade-named toys and products to be placed in retail locations. According to the FTC complaint in the case, the defendants misrepresented the earnings potential of the business opportunity, charged their dealers retail rather than wholesale costs for inventory, and misrepresented that the $10,000 investment fee went for the racks and inventory when approximately 30 percent was deducted as a "set up" fee.

The FTC also charged the defendants with violating the Franchise Rule, a pre-purchase disclosure rule, by not giving potential dealers the required document containing detailed information about the company, its officers and its legal history, and by making earnings claims but failing to provide dealers with a required document containing substantiation for such claims.

The FTC brought the case as part of "Project Trade Name Games," an aggressive assault on swindlers who conjure up images of sure and generous profits through ownership of carousel racks displaying products licensed by well-known companies. In announcing the campaign, which netted 18 enforcement actions by the FTC and eight states, the FTC said that the problem with these business opportunities is they are sold by unscrupulous marketers who make false or unsubstantiated claims about the likely earnings. The claims turn out to be wrong because the inventory is often leftover or out-of-date and so the dealers are unable to find high-traffic, profitable retail locations in which to place their racks. The FTC released several consumer publications in connection with the campaign available at www.ftc.gov on the FTC's web site.

Upon filing of the FTC complaint in the Carousel case, the court granted the FTC's motion for a temporary restraining order halting the challenged claims and freezing the defendants' assets. The defendants now have signed a settlement agreement with the FTC that would end the litigation. The settlement prohibits Carousel and Brodzinski from:

• misrepresenting the income or profits of any franchise or business opportunity they sell;
• failing to disclose all the costs and fees dealers must pay in order to begin operating the business, including an itemized list of inventory, and the dealer cost and a suggested retail price for each item;
• violating the Franchise Rule; and
• assisting anyone offering a franchise or business opportunity whom they know or should know makes false or misleading representations or violates the Franchise Rule, and without initially and on a regular basis thereafter taking reasonable steps to ensure that the person is not engaged in such activities.

In addition, Brodzinski has agreed to cooperate in any investigation of other individuals with whom she worked at Carousel.

Based on the defendants' financial statements, the settlement does not call for the payment of any redress for consumer refunds. It does contain a provision that would permit the FTC to reopen the case should either be found to have made misrepresentations on those statements. Finally, the settlement contains various record keeping and reporting provisions that will assist the FTC in monitoring the defendants' compliance.

The Commission vote to file this settlement, a stipulated final judgment, was 4-0. It was filed in U.S. District Court for the Southern District of Florida, in West Palm Beach, and approved by the judge on Sept. 29.

NOTE: This consent judgment 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 settlement and other documents associated with this case are available from the FTC's web site at http://www.ftc.gov and also 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.X970070)
(Civil Action No. 97-8587 CIV-Ungaro-Benages)