FTC Charges Marketers of Internet Kiosk Business Opportunity with Using Bogus Sales Tactics

The Federal Trade Commission has charged two groups of California-based defendants working together with duping hundreds of consumers into buying “Internet kiosk” business opportunities with promises of lucrative earnings. The FTC alleges that the defendants misrepresented the earnings potential of the business opportunity and misrepresented the availability and/or the profitability of locations for the machines. One group of defendants has agreed to settle the charges and is barred from selling any business venture or franchise in the future. As part of the settlement, these defendants agreed to withdraw all claims they have to more than $1.5 million that the FBI seized from their bank accounts. The case against the other set of defendants is ongoing; the FTC is asking the court to issue a temporary restraining order to halt their illegal conduct and to freeze their assets.

The FTC filed separate complaints against Edward Bevilacqua, Bikini Vending Corp., 360 Wireless Corp., and MyMart, Inc. (collectively the “Bevilacqua Entities”), who have agreed to settle FTC charges; and Charles Castro, Elizabeth Castro, Gregory High, Phillis Watson, Network Services Depot, Inc., Network Marketing, LLC, doing business as Network Services Marketing, LLC, Net Depot, Inc., Network Services Distribution, Inc., and Sunbelt Marketing, Inc. (collectively the “Castro Entities”). The “Bevilacqua Entities” are located in Escondido, California, and the “Castro Entities” are located in Brea, California.

According to the FTC, the defendants sold “Internet kiosk” business opportunities to consumers nationwide. Consumers learned about the business opportunity through telephone, mail, or in-person solicitations from local insurance agents and financial planners the defendants recruited and trained as sales agents. Using promotional materials received from the defendants, the sales agents promised consumers secured profitable locations, a guaranteed monthly income

generated by the kiosk usage, and annual returns of 12 percent or more. The free-standing kiosks housed a computer and a mechanism to accept payments. The Internet kiosks were designed to allow the public to access the Internet, for a fee, from locations such as hotels, bowling alleys, restaurants, casinos, and convenience stores. According to the FTC, more than 450 consumers purchased thousands of kiosks.

Using an interrelated series of agreements, the Castro Entities sold the Internet kiosks to consumers at prices ranging from $4,000 to $7,000 per unit, and the Bevilacqua Entities agreed to install the kiosks in a designated location and manage and service the kiosks. After entering into these agreements, consumers believed that they owned the Internet kiosk business opportunities at the designated locations and that the businesses would be managed by the Bevilacqua Entities.

The FTC alleged that the venture was like a Ponzi scam since some purchasers received monthly payments not from the revenue generated by the kiosk usage, but paid to the first purchasers by using the initial payments from new purchasers, leaving the majority of buyers holding worthless interests in nonexistent kiosks.

The FTC’s complaints charge the defendants with violating the FTC Act by falsely representing that:

• consumers would acquire ownership of an Internet kiosk business opportunity;
  
  
• consumers would receive monthly payments from revenue generated by their Internet kiosks;
  
  
• consumers would earn substantial income; and
  
  
• the defendants would find profitable locations for consumers’ Internet kiosks.

The complaints also charge that the defendants knowingly provided deceptive promotional materials to independent sales agents, causing those agents to mislead consumers. In addition, the complaints allege that the defendants violated the Franchise Rule by failing to provide consumers with the required disclosure document, which contains 20 categories of information required by the Rule; failing to have a reasonable basis for their earnings claims; and failing to provide consumers with documents substantiating those claims.

The settlement announced today permanently bars the Bevilacqua entities from promoting or selling any business venture or franchise, and from profiting from any sales of those ventures by other entities. The settlement also bars the defendants from making deceptive or misleading claims about any product, and from knowingly providing third parties with deceptive information for the purposes of marketing a product or service. The order also prohibits the defendants from sharing any customer lists. In addition, the order contains a total judgment of $18 million, suspended due to Mr. Bevilacqua’s inability to pay, which will become due if it is found that he misrepresented his financial situation.

The Commission vote authorizing staff to file the complaint and the stipulated final order
against the Bevilacqua entities, and to file a complaint against the Castro entities was 5-0. The complaints and the stipulated final order were filed in the U.S. District Court for the District of Nevada on April 5, 2005.

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 defendants have actually violated the law. The case will be decided by the court.

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

Copies of the complaints and the stipulated final order 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.

(Bikini Vending - FTC File No. 042-3189; Civil Action No. CVS 050439 LDGRJJ)
(Network Services - FTC File No. 042-3188; Civil Action No. CVS 050440 LDGLRL)