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FTC FINALIZES AGREEMENTS WITH SEVEN INTERNET ADVERTISERS
FTC has made final consent agreements with the following seven companies charged with deceptively advertising their products or services on the Internet.
Robert Serviss, dba Excel Communications: Agreement settles charges that he
promoted a work-at-home opportunity on the Internet using false and
unsubstantiated earnings claims. The consent order requires Serviss to have
substantiation for profits, sales or earnings claims he makes about any
business opportunity he markets. (FTC Dkt. No. C-3669, June 12, 1996.)
Rick Rahim, dba NBDC Credit Resource Publishing: Agreement settles
charges that he falsely advertised on the Internet that his credit repair
program, which advises consumers to misrepresent their Social Security
numbers to obtain a new credit identity, is legal. The consent order bars
Rahim from misrepresenting the legality of any credit repair product he
advertises, and requires him to make certain disclosures in ads for such
products that misrepresenting one's Social Security number or certain other
information may be a federal crime. (FTC Dkt. No. C-3671, June 12, 1996.)
Brian Coryat, dba Enterprising Solutions: FTC agreement settles charges that
he falsely advertised on the Internet that consumers could use his credit repair
kit to remove negative, but accurate and up-to-date, information from their
credit reports; and that he made false and unsubstantiated claims about the
earnings potential of those who bought his Credit Repair Agency business.
The consent order bars Coryat from making similar credit repair
misrepresentations, and requires him to have evidence to back up earnings or
sales claims for any business opportunity he markets. (FTC Dkt. No.
C-3666, June 10, 1996.)
Randolf D. Albertson, dba Wolverine Capital: This agreement settles charges
that he falsely advertised on the Internet he could obtain cash grants for
clients. The order bars Albertson from misrepresenting the number of people
who are approved for grants or the services or assistance he provides in
obtaining any financial product or service, and requires him to have evidence
to back up such claims. (FTC Dkt. No. C-3670, June 12, 1996.)
Sherman G. Smith, dba Starr Communications: Agreement settles charges that
he made false and unsubstantiated earnings claims in his Internet advertising
for the "U.S. Government Tracer Business Program," which purportedly
would show consumers how to make money tracking down people due
refunds after they had paid off their mortgages. The consent order requires
Smith to have substantiation for profits, earnings or sales claims for any
business opportunity he markets. (FTC Dkt. No. C-3668, June 12, 1996.)
Lyle R. Larson, dba Momentum: FTC agreement settles charges that he
falsely advertised on the Internet that, through his "legal" program, consumers
could remove negative, but accurate and up-to-date information from their
credit reports. The consent order prohibits such false claims and requires
Larson to make certain disclosures in ads for credit repair products that
misrepresenting one's Social Security number or certain other information may
be a federal crime. (FTC Dkt. No. C-3672, June 12, 1996.)
Timothy R. Bean, dba DMC Publishing Group: This FTC agreement settles
charges that he made false earnings claims in Internet advertising for his
program to operate a home-based publishing and printing business. The
consent order requires him to have substantiation for earnings and sales claims
for any business opportunity he markets. (FTC Dkt. No. C-3665, June 12,
1996.)
FTC LAW JUDGE SUSTAINS CHARGES
AGAINST "RUST EVADER"
An FTC administrative law judge has barred RustEvader
Corporation from using the names "Rust Evader" or "Rust Buster" for a
purported electronic corrosion control device for cars that the judge said is
not effective in substantially reducing corrosion, despite the company's ad
campaign to the contrary. Judge James P. Timony's order follows FTC
charges that RustEvader made false claims about its Rust Evader product and
about a demonstration and studies regarding its efficacy. Timony upheld the
charges in a default judgment he issued following RustEvader's "general failure
to respond to requests for information during the discovery period before trial
on the case." FTC issued a complaint against RustEvader and company
president, David F. McCready, in August 1995. Both answered the FTC
complaint in October, 1995, denying the charges. In April, 1996, however,
the charges against McCready were withdrawn from litigation so FTC could
consider a proposed settlement agreement. According to Timony's findings,
RustEvader falsely claimed that:
"Rust Evader is effective in substantially reducing corrosion in motor vehicle
bodies, and that the company had evidence to back up this claim; a salt-water
tank demonstration of the product's efficacy accurately reflected how Rust
Evader protects motor vehicle bodies from corrosion when, in truth, the
process used in the demonstration is much more effective under water than
under conditions that a motor vehicle normally encounters; and reports of
laboratory and other tests performed on the Rust Evader that the firm
provided to dealers constituted scientific proof that the product substantially
reduces motor vehicle body corrosion."
Judge Timony ordered RustEvader Corporation to stop using the terms Rust
Evader or Rust Buster and to stop making the challenged claims for the Rust
Evader product. The order also requires RustEvader to have appropriate
competent and reliable evidence to back up claims about the performance,
efficacy or attributes of any product for use in motor vehicles. Also, the order
bars RustEvader from misrepresenting the existence or results of any test or
study, or that any demonstration or picture proves any material feature or
quality of any product for use in motor vehicles.
(RustEvader Corporation, FTC Docket No. 9274, June 7, 1996; materials
relating to this FTC matter are available on the Internet at FTC's World Wide
Web site at: http://www.ftc.gov.)
MAJOR FTC, STATE CRACKDOWN INVOLVES
CROSS-BORDER ADS
"Every year, thousands of consumers respond to enticing classified ads
in newspapers that tout `money to loan . . . regardless of credit.'" So said
FTC in announcing a major federal-state crackdown to enforce the new
Telemarketing Sales Rule. The problem--according to FTC and 15 state
Attorneys General--is that consumers responding to such ads usually have to
pay advance fees to get the "guaranteed" loans. "The consumers never receive
the promised loans and either never hear again from the `loan' companies, or
are later told they're ineligible for the credit," FTC noted. FTC's
Telemarketing Sales Rule makes it illegal for any telemarketer who guarantees
consumers a loan or other credit to ask for money in advance. FTC and the
state Attorneys General recently announced the results of this crackdown. The
sweep consisted of eight cases filed by states and five cases filed by FTC. It
snared 45 corporations and individuals, including some operating out of
Canada.
The crackdown on firms operating out of Canada is the first time FTC has
sued a foreign telemarketing boiler room and highlights the growing number of
fraudulent telemarketers operating out of Canada. Concurrent with the
FTC-state crackdown, the Province of British Columbia initiated law
enforcement proceedings against the same Canadian loan scam operators.
"Cross-border scams are a growth industry and thousands of Americans lose
money every day to scam artists operating outside our borders," said FTC
Chairman Robert Pitofsky. "By joining state and federal law enforcers here
with authorities in Canada, we believe we will be successful in stopping a
massive advance-fee loan scheme involving numerous defendants based most
recently in British Columbia and Ontario. We intend to continue that approach
in the future."
Joining in the crackdown were Attorneys General from Arkansas, California,
Connecticut, Illinois, Missouri, New Jersey, New Mexico, New York, North
Carolina, Ohio, Tennessee, Texas, Vermont, Virginia, and Wisconsin.
According to FTC, advance-fee loan schemes are often advertised in the
classified sections of daily newspapers, including "USA Today," and other
publications such as "The Globe" and "National Examiner."
(Advance Fee Loan Boiler Rooms, June 10, 1996; materials relating to this
FTC matter are available on the Internet at FTC's World Wide Web site at:
http://www.ftc.gov.)
FTC FINAL AGREEMENT INVOLVES ALLEGED
AD AGENCY CULPABILITY
This recently finalized FTC consent agreement with N.W.
Ayer & Son, Inc.--which does business as NW Ayer, Inc., of New York
City--settled charges over that ad agency's role in creating ads for Eggland's
Best, Inc. eggs. FTC challenged claims regarding the effect of the eggs on
blood cholesterol. The final order bars Ayer from misrepresenting with regard
to eggs and any meat, dairy or poultry product the absolute or comparative
amount of cholesterol, total fat, saturated fat or any other fatty acid or the
existence or results of any test or study. The order also requires Ayer to have
competent and reliable scientific evidence to back up any claims that such
products have any effect on serum cholesterol or any health benefit.
(NW Ayer, Inc., FTC Dkt. No. C-3660, June 6, 1996; materials relating to
this FTC matter are available on the Internet at FTC's World Wide Web site
at: http://www.ftc.gov.)
FTC CHARGES INVOLVE SELLER OF HOME-BASED
BUSINESS AND INFOMERCIALS
FTC filed suit against FreeCom Communications,
Inc. and several other companies, charging that the firms and their principals
misrepresented the earnings potential to consumers who bought their $495
home-business "starter kits." FTC alleged that defendants used infomercials
and mailings to urge consumers to attend their seminars, which were
conducted throughout the U.S. According to FTC, it was at these seminars
that the defendants induced consumers to buy the starter kits by making
claims that each of the business ventures it was selling was a proven
money-maker. FTC has asked the court to (1) order a permanent halt to the
alleged misrepresentations, (2) order an asset freeze to preserve funds for
consumer redress, and (3) appoint a receiver to take control of the
companies.
FTC's action follows a joint federal-state investigation with the office of the
Utah Attorney General. Jodie Bernstein, Director of FTC's Bureau of
Consumer Protection said, "Anyone can be lured by slick sales pitches, or
testimonials of success. Honest people, trying to earn a living by working for
themselves, can be duped by promises of making big-time easy money.
However, few, if any consumers, actually earn substantial income from these
business ventures." Utah's Attorney General, Jan Graham, said, "Our office
has been concerned about the high potential for fraud in home business
seminars for several years. I appreciate the FTC's eagerness to have the Utah
Attorney General's Office work with them on this multi-million dollar case
involving not only Utah victims, but victims from across the country."
In addition to the corporate defendants, FTC's complaint names as
defendants several individuals who, at various times, were officers, directors
and/or shareholders in some or all of the defendant corporations. According
to FTC, since 1992, defendants promoted and sold home-based business
opportunities, such as, the resale of distressed merchandise, vending
machines, color-change T-shirts, the sale of discount travel memberships,
vitamins, scholarship search services, and estate planning, through its
infomercials, print advertisements, mail-pieces, telephone solicitations, and/or
seminars.
According to FTC's complaint, defendants have represented through print
advertisements and mail-pieces that the defendants offered proven business
opportunities, that consumers could expect to earn substantial income through
one of the home-based businesses, and that speakers at the seminars have
earned substantial income through one of these businesses. For example,
some of the defendants' print ads and mail pieces contained statements such
as:
"Allen came to our conference, one like you're being invited to. Now he
works for himself ... out of his home ... and pays himself a salary three times
more than his former employer paid. Last year Allen earned: over $200,000.
(His first year he earned: $111,000)."
FTC also charged that certain testimonials used by the defendants in their
sales presentations, infomercials, advertisements, and promotional materials
did not reflect the typical or ordinary experiences of consumers who have
purchased a business venture from the defendants, and that such
representations were false and misleading. Finally, FTC charged that, in many
cases, defendants falsely depicted that certain persons (whose stories are
described in defendants' sales presentations, ads, promotional materials, and
by defendants' telemarketers) achieved a certain level of success by using one
or more of defendants' business ventures. FTC asked the court to
permanently bar the defendants from making, or to assist others in making, the
types of representations as alleged in the complaint, to order the defendants to
rescind contracts with, and refund money to consumers. FTC filed its
complaint in the U.S. District Court for the District of Utah, Central Division,
in Salt Lake City.
NOTE: The Commission authorizes the filing of 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 a defendant actually has violated the law. The case will
be decided by the court."
(FreeCom Communications, Inc. et al., Civil Action No.: 2: 96CV-0492,
FTC Matter No. 932-2362, June 4, 1996; materials relating to this FTC
matter are available on the Internet at FTC's World Wide Web site at:
http://www.ftc.gov.)
FTC STAFF: REPEAL GAMES OF CHANCE RULE
FTC's staff recommended that the Commission repeal its trade regulation rule on Games
of Chance in the Food Retailing and Gasoline Industries. Their reasons: The
rule's costs outweigh its benefits and the abuses that led to the rule are unlikely
to recur. Rulemaking in this matter is nearing its final stage--review by the five
Commissioners.
This rule was promulgated in 1969. It establishes requirements for food and
gasoline retailers in conducting and advertising games of chance. The rule
requires game promoters, in advertising for games of chance, to provide
detailed information on the number of prizes available, the odds of winning
each prize, the geographic area covered by the game and the number of
participating retailers. The rule applies only to games conducted by food
stores and gasoline stations. It also regulates various aspects of a game's
operation and the procedure for posting lists of winners. In 1981, FTC
granted an exemption to the rule's disclosure requirements for broadcast
advertising.
In 1995, the Presiding Officer reopened the record for additional comments
on whether a need for this rule continues to exist. In their respective reports,
FTC staff and the Presiding Officer recommend that FTC repeal this rule.
If you'd like to comment on the two reports, your comments must be confined
to information already in the rulemaking record. Deadline: August 6, 1996.
Send your written comments to: Henry B. Cabell, Presiding Officer, FTC, 6th
Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. (Those in
excess of four pages should be accompanied by four copies). Limited copies
of the two reports are available from the FTC's Public Reference Branch,
Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C.
20580. Tel.: (202) 326-2222.
(Games of Chance in the Food Retailing and Gasoline Industries, June 7,
1996; materials relating to this FTC matter are available on the Internet at
FTC's World Wide Web site at: http://www.ftc.gov.)
FTC OK'S FINAL CONSENT ORDER IN DIET CASE
FTC finalized a consent agreement with the Diet Workshop, Inc., a franchiser of
weight-loss plans and products, and the owner of its company-operated
territories, Diet Workshop of Boston, Inc., settling charges that they made
unsubstantiated weight-loss and weight-loss maintenance claims and used
consumer testimonials deceptively. The final order bars respondents from
misrepresenting the performance of any weight-loss program and requires
them to have reliable scientific evidence to substantiate claims about achieving
or maintaining weight loss, or the rate at which the loss can be expected to
occur. The order also sets out standards for the type of evidence required to
support various maintenance claims. Also, ad claims about maintaining weight
loss must include the statement: "For many dieters, weight loss is temporary."
Weight-loss maintenance claims in all but short broadcast ads must be
accompanied by disclosures regarding the actual experience of Diet
Workshop customers; short broadcast ads must direct consumers to check
with the company's local centers for detailed maintenance statistics. The order
also bars the misleading use of testimonials, and requires atypical testimonials
to be qualified.
(Diet Workshop, Inc. et al., FTC Dkt. No. C-3663, June 7, 1996; materials relating to this FTC matter are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.)
FTC OK'S FINAL CONSENT ORDER IN CANCER TREATMENT CASE
FTC has made final a consent agreement with Cancer Treatment Centers of America, Inc., Midwestern Regional Medical Center, Inc., and
Memorial Medical Center and Cancer Institute, Inc. This settles charges that they made false and unsubstantiated claims in advertising and promoting their cancer treatments. The order requires respondents to have competent and reliable evidence--scientific in certain appropriate instances--to support representations about patient survivorship or cure rates, or endorsement, or efficacy, performance, safety or benefits of any cancer treatment. They also are barred from using testimonials in a misleading way.
(Cancer Treatment Centers of America, Inc., et al., FTC Dkt. No. C-3662, June 4, 1996; materials relating to this FTC matter are available on the Internet at FTC's Web site at: http://www.ftc.gov.)
NOTE: A consent agreement or consent decree is for settlement purposes only and does not constitute an admission of a law violation. When finalized, both have the force of law. Any violation of an FTC consent order may result in a civil penalty of $10,000.
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