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NOTE: This website is where you can find advertising law information based on archived news briefs from past issues of Advertising Compliance Service. This archived news brief was published in Advertising Compliance Service in August 2001.





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Two operators of an Internet-based business opportunity involving an Internet shopping mall network agreed to an FTC settlement that permanently bars them from participating in multi-level marketing (MLM) opportunities. A third promoter is barred from taking part in MLM opportunities for seven years. The harsh penalties were part of a settlement of FTC charges that their project was an illegal pyramid operation.

Darrin Epps and Edward Lamont are forever barred from participating in MLM. Richard Slaback may not take part in MLM for seven years. All three defendants are barred from making false or misleading claims in selling any business venture or from assisting others to make false claims. Slaback agreed to pay $38,000 in consumer redress. In March 2001, Bigsmart.Com L.L.C. principals, Mark and Harry Tahiliani, agreed to provide up to $5 million in consumer redress and post a $500,000 performance bond to settle FTC charges in this case.

According to FTC's complaint, Bigsmart marketed Internet theme "malls" that it claimed would let investors earn substantial income from commissions on products purchased through the Internet. The malls were a collection of links to retail sites maintained by independent third-party merchants, such as, and to a "Superstore" maintained by Bigsmart, itself. Traffic was directed to the malls through the personalized Bigsmart "welcome pages" that members bought access to for a $10 application fee and a $99.95 "hosting" fee. While Bigsmart claimed that members would make substantial amounts of money, according to FTC, the project was structured in such a way that realizing continued financial gains would depend on ". . . the continued, successive recruitment of other participants," not on retail sales of products and services to the public.

FTC charged that--

* the claims that consumers who invested in Bigsmart would make substantial income were false;

* promotional materials that made the false and misleading claims provided the means and instrumentalities for others to deceive consumers; and

* Bigsmart was actually a pyramid scheme.

Each of these practices violated the FTC Act, said FTC.

The orders were filed in U.S. District Court for the District of Arizona.

NOTE: A Stipulated Final Judgment and Order 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.

(Bigsmart.Com L.L.C., FTC File No. 002 3365, Civil Action No. 00 226 PHX RCB, August 9, 2001.)


An officer and director of an Internet company collected consumers' personal identifying information, including credit card information, by telling them they had to supply the data or lose access to the Internet, according to FTC. That officer and others agreed to settle FTC charges that their project violated the law. A preliminary order in the case required the defendants to destroy the collected information. This final settlement settles the remaining issues involved, permanently barring the defendants from misrepresentations in the advertising, marketing, promotion, distribution or sale of any products or services via the Internet, and barring use of personal information collected as a result of misrepresentations.

FTC charged that in mid-October 1999, Robert Stout, doing business as Global Internet Federal Registry; Get Our From, Inc.; and Donald J. Lytle, an officer and director of Get Out From, sent unsolicited commercial e-mail (spam) to Internet news groups notifying members that because of the Children's Online Privacy Protection Act, consumers were required to certify their age to maintain access to the Internet. The messages directed consumers to defendants' Web sites. The sites advised consumers that, "all Internet users are required to register here for Internet licensing," and provided an application form that collected information ranging from consumers' names and addresses to credit card numbers and expiration dates.

In December 1999, FTC filed a complaint in the U.S. District Court for the District of New Jersey, charging that the defendants' representations were false and deceptive. Shortly thereafter, FTC and the defendants agreed to a preliminary order that required destruction of all consumer information collected by defendants as a result of the representations alleged in the complaint. The Stipulated Judgment and Order for Permanent Injunction resolves that court case.

The final order bars defendants, in connection with the advertising, marketing, promotion, distribution, offering for sale or sale via the Internet of any product or service, from misrepresenting:

any material fact;

that consumers must register in order to maintain access to newsgroups or the Internet;

that consumers must provide personal information to maintain access to newsgroups or the Internet;

that they represent an organization recognized by experts or professionals in the field; or

that they are associated or affiliated with any federal, state or local government organization.

Also, the settlement bars the defendants from collecting, using, selling or transmitting consumers' personal identifying information or credit card information obtained as a result of misleading representations.

NOTE: A Stipulated Final Judgment and Order is for settlement purposes only and does not constitute an admission of a law violation.

(Global Internet Federal Registry, et al., FTC File No. X000 122, August 24, 2001.)


This FTC action involved a company that target-marketed its travel packages primarily through unsolicited faxes. A recent settlement will bar Resorts Exchange International of America, Inc. (REIA) and its owner from similar actions in the future. FTC's complaint alleged violations of the FTC Act and other alleged violations. It was brought as part of Operation Travel Unravel. That 2000 joint federal and state law enforcement sweep resulted in 85 actions against companies and individuals allegedly involved in vacation travel fraud.

According to FTC's complaint, since at least 1999, REIA and its owner deceived consumers across the U.S. by deceptively marketing travel packages. Using in-house sales personnel and a number of third-party boiler rooms throughout Florida, FTC argued, REIA contacted consumers by sending unsolicited faxes to their workplace promoting travel packages at a deeply discounted rate. The faxes, which were addressed to "All Current Employees," typically said that the "wholesale travel department" was releasing reduced-price, corporate closeout discount vacations.

In many cases, consumers who received the faxes at work believed either that they were sent from the travel division of their company or were approved or sponsored by their employer, FTC alleged.

FTC's complaint said that during the initial sales presentation, the defendants misrepresented the material terms of their refund and cancellation policies, at times telling consumers that they could cancel their payment in the future if they wanted to. However, when customers did call to attempt to cancel, they were told that they had no right to do so.

Under the terms of the stipulated final judgment, defendants will, among other things, be permanently barred from violating the FTC Act. Also, the stipulated judgment requires defendants to post a $400,000 performance bond prior to engaging in telemarketing or the sale of travel-related products.

The judgment also provides for a $4 million suspended judgment that can be reinstated if defendants are found to have misrepresented their financial situations.

The stipulated final judgment was filed in the United States District Court for the Middle District of Florida, in Orlando, on August 8, 2001.

NOTE: Stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.

(Resorts Exchange International of America, Inc., et al., FTC File No. 002-3219, August 8, 2001.)


One initiative that would continue under his Chairmanship, said FTC Chairman Timothy J. Muris, is hearings and workshops on consumer protection and competition matters that affect the economy. Speaking at the 124th American Bar Association annual meeting in Chicago, Chairman Muris said:

"These proceedings help us develop a better understanding of new economic and business developments, and their consumer-related implications, in a non-adversarial process, and are useful to the Commission, the Congress, and others, by informing policy and possibly future enforcement decisions. We have already continued the practice of sponsoring these proceedings with our just concluded conference on Gasoline Prices last week. There will be follow-up hearings on this issue over the next several months, and we will have similar hearings on other antitrust and consumer protection issues over the next few years."

(Expect Continuity in Antitrust Enforcement FTC's Muris Tells ABA, August 7, 2001.)
















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