Reality Check

This spring, the Federal Trade Commission (FTC) filed legal actions against seven marketers of prepackaged businesses where the buyer receives the right to use 900-number services to sell information over the telephone. The federal government's action, dubbed Project Buylines, targeted companies it alleges have delivered false earnings claims. The FTC staff noted that few if any investors made promised amounts of revenue that ranged from a few thousand dollars to more than $200,000 a year.

In six of the seven actions, the FTC also alleged that the defendants had violated the FTC's Franchise Rule by failing to deliver requisite disclosure documents to investors. Those documents might have given them information "that would have led them to decide against purchasing the business opportunities," according to the FTC.

In each case, the FTC is seeking court orders that would require the defendants to pay for redress to injured consumers or disgorge their profits to the federal government and would bar similar activity in the future. In two of the cases, the courts immediately issued temporary restraining orders, effectively closing down the businesses, freezing assets, and appointing receivers to manage the companies' affairs pending the outcome of the legal actions.

This article was originally published in the July 1996 print edition of Entrepreneur with the headline: Reality Check.