Full access to Entrepreneur for $5

Florida Phone Vending Opportunity Franchisor Agrees To Pay To Settle Charges


Opinions expressed by Entrepreneur contributors are their own.

Miami-Ameritel Payphone Distributors and its owner, Roy Barnett Goodman, which were targeted by the Federal Trade Commission as part of a nationwide crackdown on fraudulent business opportunities, have agreed to pay $40,000 to settle the charges against them. As part of the settlement with the FTC, they're required to comply with the commission's Franchise Rule, a pre-purchase disclosure rule designed to give potential franchisees key information about the business, its officers, and their legal and financial history, as well as the names and addresses of former and current franchisees.

The settlement ends the litigation in this case, which was among 35 brought by the FTC and the Department of Justice as part of "Project Biz-illion$," a multiprong joint state/federal attack on traditional business opportunity scams. This case was launched against defendants that advertised in the classified section of daily newspapers to peddle pay phone, vending machine, display rack or work-at-home business opportunity scams. The defendants made unsupported earnings claims and failed to give consumers critical pre-purchase information about the business opportunity, as required by the Franchise Rule.

According to the FTC, Ameritel sold pay phone business opportunities. The FTC charged the company and its owner with making false and misleading claims about the earnings that could be realized, the availability of local, profitable pay phone locations and the inclusion of such locations as part of the business venture. The FTC also charged them with failing to comply with the provisions of the Franchise Rule designed to help potential purchasers protect themselves from false profitability claims. An investment for three pay phones was about $4,500. The defendants' advertisements often included estimates of potential earnings of up to $200,000 per year.

Under the consent judgement, Ameritel and Goodman are prohibited from misrepresenting any fact material to a consumer's purchasing decision in connection with the sale of business opportunity ventures. The settlement, which required the court's approval, also prohibits the defendants from misrepresenting that a purchaser would earn in excess of a specified amount or would be provided profitable locations for the payphones. The settlement also prohibits the defendants from violating or assisting others to violate the Franchise Rule. Specifically, the defendants are prohibited from failing to provide prospective franchisees with a complete and accurate basic disclosure document or an earnings claim document as required by the rule and from making any earnings claims or projections without having a reasonable basis for the claims or projections at the time they are made.

In addition, the settlement requires the defendants to pay $40,000 in consumer redress with an avalanche clause that would require them to pay $8 million if they are found to have made omissions or misrepresentations about their financial condition. Finally, the settlement contains various record keeping and reporting requirements designed to assist the FTC in monitoring the defendants' compliance. -Federal Trade Commission