News Briefs

Cigar Franchisor Settles with FTC

The Federal Trade Commission (FTC) announced that it settled litigation with Grover Stewart, senior operations manager, Nationwide Premium Cigar Distributors Corp. (Hallandale, FL), for failing to provide presale disclosures to prospective purchasers of their cigar and humidor business opportunities. The settlement bans Stewart for 3 years from selling franchises and business ventures, requires him to post a $100,000 bond before selling business opportunities in the future, and bans him from selling his customer lists. Stewart also is banned from violating the Franchise Rule and from making false and misleading representations in connection with the sale of business opportunities. He made no admission of wrongdoing.

The settlement was filed in the U.S. District Court, Southern District of Florida, and signed on March 29, 2004.

The U.S. Department of Justice (DOJ) filed suit in June 2002 against Nationwide Premium, Stewart, and another executive, Alvin Blish, as part of a broad campaign against illegal work-at-home schemes. The Nationwide Premium defendants sold cigar and humidor business opportunities to franchisees for a package price. The business opportunities included cigars, humidors, cigar cutters, point-of-sale material, and initial advice.

Prospects were solicited through newspaper ads, and when people responded to the ads, National Premium's sales representatives told them about “a locating company that supposedly guaranteed that consumers would achieve four cigar sales per day per location,” said the FTC and DOJ in the complaint. But, according to the FTC, the defendants did not provide prospective purchasers with a written earnings claim document; they did not have a reasonable basis for the earnings claims; and they failed to provide prospective purchasers with a basic disclosure document that included the names.

FTC Commissioner Orson Swindle dissented in the 4-1 vote to approve the settlement, calling it inadequate. “Given Stewart's consistent pattern of unlawful conduct in the sale of business ventures and the resulting consumer injury, I believe a far more effective remedy would be to permanently ban him from promoting or selling franchises and business ventures,” Swindle said.

Franchisees Caught in Middle of Fraud Allegations about Talent Scout Network

According to government investigators in New York and Florida, it's one of the worst consumer scams in recent memory. Thousands of people, perhaps tens of thousands, have been taken for hundreds or thousands of dollars each. And a small group of franchisees are caught in the middle.

Investigators for attorneys general in Florida and New York have been looking into allegations from consumers that they were cheated by talent agencies offering bogus marketing and representation services. The agencies were operated by Trans Continental Talent (“TCT”), which was affiliated with Lou Pearlman, a pop music impresario known for developing Backstreet Boys, *NSYNC, and other “boy” bands.

In the multiple lawsuits and investigations, franchisees are both potential defendants and potential plaintiffs. They are defendants in the class action lawsuits that allege that they pitched unrealistic modeling, dancing, acting, and athletic opportunities to people with stars in their eyes. But they are plaintiffs because they charge that the principals of TCT created the fraudulent operational system and fleeced them out of money by selling them franchises.

In the most recent lawsuit, the Wilhelmina Modeling Agency charged Pearlman and TCT with breach of contract and fraud through the misuse of the Wilhelmina trademark to promote talent representation services. The lawsuit seeks $24.3 million in U.S. District Court, Orlando Division, Middle District of Florida, (No. 6:04-CV-286-ORL-22KRS). It is alleged that TCT operated the “Wilhelmina Scouting Network” after licensing use of the Wilhelmina name in March 2003, but Pearlman repudiated the deal and never made any payments to Wilhelmina.

In the same court, franchisees who ran scouting networks for TCT under the name United States Talent Company (“USTC”) also sued TCT for fraud and misrepresentation (U.S. District Court, Orlando Division, Middle District of Florida, No. 6:2003CV01565).

Representatives of the franchisor and franchisees did not return phone calls. However, Mark Stein, who purchased another franchise from TCT, did speak with FBLA about the types of fraudulent activities that allegedly took place. Stein is seeking legal representation for a class action lawsuit on behalf of about 45 franchisees who bought Edge Talent franchises from TCT. Edge Talent promised to help high school athletes obtain college scholarships by showing video clips of the player's performance over the Web and promoting those players to its network of college coaches.

Soon after buying an Edge Talent franchise, Stein said that he realized that the purported “insider” contacts with coaches did not exist. “The whole operation just fizzled out,” he said. “There was no notification from Lou Pearlman or TCT. When things started to go badly, they just ran for the hills.”

Stein said that he was shown “letters of approval” for Edge Talent from the Federal Trade Commission and the NCAA, the governing body of college athletics. “Who would question those approvals?” he said, adding that he now believes the letters were bogus.

While Stein, a vice president with Paradigm Healthcare Solutions in Fresno, CA, had business experience and bought an Edge Talent franchise as a sideline activity, he is especially angered that Edge Talent allegedly took advantage of franchisees with less business sophistication. “At most 3 or 4 of the franchisees had a decent business background,” he said.

At least some of Stein's charges seem to be corroborated by government authorities. In April 2004, the New York State Consumer Protection Board labeled talent competitions promoted by TCT as “shams” that dupe people into believing that they will be guaranteed $100,000 recording contracts if they win. All contestants pay entry fees, and the few “winners” are offered standard agent deals that do not guarantee them any work as performers or models, said the Board.

The Florida Attorney General Economic Crimes Division launched a formal investigation into TCT in 2002, and a spokesperson for the office said that it has more than 1700 consumer complaints on file.

However, TCT continues to operate by using different names, according to a representative of Victims Against Modeling Scams (VAMS), which is leading the fight for legal redress. “The illegal actions of the franchises caused a lot of pain and suckered a lot of people out of their money,” said a representative of VAMS who did not want to give his name during a phone interview. “But it's a difficult situation. Many of the franchises were honest, and they followed the techniques they were taught by TCT. They did not realize that they were buying into a fake and a fraud.”

At one time, VAMS considered suing the franchisees, said the representative. But VAMS members instead decided that TCT is at the root of the problem. “If the franchise owner has evidence against TCT, then we would work with them,” he said. “The executives of TCT, some of whom own a few franchises, are our real target.”

Cigar Franchisor Settles with FTC

The Federal Trade Commission (FTC) announced that it settled litigation with Grover Stewart, senior operations manager, Nationwide Premium Cigar Distributors Corp. (Hallandale, FL), for failing to provide presale disclosures to prospective purchasers of their cigar and humidor business opportunities. The settlement bans Stewart for 3 years from selling franchises and business ventures, requires him to post a $100,000 bond before selling business opportunities in the future, and bans him from selling his customer lists. Stewart also is banned from violating the Franchise Rule and from making false and misleading representations in connection with the sale of business opportunities. He made no admission of wrongdoing.

The settlement was filed in the U.S. District Court, Southern District of Florida, and signed on March 29, 2004.

The U.S. Department of Justice (DOJ) filed suit in June 2002 against Nationwide Premium, Stewart, and another executive, Alvin Blish, as part of a broad campaign against illegal work-at-home schemes. The Nationwide Premium defendants sold cigar and humidor business opportunities to franchisees for a package price. The business opportunities included cigars, humidors, cigar cutters, point-of-sale material, and initial advice.

Prospects were solicited through newspaper ads, and when people responded to the ads, National Premium's sales representatives told them about “a locating company that supposedly guaranteed that consumers would achieve four cigar sales per day per location,” said the FTC and DOJ in the complaint. But, according to the FTC, the defendants did not provide prospective purchasers with a written earnings claim document; they did not have a reasonable basis for the earnings claims; and they failed to provide prospective purchasers with a basic disclosure document that included the names.

FTC Commissioner Orson Swindle dissented in the 4-1 vote to approve the settlement, calling it inadequate. “Given Stewart's consistent pattern of unlawful conduct in the sale of business ventures and the resulting consumer injury, I believe a far more effective remedy would be to permanently ban him from promoting or selling franchises and business ventures,” Swindle said.

Franchisees Caught in Middle of Fraud Allegations about Talent Scout Network

According to government investigators in New York and Florida, it's one of the worst consumer scams in recent memory. Thousands of people, perhaps tens of thousands, have been taken for hundreds or thousands of dollars each. And a small group of franchisees are caught in the middle.

Investigators for attorneys general in Florida and New York have been looking into allegations from consumers that they were cheated by talent agencies offering bogus marketing and representation services. The agencies were operated by Trans Continental Talent (“TCT”), which was affiliated with Lou Pearlman, a pop music impresario known for developing Backstreet Boys, *NSYNC, and other “boy” bands.

In the multiple lawsuits and investigations, franchisees are both potential defendants and potential plaintiffs. They are defendants in the class action lawsuits that allege that they pitched unrealistic modeling, dancing, acting, and athletic opportunities to people with stars in their eyes. But they are plaintiffs because they charge that the principals of TCT created the fraudulent operational system and fleeced them out of money by selling them franchises.

In the most recent lawsuit, the Wilhelmina Modeling Agency charged Pearlman and TCT with breach of contract and fraud through the misuse of the Wilhelmina trademark to promote talent representation services. The lawsuit seeks $24.3 million in U.S. District Court, Orlando Division, Middle District of Florida, (No. 6:04-CV-286-ORL-22KRS). It is alleged that TCT operated the “Wilhelmina Scouting Network” after licensing use of the Wilhelmina name in March 2003, but Pearlman repudiated the deal and never made any payments to Wilhelmina.

In the same court, franchisees who ran scouting networks for TCT under the name United States Talent Company (“USTC”) also sued TCT for fraud and misrepresentation (U.S. District Court, Orlando Division, Middle District of Florida, No. 6:2003CV01565).

Representatives of the franchisor and franchisees did not return phone calls. However, Mark Stein, who purchased another franchise from TCT, did speak with FBLA about the types of fraudulent activities that allegedly took place. Stein is seeking legal representation for a class action lawsuit on behalf of about 45 franchisees who bought Edge Talent franchises from TCT. Edge Talent promised to help high school athletes obtain college scholarships by showing video clips of the player's performance over the Web and promoting those players to its network of college coaches.

Soon after buying an Edge Talent franchise, Stein said that he realized that the purported “insider” contacts with coaches did not exist. “The whole operation just fizzled out,” he said. “There was no notification from Lou Pearlman or TCT. When things started to go badly, they just ran for the hills.”

Stein said that he was shown “letters of approval” for Edge Talent from the Federal Trade Commission and the NCAA, the governing body of college athletics. “Who would question those approvals?” he said, adding that he now believes the letters were bogus.

While Stein, a vice president with Paradigm Healthcare Solutions in Fresno, CA, had business experience and bought an Edge Talent franchise as a sideline activity, he is especially angered that Edge Talent allegedly took advantage of franchisees with less business sophistication. “At most 3 or 4 of the franchisees had a decent business background,” he said.

At least some of Stein's charges seem to be corroborated by government authorities. In April 2004, the New York State Consumer Protection Board labeled talent competitions promoted by TCT as “shams” that dupe people into believing that they will be guaranteed $100,000 recording contracts if they win. All contestants pay entry fees, and the few “winners” are offered standard agent deals that do not guarantee them any work as performers or models, said the Board.

The Florida Attorney General Economic Crimes Division launched a formal investigation into TCT in 2002, and a spokesperson for the office said that it has more than 1700 consumer complaints on file.

However, TCT continues to operate by using different names, according to a representative of Victims Against Modeling Scams (VAMS), which is leading the fight for legal redress. “The illegal actions of the franchises caused a lot of pain and suckered a lot of people out of their money,” said a representative of VAMS who did not want to give his name during a phone interview. “But it's a difficult situation. Many of the franchises were honest, and they followed the techniques they were taught by TCT. They did not realize that they were buying into a fake and a fraud.”

At one time, VAMS considered suing the franchisees, said the representative. But VAMS members instead decided that TCT is at the root of the problem. “If the franchise owner has evidence against TCT, then we would work with them,” he said. “The executives of TCT, some of whom own a few franchises, are our real target.”