26 Ways to Leave Your Lover - Well almost 26
The FTC has been prosecuting business opportunities frauds and scams for over 30 thirty years. The proposed new biz op rule lists some 22 ways to lose your money, 22 distinct fraudulent practices in section 437.5 of the new rule. I thought it would be useful to review these practices to see what compliance techniques were implicated in these prohibited practices.
The first prohibited practice, 437.5(a), would invalidate any term in a business opportunity contract, or distributorship contract, that would require the purchaser to waive any reliance on the disclosures required by the FTC's business opportunity rule. That is, a purchaser could not contract to say that it didn't need to review or have the FTC disclosure document.
Why is this needed, and will it work?
Technorati Tags: ftc, stupid dumb, business opportunity, purchaser, disclosure document, business opportunities, new biz, biz op, distributorship, frauds, scams, fraudulent, fairness, reliance, distinct
Generally, individuals are permitted to contract between themselves free from any judicial or regulatory second guessing about the fairness of the bargain. People are free to make stupid, dumb and really bad bargains. The law of contract will not relieve an individual from just a bad bargain.
But in response to this perceived unfairness, regulatory law for some types of purchases, investments, franchises, distributorships, etc, will require that the seller disclose information that would not be available to the purchaser, at common law. For example, one of the most dramatic disclosure obligations is in the Florida Biz Op statement which requires the seller to disclose his or her driver's license to the seller. Try to get that information from the seller of real estate!
Although a statute or regulation may demand that a purchaser receive certain information before buying a distributorship, franchise, or business opportunity, can the contract between the purchaser and seller have a term which basically negates the federal, state, or provincial requirement for disclosure. At common law, with its emphasis on freedom to contract, the answer is yes.
But regulatory laws or codes want to trump the freedom to contract, especially in cases in which it is suspected that there is no true freedom at all. And so, the waiver rule trumps the contractual term - no contracting out from the protection of the statute, regulation or rule.
Will the FTC waiver rule work? Will individuals who have been scammed look to the contract or statute? I think not. Unfortunately, too many individuals don't know what their statutory rights are and will believe what the contract says -even if the contract is not valid because of statutory irregularities. The FTC needs to start buying public service ads or even adsense programs to get its message out.
Technorati Tags: ftc, stupid dumb, business opportunity, purchaser, disclosure document, business opportunities, new biz, biz op, distributorship, frauds, scams, fraudulent, fairness, reliance, distinct
