Misleading Advertising Law

The FTC complaint filed against Fidelity ATM for an alleged business opportunity or franchise scam, according to ATM Marketplace.

According to the FTC, "these scammers, selling ATMs, misrepresented the basic facts of their business opportunity: that purchasers would earn substantial profits; that the company had, or would have, secured locations for the ATMs within 45 days; that the ATMs would be installed and operational in the same time period; and that the company would provide substantial assistance, such as relocating underperforming machines. The complaint also alleges that they did not make required Franchise Rule disclosures and had no substantiation for their earnings claims."

There are a number of interesting facets to this case.

First, the Receiver's First Report, which included strategies for recoverying losses, states there are approximately 100 distributors who have lost around $4.2 million. The Receiver has accounted for approximately $600,000 in cash, in two bank accounts.

The Receiver has also located about $460,000 in property, for a total of around 25 cents on the dollar.

Therefore, at this point the Receiver could return about 1/4 of each distributor's loss, which is larger than normal. But, what will happen?

Based on other receiverships that I have followed, it would not surprise me if the Receiver's fees exceeded that amount of cash located, the property sold for less than 15% of its value. The problem is that there is no one representing the distributors who can question the value of the Receiver's work present at the Court hearings.

Second, although the Receiver swears in its affidavit that its law firm is experienced in complex frauds, and has shut down the Fidelity ATM website, there are at least two other Franchise websites advertising for Fidelity, here and here, nearly a full month after the initial ex-parte application by the FTC. That is not encouraging.

Third, the Receiver complains about the transparency of the scamers's accounting records, but has so far failed to alert the distributors that they should obtain their own banking records and determine where their cheque was cashed.

Fourth, Ex-Parte Order seems to only include relief against one "salesman". It is unlikely that a single person could carry this out - there is likely three or four other individuals who were feeding the top "salesman".

I also wonder about the address on the whois for their corporate website, 1375 Gateway Boulevard Boynton Beach, FL 33426 US, as it doesn't show up in the pleadings at all.

Happy Holidays and New Year.