The FTC charged that Netvertise, Inc. and Elliot Krasnow violated federal law when they sold franchises for Web site design and promotion services to businesses. The franchises -- which cost between $20,000 to $100,000 -- offered various Internet services to small and medium-sized businesses, including the construction and promotion of Web sites, use of e-mail marketing, and off-site data protection. The franchise included Netspace's Search Engine Optimizing software, which they claimed would allow franchisees to create high-quality Web sites for clients that would appear on the first page of results from an Internet search engine.
According to the FTC's complaint, the defendants misrepresented that franchisees were likely to earn substantial incomes and overstated the value of the Netspace software. The complaint also charged that the earnings claims were unsubstantiated and that the defendants provided consumers with defective disclosure documents. In 1990, an order entered against Krasnow required him to pay $400,000 and prohibited misrepresentations when dealing in rare coins. The franchise disclosure documents did not disclose this to franchisees as required by law. The defendants also did not provide franchisees with an earnings claim document even though they made earnings claims to potential buyers. Even though they made oral representations, the defendants' basic disclosure document said no earnings claims were made.
The order announced today, which settles the FTC's charges, bans the defendants from marketing or selling any business arrangement covered by the Franchise Rule or the Business Opportunity Rule. The defendants are prohibited from misrepresenting any business ventures or investment opportunities and are required to pay $160,000, which will be used for consumer redress. If the defendants misrepresented their financial status, they will be liable for the full judgment amount of $500,000.
