Franchise and

Business Opportunity

Program Review

1993-2000

PROGRAM REVIEW

Prepared by the Staff of the Bureau of Consumer Protection

June 2001

A Review of Complaint Data, Law Enforcement and

Consumer Education
Acknowledgments

The staff gratefully acknowledges the assistance provided by Patrick Moulding,

Nicole Branch and Christopher Stone of the Bureau of Consumer Protection.
1

Contents

Program Review.......................................................... 3

Complaint Data ........................................................... 4

Methodology ......................................................................................................................... 4

Report Organization ............................................................................................................. 5

General Observations .......................................................................................................... 5

Overview .............................................................................................................................. 7

Companies ......................................................................................................................... 12

Consumers ......................................................................................................................... 14

Delivery and Goods ............................................................................................................ 18

Expectations, Disclosures, and Post-Sale Issues............................................................... 24

Law Enforcement ...................................................... 30

Law Enforcement Analysis Structure .................................................................................. 30

General Observations ........................................................................................................ 30

Investigations ..................................................................................................................... 32

Cases ................................................................................................................................. 33

Victims ................................................................................................................................ 36

Complaint Allegations ......................................................................................................... 37

Correlation Between Law Enforcement and Complaints .................................................... 40

Overview ............................................................................................................................ 44

Print Products ..................................................................................................................... 44

Consumer Education ................................................ 44

Websites (www.ftc.gov, www.consumer.gov) ...................................................................... 45

Teaser Sites........................................................................................................................ 45

 Audio Public Service Announcements ............................................................................... 45

Campaigns ......................................................................................................................... 46

Appendix 1 ................................................................ 47

Appendix 2 ................................................................ 48

Appendix 3 ................................................................ 50

Appendix 4 ................................................................ 52

Appendix 5 ................................................................ 57

Appendix 6 ................................................................ 58

Appendix 7 ................................................................ 59

Appendix 8 ................................................................ 61
2
3

Program Review

This report analyzes the Federal Trade Commission’s franchise and business opportunity program

from 1993 through 2000. The report is divided into three sections. The first section is a statistical

analysis of franchise and business opportunity complaints. It draws from the Consumer Information

System (CIS), the Commission’s general complaint database. This complaint information includes

consumer complaints brought to the Commission’s attention directly from consumers, as well as

complaints referred to the Commission by external organizations, such as state law enforcement

agencies.

The second section is a statistical analysis of Commission franchise and business opportunity law

enforcement activities. It includes an examination of Commission investigations and cases, a breakdown of allegations charged in Commission law suits, as well as a description of the correlation

between complaints and investigations.

The third section is a review of Commission consumer education activities pertaining to franchises

and business opportunities. It includes the number of publications distributed, web accesses and

outreach efforts.

The report’s Appendix includes additional information regarding several metrics, including tables of

raw numbers.
4

Complaint Data

This section presents an analysis of franchise and business opportunity-related complaint data from

1993 through June 1999 that are currently available in the Commission’s CIS system. It does not

purport to represent a precise accounting of all correspondence that was possibly submitted to the

Commission during the relevant time period. This is particularly true of data prior to 1997. Before

1997, complaint information, especially via telephone calls, was not routinely captured in a centralized database. In 1997, the Commission created the Consumer Response Center (CRC), which

standardized complaint handling. At the same time, the Commission began accepting complaint data

from non-FTC sources, such as from state law enforcement agencies and from regional offices of the

Better Business Bureau. In addition, in the summer of 1998, the Commission established a toll-free

number, and in October 1998 the Commission introduced an online complaint form. For these

reasons, data submitted after 1996 is the most complete. Nonetheless, the CIS is the single best

source of complaint data both before and after 1997.

Methodology

Initial Data Entry

An initial query of franchise and business opportunity-related complaints in the CIS generated 6,468

records. For a test period 1998-1999, these complaints represented between 3.3% and 3.6% of the

total number of consumer complaints in the CIS. FTC staff entered information from all 6,468

records into a separate Microsoft Access database (“primary database”) according to the protocol

described below.

Every complaint record, even if a duplicate or mischaracterized as a franchise or business opportunity, was entered. The primary database included 41 different data fields, designed to capture all

relevant information from each complaint. These fields included the date of the complaint; the state

of the consumer and company; whether the company offered a franchise, business opportunity, or

other venture; the amount of alleged injury; how the offering was advertised; the product or service

involved; and the specific complaint allegations. Because many complaints did not have sufficient

information to address each of the 41 fields, frequently some fields were left blank on individual

records, indicating that no data were available.

Franchise and Business Opportunity Database

FTC staff subsequently reviewed the primary database to determine whether each complaint raised a

franchise or business opportunity issue. The review process paid particular attention to verifying the

characterization of each record as either a “Franchise,” “Business Opportunity,” “Multi-Level Marketing (MLM),” “Money-Making Scheme (MMS),” “Miscellaneous Scheme,” or “Mischaracterized.”

Complaints verified as “Mischaracterized” – including, for example, requests for information, complaints about copyright infringement, and various others – were removed. Complaints that could be

accurately identified as concerning MLMs or MMSs were removed. “Miscellaneous schemes” –

those where insufficient information was provided to permit a more specific characterization – were

retained in the database. This review produced a final set of 4,512 complaint records. The 4,512

records generated as a result of this filtering process form the Commission’s Franchise and Business
5

Opportunity Database (“FBOD”). This section of the report exclusively concerns the FBOD data.

Report Organization

The statistical analysis of franchise and business opportunity complaint data is divided into five

sections, as described below. Each section includes a summary, applicable charts, and analysis.

Overview: The overview section describes the FBOD generally, characterizing, to the extent known,

each complaint as either a franchise complaint or a business opportunity complaint, the source of

each complaint, and the complaint dates.

Companies: This section breaks down information on the companies identified in the complaints,

including company location and complaints per company.

Consumers: This section highlights information about complainants, including geographic distribution and amount of injury per complainant.

Delivery and Goods: This section details the offerings and the sales process, including how offerings were advertised, what products or services appeared most frequently, and specific complaints

about the goods offered.

Expectations, Disclosures, and Post-Sale Issues: This section identifies various other problems the

complainant encountered in the course of the business interaction, including earnings claims, misrepresentations about support or training, disclosure issues, or refund disputes.

General Observations

Several results of the FBOD analysis merit mention at the outset. Perhaps most significant is the

breakdown of business opportunity complaints relative to either franchise complaints or miscellaneous schemes. Of the 4,512 complaints, 3,392 complaints – more than 75% – involved business

opportunities, while only slightly more than 6% were traditional franchise arrangements. Similarly,

complaints were lodged against 949 business opportunity sellers, but against only 197 franchisors.

This result tends to be consistent with our analysis of consumer injury. The majority of identifiable

consumer injury was under $10,000, and more than 92% of the complaints where injury could be

determined involved injury under $20,000. Injury over $100,000 was extremely rare.

Second, most complaints involved isolated incidents: where the company could be identified from

the complaint, 74% of the records represented a single complaint against a company. Only a few

companies appeared to exhibit any pattern of problematic behavior.

Third, there generally has been a steady increase in the number of complaints over time. During the

period 1997 through 1999, the period for which the most complete complaint data is available, the

number of complaints rose from 1,013 in 1997 to more than 1,600 (extrapolating for the rest of 1999

based on the pace through June of that year). This observation does not necessarily imply an increase

in the actual number of potential law violations. Rather, the growing numbers of complaints submitted directly from consumers via the Commission’s online complaint form and use of the

Commission’s toll-free number suggest an increasing public awareness of the FTC (in concert with
6

other consumer protection agencies) as a forum for addressing complaints of this type. For example,

while the Commission’s online complaint form generated 210 franchise and business opportunity

complaints during all of 1998, it generated 208 complaints during the first half of 1999 alone.

Fourth, the number of complaints as distributed by both the company locations and consumer locations tended to correspond to state population, such that more heavily populated states (FL, CA, TX,

NY) usually led in both company complaints and consumer residency. One noticeable aberration was

a relatively high number of complaints against Utah companies, placing the state in the top five in

that category.

Finally, most franchises and business opportunities apparently continue to be advertised by mail and

print media; these media represented more than half of the complaints where the advertising type was

identified, and the combination of mail, print and telephone comprised almost two-thirds of the

known total when the advertising medium was stated in the complaint. The Internet’s role, in both

advertising and as the subject of the offerings themselves, was less significant. Offerings advertised

via the Internet represented less than 10% of the complaints, and offerings where the Internet was an

integral part of the business proposal made up less than 5% of complaints where such subject information was available.
7

Overview

The Overview addresses some of the general metrics identified in the FBOD, including complaint

type, complaint date, and how the complaint came to the FTC’s attention.

Findings

1. More than 75% – 3,392 of the 4,512 FBOD complaints – concerned business opportunities, while

only slightly more than 6% concerned traditional franchise arrangements. The overwhelming majority of the complaints submitted to the Commission, therefore, involved some form of business

opportunity.

2. More than 12% of complaints appear to involve vending machine schemes.

3. Most complaints in the FBOD were recorded by the FTC or its Regional Offices. More than 60%

of all the complaints were recorded by those two sources, by consumers using the FTC’s online

complaint form (public users), or via the FTC’s toll-free number. The Better Business Bureaus and

the National Consumer League together contributed more than a third of the complaints.

4. There appears to be a general increase in the number of complaints over time, if total 1999 complaints are predicted based on the pace through June 1999. This trend persists when franchises and

business opportunity complaints are observed separately. Considering the sparse complaints available for earlier years, this observation does not necessarily imply an increase in the number of actual

Franchise Rule violations being committed. The recently growing numbers of public user complaints

and use of the FTC’s toll-free number at least suggest an increasing public awareness of the FTC (in

concert with other consumer protection agencies) as a forum for addressing complaints of this type.
8

Chart A.2

Complaint Count by Year

Chart A.2 tracks the FBOD complaints by time, as entered into the date field. All

but eight of the FBOD records noted the year the record was created. The chart

indicates a general increase in complaints (except for an upsurge in 1995), a trend

that 1999 complaints were, through June, on pace to continue.

Chart A.1

Type of Complaint

This chart presents the breakdown of the

three possible complaint types for records in

the FBOD. Each of these three categories

followed a “Yes/No” protocol, but no record

fell into more than one category. The vast

majority of these complaints involved the sale

of business opportunities.

Supporting Data and Analysis

Miscellaneous

18%

Franchises

6%

Business Opportunities

76%

5

58 101

677

336

1013

1480

842

1684

0

200

400

600

800

1000

1200

1400

1600

1800

Unknown 1993 1994 1995 1996 1997 1998 1999 (Records

through June;

yearly total

projected)

Year

# of Complaints

Projected

Actual
9

Chart A.3

Franchise Complaints by Year

Similar to Chart A.2, franchise complaints indicate a general increase by year.

Chart A.4

Business Opportunity Complaints by Year

As with Charts A.2 and A.3, business opportunity complaints follow

the trend of generally increasing numbers each year.

0

5 2

9 9

53

108 102

0

204

0

50

100

150

200

250

Unknown 1993 1994 1995 1996 1997 1998 1999 (Records

through June;

yearly total

projected)

Year

# of Complaints

Projected

Actual

1

30 79

570

277

759

1088

588

1176

0

200

400

600

800

1000

1200

1400

Unknown 1993 1994 1995 1996 1997 1998 1999 (Records

through June;

yearly total

projected)

Year

# of Complaints

Projected

Actual
10

Chart A.5

Complaints by Source

This chart analyzes the source of complaint data. The “All FTC” category incorporates entries from several different offices within the FTC, but FTC Regional Office

records are kept separate. The State Law Enforcement category groups records

originating with both State Attorneys General and State Departments of Justice.

Public Users refers to email complaints sent to the FTC by consumers. FTC sources

– home office, regions, direct mail to the agency, and the FTC hotline – make up the

bulk of the complaint records.

2

5

13

26

81

418

505

929

1090

1443

0 200 400 600 800 1000 1200 1400 1600

Other

San Diego Boiler Room Task Force

Unknown

State Law Enforcement

Toll-free Number

Public Users

Better Business Bureaus

Regional Offices

National Consumers League

All FTC

# of Complaints
11

0

100

200

300

400

500

600

700

800

900

1000

1993 1994 1995 1996 1997 1998 1999

(through June)

Year

# of Complaints

All FTC BBB NCL State Law Enforcement

Chart A.6

Top Information Sources by Year

Chart A.6 combines data from the Year field and the Source of Information field,

tracking over time the number of complaints from the database’s top information

sources. The result suggests the emerging importance of Public User and FTC

hotline complaints. Note: FTC internal sources are combined with the Regional

Office numbers for this chart’s FTC category.
12

Companies

The Companies section breaks down information on the companies identified in each complaint,

including company location and complaints per company.

Findings

1. The most populous states tended to exhibit higher complaint counts; Florida, California, Texas,

and New York were the most common company locations. One notable exception was Utah, which

made the top five states.

2. The majority of complaints – almost 75% – were isolated occurrences. Very few companies

generated more than one complaint, and only about 5% of companies had more than 6 complaints.

Supporting Data and Analysis

Chart B.1

Top 10 States, by Number of Companies Complained About

Chart B.1 indicates the states with the most complaints against in-state companies. Complaints

generally seemed to follow state population. However, given the sample size involved in the database, the relative ranking of those states with fewer complaints should not be interpreted as definitive. This chart excludes the sizeable category of “unknown” locations – where the complaint did not

provide the state of the subject company. This category represented the second highest complaint

count.

887

609

541

244

191

110 106 104 94 86

0

100

200

300

400

500

600

700

800

900

1000

FL CA TX NY UT OR MA CO NV AZ

# of Complaints
13

Chart B.2

Complaints per Company

Chart B.2 shows that the overwhelming

majority of complaints were isolated; less

than 6% of the companies in the FBOD

generated six or more complaints.

Chart B.3: Complaints Per Company

1 complaint

74%

2-5 complaints

21%

6-10 complaints

3%

11-50 complaints

2%

50+ complaints

<1%
14

Consumers

The “Consumers” section highlights information about complainants, including geographic distribution and amount of injury per complainant.

Findings

1. Of the consumers who complained, nearly 75% reported that they had experienced some financial

injury.

2. More than 90% of identifiable consumer injury amounted to less than $20,000 per consumer.

Instances of injury over $100,000 were extremely rare. However, when comparing business opportunities and franchises separately, complaints about franchises tended to report higher injury amounts.

About 17% of franchise complaints indicated injury over $20,000.

3. The more populous states tended to exhibit higher complaint counts: California, Texas, Florida,

and New York were the most common consumer locations.

Supporting Data and Analysis

Chart C.1

Top 10 States, by Number of Consumer Complaints

Chart C.1 indicates the states with the most consumer complaints. Complaint volume generally seemed to

follow state population. However, given the sample size involved in the database, the relative ranking of

those states with fewer complaints should not be interpreted as definitive. This chart excludes the sizeable

category of “unknown” locations — where the complaint did not provide the complainant’s state. This

category represented the fifth greatest complaint count.

596

287

272

228

186 180

136 133 131 129

0

100

200

300

400

500

600

700

CA TX FL NY PA OH IL NJ CO WA

State

# of Complaints
15

Chart C.3

Amount of Injury (unknowns

or blanks omitted)

Chart C.3 indicates that where the

amount of injury was specified, the

most frequent amounts fell between

$2,500 and $20,000; these made up

more than 50% of the known total.

$1-$100

8% $101 - $200

3%

$201 - $500

9%

$501 - $1,000

10%

$1,001-$2,500

9%

$2,501 - $5,000

14%

$5,001 - $10,000

23%

$10,001-$20,000

16%

$20,001-$30,000

4%

$30,001-$40,000

1%

$40,001-$50,000

1%

>$50,001

2%

$1-$100

6% $101 - $200

2%

$201 - $500

7%

$501 - $1,000

7%

$1,001-$2,500

7%

$2,501 - $5,000

10%

$5,001 - $10,000

16%

$10,001-$20,000

12%

Unknown or Blank

27%

$30,001-$40,000

1%

$20,001-$30,000

3%

$40,001-$50,000

1%

>$50,001

1%

Chart C.2

Amount of Injury

Chart C.2 shows there was a wide

range of injury to individual consumers, but most of the identifiable injury

fell under $20,000 per consumer.

Injury amount, however, was not

stated in a substantial number of the

complaints.
16

Chart C.4

Franchise Consumer Injury

Chart C.4 shows consumer injury figures for franchise

records, where injury amount was available. While the

$2,500 to $20,000 range is predominant, franchise complaints

report relatively more injury in the $20,000+ brackets.

1

0

7

2

6

13

31

36

11

8

10

7

4

11

0

5

10

15

20

25

30

35

40

$1-$100 $101 - $200 $201 - $500 $501 - $1,000 $1,001-$2,500 $2,501 - $5,000 $5,001 -

$10,000

$10,001-

$20,000

$20,001-

$30,000

$30,001-

$40,000

$40,001-

$50,000

$50,001-

$75,000

$75,001-

$100,000

Other

(>$100,000)

Injury Amount

# of Complaints
17

1 0

7 2 6

13

31 36

11 8 10 7 411

142

164

76

243

277

243

378

631

468

117

32

14 17 5 0

727

0

100

200

300

400

500

600

700

800

$1-$100 $101 - $200 $201 - $500 $501 - $1,000 $1,001-$2,500 $2,501 -

$5,000

$5,001 -

$10,000

$10,001-

$20,000

$20,001-

$30,000

$30,001-

$40,000

$40,001-

$50,000

$50,001-

$75,000

$75,001-

$100,000

Other

(>$100,000)

Unknown or

Blank

Injury Amount

# of Complaints

Franchises Business Opportunities

164

76

243

277

243

378

631

468

117

32

14 17 5

0

100

200

300

400

500

600

700

$1-$100 $101 - $200 $201 - $500 $501 - $1,000 $1,001-$2,500 $2,501 - $5,000 $5,001 - $10,000 $10,001-$20,000 $20,001-$30,000 $30,001-$40,000 $40,001-$50,000 $50,001-$75,000 $75,001-

$100,000

Injury Amount

# of Complaints

Chart C.6

Franchise and Business Opportunity Consumer Injury

This graph contrasts the injury amounts reported for franchises and business

opportunities, highlighting the somewhat divergent injury ranges as well as the

prevalence of business opportunities in the database.

Chart C.5

Business Opportunity Consumer Injury

This graph shows consumer injury figures for business opportunity

records where injury amount was available. It reinforces the frequency

of injury in the $2,500 to $20,000 range and indicates the rarity of very

high injury amounts for business opportunities.
18

Delivery and Goods

The “Delivery and Goods” section details the offerings and the sales process, including how offerings

were advertised, what products or services appeared most frequently as an integral part of the offering, and specific complaints about the goods offered in connection with the offering.

Findings

1. Traditional advertising media – print, direct mail, and phone – remain the most important methods for publicizing both franchises and business opportunities. Advertising via email and the Internet

made up less than 10% of the complaints where the medium was stated.

2. The complaints relate to a very wide range of products and services, although medical billing and

pay phone sales were among the most frequently occurring.

3. The most common complaint about goods was non-delivery, cited in more than 10% of cases.

Supporting Data and Analysis

Chart D.1

How Advertised

Chart D.1 identifies how consumers

originally became aware of the franchise

or business opportunity. Although this

information was only available for about

half of the complaints, traditional media

appear to remain the most frequent

means of contact.

Print Media

18%

Mail Solicitation

9%

Telephone Call

7%

In Person Meeting

6%

Television/Radio

4%

Unknown

49%

Seminar

3%

Internet

3%

Spam

1%

Fax

<1%

Expo/Trade Show

<1%
19

Chart D.3

Top 15 Products

Chart D.3 shows the product categories that received the most complaints

in the database. Product type information was available for 659 of the

records. The complaints identified a wide range of products, falling into

124 different categories.

Chart D.2

How Advertised (non-values omitted)

Chart D.2 indicates the breakdown of the

records for which the advertising medium was

stated in the complaint. Print and mail together

make up more than half of these complaints.

Print Media

36%

Mail Solicitation

18%

Telephone Call

13%

In Person Meeting

11%

Television/Radio

8%

Seminar

6%

Internet

6%

Spam

1%

Expo/Trade Show

1% Fax

<1%

86

65

48

43

37

31

25 24

21

14 14 13 12 12 10

0

10

20

30

40

50

60

70

80

90

100

Pay Telephones

Telephone Cards

Candy

Snack Food/Drinks

Computer/Software

Personal Hygene/Health

Coupons

Coffee

Unspecified vending

machines

Greeting Cards

Licensed Products - Toys

& Novelty Items

Trading Cards

Popcorn

Household/Personal Use

Items

Mailers/Envelopes/Postage
20

Chart D.4

Top 15 Services

Chart D.4 shows the service categories that received the most complaints in the

database. Service type information was specified in 628 of the records. Medical

billing was the dominant source of complaints, although as with product types,

there was a wide range of services identified in 83 categories.

167

93

70

47

25 24 20 18 17 14 12 10 9 8 7

0

20

40

60

80

100

120

140

160

180

Medical Billing

Telecommunications:

800#/s/900#s

Travel

Real Estate

ATM Machines

Telecommunications:

Other

Financial Services

Telecommunications:

Long-Distance

Janitorial

Envelope Stuffing

Advertising

Hud Tracer/Mortgage

Refund

Consulting

Student Services

Credit: Credit Cards

Service Category

# of Complaints
21

581

96

166

99

200

0

100

200

300

400

500

600

700

Non-Delivery Partial Delivery Quality of Goods Defective Goods Other Problems with Goods

Goods-Related Complaint

# of Complaints

Chart D.6

Complaints About Goods

Chart D.6 displays goods-related complaints. Non-delivery was the most common

complaint from franchise and business opportunity purchasers, occurring in more

than 10% of all records.

Chart D.5

Top Internet Offerings

Internet offerings represented a relatively small proportion of the database complaints. They comprised 22 different categories within the 179 records where

information was available. Chart D.5 identifies Internet shopping malls as the

leading cause of Internet opportunity complaints.

43

32

18 17

14

12

7

0

5

10

15

20

25

30

35

40

45

50

Shopping Malls Online Services Yellow Pages Advertising Internet Access

(Kiosks)

Consulting Web Building

Internet-Related Complaint

# of Complaints
22

2

489

86

144

96

173

0

100

200

300

400

500

600

Suspected Fraud Non-Delivery Partial Delivery Quality of Goods Defective Goods Other Problems with

Goods

Type of Complaint

# of Complaints

1

14

1

6

0

7

0

2

4

6

8

10

12

14

16

Suspected Fraud Non-Delivery Partial Delivery Quality of Goods Defective Goods Other Problems with

Goods

Type of Complaint

# of Complaints

Chart D.7

Complaints About Franchise Goods

Chart D.7 confirms that for the subset of franchises, non-delivery

was still the dominant complaint.

Chart D.8

Complaints About Business Opportunity Goods

The subset of business opportunity complaints reflected a similar distribution of

goods-related issues, with non-delivery again the most common. Chart D.8

indicates that defective goods were a more frequently identified problem for

business opportunities than for franchises.
23

14

1

6 0

7

489

86

144

96

173

0

100

200

300

400

500

600

Non-Delivery Partial Delivery Quality of Goods Defective Goods Other Problems with Goods

Goods-Related Complaint

# of Complaints

Franchises Business Opportunities

Chart D.9

Franchise and Business Opportunity Complaints About Goods

Chart D.9 compares the relative frequency of franchise and business opportunity

complaints in various goods-related complaint categories.
24

225

32

192

31

8

592

352

104

0

100

200

300

400

500

600

700

No Promised

Support

No Promised

Training

No Promised

Locations

Misrepresented

Exclusive Territory

Misrepresented # of

Buyers

Earnings Claims Other Support

Problem

Misrepresented

Costs

Type of Complaint

# of Complaints

Expectations, Disclosures, and Post-Sale Issues

The “Expectations, Disclosures, and Post-Sale” section identifies various other problems encountered

in the course of the business interaction, including earnings claims, misrepresentations about support

or training, disclosure issues, and refund disputes.

Findings

1. More than 10% of records included complaints about earnings claims. Lack of support or of

promised locations each appeared in almost 5% of records.

2. Problematic disclosure issues (such as the absence of a disclosure document) were proportionally

more frequent for franchises than for business opportunities.

3. Many complainants raised post-sale issues. Nearly 25% of records indicated that the complainant

wanted to cancel, and more than 20% of records identified a refund policy issue or the inability to

obtain a requested refund.

Supporting Data and Analysis

Chart E.1

Expectations Not Met

A large number of records reported that the description of the franchise or

business opportunity included specific earnings claims. Chart E.1 also

indicates that various support problems were among the most common

complaints raised by franchise and business opportunity purchasers.
25

184

28

184

23

7

494

293

85

0

100

200

300

400

500

600

No Promised

Support

No Promised

Training

No Promised

Locations

Misrepresented

Exclusive Territory

Misrepresented # of

Buyers

Earnings Claims Other Support

Problem

Misrepresented

Costs

Type of Complaint

# of Complaints

17

1

5 5

1

40

21

9

0

5

10

15

20

25

30

35

40

45

No Promised

Support

No Promised

Training

No Promised

Locations

Misrepresented

Exclusive Territory

Misrepresented # of

buyers

Earnings Claims Other Support

Problem

Misrepresented

Costs

Type of Complaint

# of Complaints

Chart E.2

Franchise Consumer Expectations Not Met

Chart E.2 indicates that territory and cost misrepresentations and lack of

promised support were, proportionally, slightly more significant in the

subset of franchise complaints than in the database as a whole.

Chart E.3

Business Opportunity Consumer Expectations Not Met

Chart E.3 reinforces the frequency of earnings claims, support problems, and location

complaints for the subset of business opportunities.
26

17

1 5 5 1

40

21 9

184

28

184

23

7

494

293

85

0

100

200

300

400

500

600

No Promised

Support

No Promised

Training

No Promised

Locations

Misrepresented

Exclusive Territory

Misrepresented #

of Buyers

Earnings Claims Other Support

Problem

Misrepresented

Costs

Type of Complaint

# of Complaints

Franchises Business Opportunities

Chart E.4

Franchise and Business Opportunity Consumer Expectations Not Met

Chart E.4 compares the relative frequency of franchise and business opportunity

complaints in several expectations-related complaint categories.

Chart E.5

Disclosure Questions

A relatively small number of consumers specifically indicated either that they had

received no disclosure document or that some other substantive disclosure had not

been made prior to the sale of the franchise or business opportunit Cha y. rt E.5: Disclosure Complaints

82

128

0

20

40

60

80

100

120

140

No Disclosure Document Disclosure Issue

# of Complaints
27

Chart E.6

Franchise and Business Opportunity Disclosure Questions

As Chart E.6 indicates, disclosure issues were proportionally far more frequent for franchises than for business opportunities. More than 15% of franchise records indicated a

disclosure issue, and nearly 10% received no disclosure document. Disclosure complaints

were proportionally sparse in the subset of business opportunity complaints, although the

raw numbers were comparable to the franchise subset for those issues.

25

46

52

66

0

10

20

30

40

50

60

70

No Disclosure Document Disclosure Issue

# of Complaints

Franchises Business Opportunities
28

Chart E.7

Cancellation, Refund, and Billing Issues

Chart E.7 reveals that many records indicated consumer intentions to

cancel after the sale; a significant number also cited the company’s

failure to refund or complained about the company’s refund policy.

1050

952

83

0

200

400

600

800

1000

1200

Consumer Wants to Cancel Refund Policy Issue or No Refund Billing Dispute

# of Complaints
29

Chart E.8

Franchise and Business Opportunity Cancellation, Refund, and

Billing Issues

Post-sale issues were proportionally less frequent in franchise complaints than in

the database as a whole. Nearly a quarter of business opportunity complaints

indicated the consumer’s desire to cancel, and more than 20% failed to receive a

refund or were dissatisfied with company refund policies.

39 31

0

818

752

59

0

100

200

300

400

500

600

700

800

900

Consumer Wants to Cancel Refund Policy Issue or No Refund Billing Dispute

# of Complaints

Franchises Business Opportunities
30

Law Enforcement

This section presents an analysis of franchise and business opportunity-related law enforcement

activities from 1993 through 1999. It includes cases that were filed in 2000, if an investigation was

opened in 1999 or earlier.

Law Enforcement Analysis Structure

The statistical analysis of franchise and business opportunity complaint data is divided into the five

sections described below. Each section includes a summary, applicable charts, and analysis.

Investigations: This section analyzes the number of investigations opened during the relevant time

period. Statistics are provided for both franchises and business opportunities covered by the Franchise Rule and only by Section 5 of the FTC Act.

Cases: This section analyzes the number of cases opened during the relevant time period. Statistics

are provided for both franchise and business opportunities covered by either the Rule, Section 5 of

the FTC Act, or both.

Victims: This section analyzes the number of victims in cases, to the extent known.

Allegations: This section analyses the Rule and Section 5 allegations charged in law enforcement

matters.

Correlations: This section analyses the correlation between consumer complaints and investigations.

General Observations

We can draw several conclusions from our analysis of Commission law enforcement activities. First,

during the relevant time period, the Commission pursued significantly more potential Rule and

Section 5 business opportunity law enforcement matters (273 investigations, of which 148 resulted in

cases) than franchise matters (59 investigations, of which 22 resulted in cases). This law enforcement approach was consistent with the number of business opportunity complaints submitted to the

Commission, as analyzed in the previous section.

Second, since 1994, the Commission, in many instances, has leveraged its resources by bringing

coordinated law enforcement projects with other federal, state, and local law enforcement authorities.

Third, the number of victims in Commission cases was consistent with the FBOD complaint statistical analysis: in many instances, the Commission brought law enforcement actions against companies

with over 100 victims. In some instances, the number of victims was 50,000 or higher.

Fourth, making false or unsubstantiated earnings claims was the most frequent Rule and Section 5

allegation charged in Commission actions (127 Rule allegations and 123 Section 5 allegations).
31

Fifth, there was a direct correlation between the number of investigations opened by Commission

staff and complaint data in the FBOD. In all instances where a business opportunity company remaining in business generated 18 or more complaints, an investigation was opened. Where business

opportunities generated five to 17 complaints, Commission staff opened investigations against

approximately a half to a third of the companies, provided they were still in business. Staff also

opened 68 business opportunity investigations where only a single complaint was filed.

Similarly, staff opened investigations of each franchisor generating five or more complaints, and an

additional 11 investigations where franchisors generated 4 or fewer complaints, including 8 investigations based upon only one complaint.
32

Chart F.1

Franchise and Business Opportunity Investigations Opened,

by Number and by Percent

These charts present the distribution of 332 Commission franchise and

business opportunity (Rule and Section 5) investigations opened by staff

between 1993 and 1999. Although franchise complaints represented only

about 6% of the database, they represented 18% of investigations.

Investigations

Findings

1. The Commission staff pursued 332 franchise and business opportunity investigations during the

relevant time period. This included 273 business opportunity investigations and 59 franchise investigations.

2. Business opportunity investigations comprised 82% of the total investigations opened in this field.

Supporting Data and Analysis

Business Opportunities

273

Franchises

59

Business Opportunities

82%

Franchises

18%
33

Table G.1

Joint Law Enforcement Projects

This table lists the joint law enforcement projects with

states and other federal agencies from 1994 to 1999.

Cases

Findings

1. Since 1994, the Commission has coordinated its law enforcement activities with the states, bringing actions through law enforcement sweeps.

2. Since 1993, the Commission has brought 170 franchise or business opportunity cases. In the 170

cases, the Commission named as defendants 330 corporations and other entities (e.g. d/b/a’s) and 305

individuals.

3. Of the 170 franchise or business opportunity cases, 148 were against business opportunity schemes

during the relevant time period. This was consistent with our statistical analysis showing that the

overwhelming number of complaints submitted to the Commission pertained to the sale of business

opportunity ventures.

4. Of the 170 franchise or business opportunity cases, 22 were against franchisors during the relevant

time period.

5. Starting in 1998, the Commission staff has referred franchise matters that raise technical or minor

violations of the Rule to an Alternative Law Enforcement Program administered by the National

Franchise Council (NFC), in lieu of a formal Commission action.

Supporting Data and Analysis

1994: Trade Show Sweeps

1995: Project Telesweep

1996: Operation Missed Fortune

1997: Project Trade Name Games

1998: Project Vend Up Broke

1999: Project Bizillion$
34

NFC Referrals

4%

Business Opportunities

84%

Franchises

12%

Chart G.2

Case Breakdown by Type

This chart presents a breakdown of 170

cases filed by the Commission during the

relevant time period. The chart divides

Commission cases into three categories:

1) franchise cases; 2) franchise referrals,

since 1998, to the National Franchise

Council’s Alternative Law Enforcement

Program; and 3) non-franchise cases,

which includes business opportunity

matters pursued under the Franchise

Rule, as well as under Section 5 of the

FTC Act.

Table G.3

FTC Franchise Cases

This table shows the distribution of 22 franchise

cases and 8 NFC referrals from 1993 to 1999.

1993: 7 court cases

1994: 7 court cases

1995: 5 court cases

1996: 3 court cases

1997: 0

1998: 1 NFC referral

1999: 6 NFC referrals

2000: 1 NFC referral
35

Chart G.4

FTC Business Opportunity Cases Filed

This chart shows the distribution, by year, of 148 business opportunity

cases filed from 1993 to 2000.

4

10

40

25

12

17

5

35

0

5

10

15

20

25

30

35

40

45

1993 1994 1995 1996 1997 1998 1999 2000

Year

Cases Filed
36

Victims

Findings

1. In many instances the number of victims of the defendants in Commission law enforcement

actions is unknown. Based upon the information available, we found the Commission used its

resources to bring actions in the public interest to combat widespread law violations that affected a

large number of consumers.

2. Most Commission law enforcement actions targeted schemes with over 100 victims; 10% of the

Commissions actions targeted schemes with 25,000 or more victims and 14% targeted schemes with

fewer than 100 known victims.

Chart H.1

Case Distribution by Number of Victims

This chart presents the approximate distribution of victims in franchise

and business opportunity cases. In most instances, even the approximate number of victims is unknown. For those cases where an approximate number of victims could be calculated, the most frequent number of

victims ranged from100 to 500.

Less than 100

14%

101-500

34%

501-1000

20%

1001-5000

13%

5001-10,000

3%

10,001-25,000

6%

25,001-50,000

7%

50,001 or more

3%

Supporting Data and Analysis
37

Complaint Allegations

Findings

1. The most frequent allegation raised in Commission Franchise Rule cases was that the defendants

made earnings claims in violation of the Rule (127 allegations). This included earnings claims made

without providing an earnings claims document (or the equivalent Uniform Franchise Offering

Circular [UFOC] Item 19 information required under state law); unsubstantiated earnings claims; or

earnings claims made in the general media without the Rule’s required disclosures.

2. The second most frequent allegation was the failure to furnish a disclosure document. This allegation has been particularly frequent with respect to business opportunity ventures. Commission cases

alleged the failure to provide disclosure documents in 123 instances.

3. The most frequent allegation regarding the completeness and accuracy of disclosure documents

applied to franchisee information (11 allegations). This included instances where the disclosure

documents lacked franchisee names and addresses, as well as franchisee statistics (e.g., number of

outlets and closures). Failure to disclose all litigation (6 allegations) had the second highest number

of allegations.

4. Where the Commission alleged deceptive or unfair conduct under Section 5 of the FTC Act, the

largest number of allegations (94) pertained to false earnings claims. This was followed by the use of

shills or other false references (28).
38

Supporting Data and Analysis

Table I.1

Rule Complaint Allegations

This table presents a breakdown of the Rule allegations raised in all franchise and

business opportunity enforcement matters. The most common allegation was the making

of earnings claims without substantiation or without providing the required earnings

claims document (127). The most common failure to disclose information in a disclosure

document pertained to franchisee statistical information, as well as franchisee names,

addresses, and telephone numbers (11).

Earnings claims 127

No disclosure document 113

Failure to disclose:

Franchisee information 11

Litigation 6

Background information 4

Terminations, renewals, etc. 2

Bankruptcy 1

Costs/fees 1

Financial information 1

Refund policy 1

Inconsistent statements 4

Failure to make refunds 2

Contempt/order violations 2
39

Table I.2

Section 5 Complaint Allegations

This table presents a breakdown of Section 5 allegations raised in all franchise and

business opportunity enforcement matters. The most common allegation was false

earnings claims (94). Other common false or deceptive representations pertained to

testimonials and references (28); profitability and availability of locations for vending

machines or other devices (24); and support and assistance (17).

Earnings 94

Testimonials/references 28

Profitable locations/ availability of locations 24

Support/assistance 17

Nature of products/services/opportunity 11

Exclusive territories 10

Prior success of seller or locator 10

Investment/Costs/Expenses 9

Refunds 9

Availability of work 5

Delivery date 5

Location replacement policy 5

Availability of clients 3

Benefits 3

Government affiliation/approval 3

Investment recovery 3

Training 3

Commissions 2

Compliance with FTC/state requirements 2

Legal requirements 2

Previous buyers’ success/failure rates 2

Product demand 2

Access to suppliers 1

Cancellation policy 1

Complaint resolution history 1

Litigation 1

Necessary effort 1

Prior experience required 1

Profit sharing 1

Selling requirements 1

Sources of income 1
40

Correlation Between Law Enforcement and Complaints

Findings

1. The opening of franchises and business opportunity investigations strongly correlated with the

number of complaints received in the FBOD. This does not mean that every investigation was

prompted by one or more complaints, although most were. In some instances, investigations were

prompted by advertisements, or referrals from third parties, not reflected in the CIS database.

2. In all instances where the FBOD indicated that a business opportunity generated 18 or more

complaints, Commission staff opened an investigation, provided that the company involved remained

in business.

3. Where business opportunities generated fewer than 18 complaints, but more than seven complaints, Commission staff opened investigations in approximately half of the instances, provided the

company involved remained in business.

4. Staff opened investigations in every instance where the FBOD showed that a franchise generated

five or more complaints, provided that the complainant named the franchisor involved and stated a

specific allegation (154 complaints). Staff also opened eight investigations where only a single

complaint was filed.

5. In many instances, franchise complaints raise concerns that do not lend themselves to a law enforcement solution. For example, a complaint may 1) provide insufficient information for staff to

take action (e.g., fails to name the franchiser or to state a specific allegation); 2) fall outside the

Commission’s jurisdiction (e.g., raises state law issues only); or 3) raise purely contractual matters

(e.g., requires interpretation of contract provisions).
41

Number of

Complaints Investigation Rate1

Supporting Data and Analysis

Table J.1

Correlation of Complaints to Business Opportunity Investigations

This table presents the correlation between the number of business opportunity complaints and the opening

of an FTC investigation. Except in four instances (where the company complained about was already out of

business) the Commission opened an investigation of each company generating 18 or more consumer

complaints. For 17 or fewer complaints, the number of investigations decreased in proportion to a decline in

the number of complaints filed. Nonetheless, Commission staff pursued 68 investigations of companies

generating only one complaint.

More than 101 1/1

91-100 1/1

81-90 1/1

71-80 2/2

61-70 1/1

51-60 1/1

41-50 2/2

31-40 3/5 (remaining 2/5 were out of business)

21-30 4/6 (remaining 2/6 were out of business)

20 1/1

18 3/3

17 1/3 (1 of remaining 2/3 was out of business)

16 3/4 (remaining 1/4 was out of business)

15 3/7 (2 of remaining 4/7 were out of business)

14 4/7 (1 of remaining 3/7 was out of business)

13 3/6 (1 of remaining 3/6 was out of business)

12 1/1

11 3/5 (1 of remaining 2/5 was out of business)

10 5/7

9 6/11

8 4/7

7 6/13

6 7/18 (8 of remaining 9/18 were out of business)

5 13/30 (6 of remaining 17/30 were out of business)

4 8/45 (7 of remaining 37/45 were out of business)

3 22/68 (8 of remaining 46/68 were out of business)

2 30/154 (26 of remaining 124/154 were out of business)

1 68/539 (42 of remaining 471/539 were out of business)

1Number of investigations opened/number of companies generating the number of complaints indicated in first column.
42

Table J.2

Correlation of Franchise Complaints to Investigations

This table presents the correlation of franchise complaints to the

franchise investigations noted above. The Commission staff opened

an investigation of each franchise matter generating at least five

complaints. No company received more than eight complaints. At

the same time, staff opened an additional 11 investigations* where

companies received four or fewer complaints, including eight investigations of companies with only one complaint.

*This does not include the first company that was referred to the NFC program.

8 1/1

5 1/1

4 1/2

3 2/6

2 0/12

1 8/91

Number of

Complaints

Investigation

Rate1

1Number of investigations opened/number of companies

generating the number of complaints indicated in first

column.
43

37

11

35

187

28

40

14

22

39

31

120

0

20

40

60

80

100

120

140

160

180

200

No specific

allegation

State issue

Pre-sale issue

Disclosure

issue

Post-sale:

Complaint

about Goods

Post-sale:

Performance

Post-sale:

Relationship

Issues

Contractual

Issues

Miscellaneous

Cancellation

Refund

Type of Complaint

# of Complaints

Table J.3

Franchise Complaint Viability

When considering the correlation between franchise complaints and

investigations opened, we must consider not only whether the company

remains in business, but whether the complaint is viable, that is, names a

specific company, states a specific allegation, and falls within the

Commission’s jurisdiction. In many instances, franchise complaints

made no specific allegation (37 complaints); raised state law issues only

(11 complaints); raised contractual interpretation issues only (14 complaints); or voiced concerns that do not lend themselves to a law enforcement solution, such as expressing remorse or a wish to cancel the

franchise agreement (39 complaints).
44

Consumer Education

Overview

The FTC Office of Consumer and Business Education (OCBE) produces print, broadcast and online

materials that offer practical, plain English advice for consumers about buying a wide variety of

products and services and explain how various federal regulations help protect consumers’ rights. It

also produces print materials for business explaining how to comply with various rules and regulations.

OCBE has taken an ambitious approach to educating consumers about their rights in the franchise

and business opportunities marketplace. In the last several years, the Office has produced more than a

dozen relevant publications and launched several major education initiatives.

Print Products

OCBE’s inventory includes 14 different publications for consumers who are interested in pursuing

franchises and business opportunities. These publications seem to address a need: Since October

1995, over 806,000 of these publications have been distributed; an additional 718,000 publications

have been accessed via the FTC’s website since October 1996.

Chart K.1

Distribution of Franchise/Business Opportunity Consumer

Education Information by Fiscal Year, 1996 to 2000

85517

250944

170528

130242

0 169120

70497

85215

187665

374787

0

100,000

200,000

300,000

400,000

500,000

600,000

1996 1997 1998 1999 2000

Distribution

Paper Distribution Web Accesses
45

Websites (www.ftc.gov, www.consumer.gov)

In 1997, OCBE put all its consumer publications online, enhancing outreach considerably. Consumers can access the publications not only at the FTC’s website, but also at www.consumer.gov, the

federal government’s “one-stop” outlet for federal consumer information (hosted and managed by the

FTC). We cannot keep track of all the sites that link to the information on www.ftc.gov or

www.consumer.gov, but a look at the numbers indicates that consumers are accessing the publications from a wide variety of sites.

Teaser Sites

Too often, consumers don’t find consumer protection information until it’s too late. Using “teaser”

websites, OCBE tries to reach consumers before they make a purchase or invest their money. These

web pages are accessible from major search engines and indexing services and mimic fraudulent

sites. Internet shoppers looking for a business opportunity, for example, may find a site that offers a

fantastic, money-making opportunity in display racks. (See www.wemarket4u.net/eztoys). Clicking

through the “come on,” the FTC seal appears, alerting consumers that they could have been

scammed. The site offers tips on how to distinguish fraudulent pitches from legitimate ones and links

to the FTC’s website for additional information. Uniformly, visitors to these sites have praised the

FTC for the novel and attention-getting way it is imparting information. (See also

www.wemarket4u.net/netops).

In addition, OCBE also has devised Internet tutorials in the form of interactive puzzles and games to

reinforce what consumers have read on the FTC’s website or in their local newspapers. For example,

the education component of enforcement actions dealing with investment fraud features an online

quiz called “Test Your Investment IQ.” A series of typical telemarketing misrepresentations asks

consumers to define the investment offering as “solid” or “risky.”

 Audio Public Service Announcements

In 1995, OCBE distributed four audio public service announcements (PSAs) and corresponding

announcer scripts about buying a franchise to 2,000 English language radio stations and three Spanish language PSAs to 200 Spanish language radio stations. Nearly 700 radio stations broadcast at

least one of the PSAs, resulting in a total of more than 35,354 broadcasts of at least one PSA. The

total audience reached through these broadcasts was approximately 96 million. The equivalent value

of the air time received if purchased would be approximately $884,000.

In 1996, OCBE distributed an additional four Spanish language audio “franchise” PSAs and two

announcer scripts to 228 Spanish language radio stations. A total of 124 radio stations broadcast at

least one of the PSAs, resulting in a total of 9,453 broadcasts of at least one PSA. The total audience

reached through these broadcasts was more than 30 million. The equivalent value of the air time

received if purchased would be approximately $236,325.

In 1997, OCBE distributed four additional “franchise” public service announcements and announcer

scripts to 1,000 radio stations. A total of 242 radio stations broadcast at least one of the PSAs, resulting in a total of 13,364 broadcasts of at least one PSA. The total audience reached through these

broadcasts was more than 18 million. The equivalent value of the air time received if purchased

would be approximately $334,100.
46

Campaigns

In December 2000, OCBE launched “Top 10 Internet Scams,” a campaign designed to educate

consumers about the most prevalent scams on the Internet and how to recognize and avoid them.

Business opportunity scams advertised online ranked eighth in the Top 10. This OCBE effort supported the Bureau of Consumer Protection’s large law enforcement sweep. OCBE produced two new

publications for print and the web: a Facts for Consumers (FFC) brochure, Dot Cons and a “news

you can use” type feature, Consumers Find Internet Offers That Just Don’t Click. OCBE sent the

brochure to a mailing list of 6,200 intermediaries, in addition to Internet service providers, Internet

advertising groups, business groups, military news services, Fortune 100 copies and 25 top-circulation magazines. The consumer feature was distributed to media via BusinessWire, an online news

distributor. OCBE developed a special website, www.ftc.gov/dotcons, that drew a record number of

accesses for the FTC.

As part of “Project Biz-illion$,” a multi-pronged attack on traditional fraudulent business opportunities, OCBE issued six consumer publications: Franchise and Business Opportunities, Medical

Billing Business Opportunity Schemes: A Bitter Pill, Work-At-Home Schemes, ‘Net-Based Business

Opportunities: Are Some Flop-portunities?, Could ‘Biz Opp’ Offers Be Out for Your Coffers?, and

Answering the Knock of a Business Opp. OCBE sent the publications to its mailing list of 6,200 and

to more than 13,000 media. OCBE also encouraged select websites to post information on their sites

or link to a dedicated web page on www.ftc.gov. As part of its marketing efforts, the Office contacted

four search engines offering public service announcements in the form of classified ads, to five

classified ad sites; 10 women’s sites; seven sites geared to people with disabilities; and 21 employment services sites.
47

Appendix 1

Total Complaints 4512

Breakdown of Franchises, Business 

Opportunities, and Miscellaneous Schemes Count % of Total

Franchise 288 6.38%

Business Opportunity 3392 75.18%

Miscellaneous 832 18.44%

# and % of Vending-Machine-Related 

Complaints 560 12.41%

Breakdown of Complaints by Year Count % of Total Franchise 

by Year

% of 

FC

BizOp by 

Year

% of 

BOC

Unknown 5 0.11% 0 0.00% 1 0.03%

1993 58 1.29% 5 1.73% 30 0.88%

1994 101 2.24% 2 0.69% 79 2.33%

1995 677 15.00% 9 3.11% 570 16.80%

1996 336 7.45% 9 3.11% 277 8.17%

1997 1013 22.45% 53 18.34% 759 22.38%

1998 1480 32.79% 108 37.37% 1088 32.08%

1999 (through June) 842 18.66% 102 35.29% 588 17.33%

Complaints Over Time by Source of 

Information Count % of Total 1993 1994 1995 1996 1997 1998

1999

(through 

June)

No 

Date

All FTC 1443 31.98% 517 38 328 335 225

Better Business Bureaus 505 11.19% 7 182 199 116 1

National Consumers League 1090 24.16% 53 94 148 280 300 178 37

Other 2 0.04% 1 1

Public Users 418 9.26% 210 208

Regional Offices 929 20.59% 1 4 3 199 552 170

San Diego Boiler Room Task Force 5 0.11% 1 2 2

State Law Enforcement 26 0.58% 5 5 5 6 2 3

Toll-free Number 81 1.80% 81

Unknown 13 0.29% 4 3 2 4

Overview Summary Sheet

Note: The "FTC" category includes complaints from DMP, I&TM, SIP, P&I, and miscellaneous internal FTC 

sources. The "State Law Enforcement" category includes complaints from State AG offices and State DOJs.

Note: The “State Law Enforcement” category includes complaints from State AG offices and State DOJs.
48

Appendix 2

Total Complaints 4512

General Company Stats Count % of Total

# of Companies Identified in Complaints 1940 43.00%

# and % Companies Out of Business 244 5.41%

Distribution of Complaints by Company Location Count Ranking

FL 887 1

Unknown 764 2

CA 609 3

TX 541 4

NY 244 5

UT 191 6

OR 110 7

MA 106 8

CO 104 9

NV 94 10

AZ 86 11

GA 68 12

IL 64 13

OH 62 14

MD 49 15

TN 42 16

PA 37 17

WA 35 18

SC 33 19

NM 31 20

Canada 27 21

NH 26 22

VA 26 23

NJ 25 24

IN 24 25

NC 24 26

AL 22 27

MI 19 28

MN 18 29

IA 15 30

MO 15 31

KS 14 32

LA 14 33

OK 11 34

CT 10 35

DC 8 36

DE 8 37

KY 7 38

AR 5 39

ID 5 40

MS 5 41

Companies Summary Sheet
49

Other Foreign 5 42

W I 5 43

NE 4 44

HI 3 45

ND 2 46

VT 2 47

WV 2 48

MT 1 49

PR 1 50

RI 1 51

WY 1 52

Top 10 Company Complaint Locations Count

FL 887

CA 609

TX 541

NY 244

UT 191

OR 110

MA 106

CO 104

NV 94

AZ 86

Note: this excludes the 764 'Unknown'

Complaints per Company Number of Companies

1 complaint 1424

2-5 complaints 404

6-10 complaints 64

10-50 complaints 41

50+ complaints 7

162 complaints unknown

Companies Summary Sheet (continued)
50

Total Complaints 4512

General Consumer Stats Count % of Total

# and % of Consumers Actually Injured 3319 73.56%

# Consumers that Suspected Fraud 3 0.07%

Distribution of Complaints by Consumer Location Count Ranking

CA 596 1

TX 287 2

FL 272 3

NY 228 4

Unknown 222 5

PA 186 6

OH 180 7

IL 136 8

NJ 133 9

CO 131 10

W A 129 11

VA 119 12

GA 112 13

NC 112 14

MO 97 15

MI 96 16

OR 94 17

MD 86 18

AZ 85 19

MN 81 20

W I 80 21

IN 79 22

TN 75 23

MA 70 24

OK 56 25

Canada 53 26

IA 52 27

LA 50 28

NV 47 29

SC 45 30

AL 44 31

KY 44 32

UT 37 33

KS 36 34

CT 35 35

HI 34 36

NE 33 37

ID 32 38

NM 28 39

MT 25 40

AR 24 41

MS 20 42

NH 18 43

Other Foreign 16 44

DC 12 45

RI 12 46

SD 12 47

Consumers Summary Sheet

Appendix 3
51

W V 11 48

AK 10 49

DE 10 50

W Y 9 51

ND 8 52

ME 6 53

PR 5 54

VT 2 55

Top 10 Consumer Complaint Locations Count

CA 596

TX 287

FL 272

NY 228

PA 186

OH 180

IL 136

NJ 133

CO 131

W A 129

Note: this excludes the 222 'Unknown'

Breakdown of Injury Amounts Count % of Total 'Known'

$1-$100 249 7.68%

$101 - $200 100 3.08%

$201 - $500 303 9.34%

$501 - $1,000 319 9.83%

$1,001-$2,500 306 9.43%

$2,501 - $5,000 449 13.84%

$5,001 - $10,000 732 22.56%

$10,001-$20,000 531 16.37%

$20,001-$30,000 136 4.19%

$30,001-$40,000 44 1.36%

$40,001-$50,000 25 0.77%

$50,001-$75,000 26 0.80%

$75,001-$100,000 12 0.37%

Other (>$100,000) 12 0.37%

Unknown or Blank 1268

Franchise and Business Opportunity Injury Franchises

% of Franchise 

Complaints

Business 

Opportunities

% of BizOp 

Complaints

$1-$100 1 0.35% 164 4.83%

$101 - $200 0 0.00% 76 2.24%

$201 - $500 7 2.43% 243 7.16%

$501 - $1,000 2 0.69% 277 8.17%

$1,001-$2,500 6 2.08% 243 7.16%

$2,501 - $5,000 13 4.51% 378 11.14%

$5,001 - $10,000 31 10.76% 631 18.60%

$10,001-$20,000 36 12.50% 468 13.80%

$20,001-$30,000 11 3.82% 117 3.45%

$30,001-$40,000 8 2.78% 32 0.94%

$40,001-$50,000 10 3.47% 14 0.41%

$50,001-$75,000 7 2.43% 17 0.50%

$75,001-$100,000 4 1.39% 5 0.15%

Other (>$100,000) 11 3.82% 0 0.00%

Unknown or Blank 141 48.96% 727 21.43%

Consumers Summary Sheet (continued)
52

Appendix 4

Total Complaints 4512

Breakdown of How Advertised Count

% of Total 

'Known'

Print Media 796 35.47%

Mail Solicitation 390 17.38%

Telephone Call 299 13.32%

In Person Meeting 249 11.10%

Television/Radio 187 8.33%

Seminar 138 6.15%

Internet 138 6.15%

Spam 25 1.11%

Expo/Trade Show 16 0.71%

Fax 6 0.27%

Unknown 2268

Products, Services and Internet Opportunities Count % of Total Categories

Product Type 658 14.58% 124

Service Type 628 13.92% 83

Internet Offer Type 179 3.97% 22

Top 15 Products Related 

Complaints

Pay Telephones 86

Telephone Cards 65

Candy 48

Snack Food/Drinks 43

Computer/Software 37

Personal Hygene/Health 31

Coupons 25

Coffee 24

Unspecified vending machines 21

Greeting Cards 14

Licensed Products - Toys & Novelty Items 14

Trading Cards 13

Popcorn 12

Household/Personal Use Items 12

Mailers/Envelopes/Postage 10

Top 15 Services

Related 

Complaints

Medical Billing 167

Telecommunications: 800#/s/900#s 93

Travel 70

Real Estate 47

ATM Machines 25

Telecommunications: Other 24

Financial Services 20

Telecommunications: Long-Distance 18

Janitorial 17

Envelope Stuffing 14

Advertising 12

Hud Tracer/Mortgage Refund 10

Consulting 9

Student Services 8

Credit: Credit Cards 7

Delivery and Goods Summary Sheet
53

Top Internet Opportunities Related 

Complaints

Shopping Malls 43

Online Services 32

Yellow Pages 18

Advertising 17

Internet Access (Kiosks) 14

Consulting 12

Web Building 7

Complaints about Goods # of Complaints % of Total 

Complaints

Non-Delivery 581 12.88%

Partial Delivery 96 2.13%

Quality of Goods 166 3.68%

Defective Goods 99 2.19%

Other Problems with Goods 200 4.43%

Franchise and Business Opportunity 

Complaints about Goods Franchises

% of 

Franchise

Business 

Opportunities

% of 

BizOps

Non-Delivery 14 4.86% 489 14.42%

Partial Delivery 1 0.35% 86 2.54%

Quality of Goods 6 2.08% 144 4.25%

Defective Goods 0 0.00% 96 2.83%

Other Problems with Goods 7 2.43% 173 5.10%

Delivery and Goods Summary Sheet (continued)
54

Breakdown of Product and Service Types

Unknown or N/A 3854 Unknown or N/A 3884

Pay Telephones 86 Medical Billing 167

Telephone Cards 65 Telecommunications: 800#/s/900#s 93

Candy 48 Travel 70

Snack Food/Drinks 43 Real Estate 47

Computer/Software 37 ATM Machines 25

Personal Hygene/Health 31 Telecommunications: Other 24

Coupons 25 Financial Services 20

Coffee 24 Telecommunications: Long-Distance 18

Vending Machines 21 Janitorial 17

Greeting Cards 14 Envelope Stuffing 14

Licensed Products - Toys & Novelty Items 14 Advertising 12

Trading Cards 13 Hud Tracer/Mortgage Refund 10

Household/Personal Use Items 12 Consulting 9

Popcorn 12 Student Services 8

Mailers/Envelopes/Postage 10 Credit: Credit Cards 7

Game Machines 9 Mystery Shopper 5

Media Boards 9 Employment Services/ Headhunting 4

Surplus Property 9 Auctions 3

Automobile Products 7 Billing 3

Books 7 Child Protection/Tracking 3

Cigars/Humidors 7 Liquidating Merchandise 3

Licensed Products - Sports 6 Accounting 2

Phone Card Machines 6 Home Repair/Maintenance 2

Gasoline Cards 4 Insurance 2

Jewelry 4 Legal Services 2

Log Homes 4 Medical Transcriptions 2

Office Supplies 4 Telecommunications: 2

Perfume 4 Telecommunications: Cable 2

Art/Antiques 3 Advertising-Mailing Lists 1

Food 3 Background Checks 1

Music Cards 3 Broker 1

Novelty Items 3 Broker-Discounted Material 1

Personal Items 3 Business Consulting 1

Photo Items 3 Carpet Cleaning 1

Toys 3 Ceiling Cleaning 1

Agriculture 2 Charity Golf Shootouts 1

Bus. Cards/ Calendars 2 Child Safety 1

Camera/Film 2 Commodities Trading 1

Credit Card Machine 2 Computer Leasing 1

Credit Cards 2 Concert Promotion 1

Mailers 2 Consulting/Locating Businesses 1

Music CDs 2 Credit: Credit Card billing 1

Music coupons 2 Debt Collection 1

Pet Products 2 Delivering Phone Applications 1

Restaurant 2 Deregulation of energy (gas/electric) 1

"30 Days to Financial Freedom" 1 Direct TV 1

"Programs" 1 Electricity Resale 1

Agricultural 1 Electronic Billing 1

Product Count Services Count
55

Breakdown of Product and Service Types (continued)

Product Count Services Count

Agricultural 1 Elec tronic Billing 1

Air Purifiers 1 Employment Monitoring 1

Automobile/Auto Products 1 Equipment Leasing 1

Automobiles 1 Fac toring 1

Bagels 1 Faxing Info to Businesses 1

Brochures 1 Fundraising 1

Cameras 1 Grave Stone Polishing 1

Catalogs 1 Hospital Bill Auditing 1

CDs 1 Import/Export 1

Child Protec tion Kit 1 Insurance Refund Distribution 1

Children's Videos 1 Investments 1

Cigarettes 1 Job Recruiting 1

Clothing 1 Kids TV Progamming 1

Collectibles 1 Leasing 1

Commerc ial Program for Travel 1 Marketing 1

Commerc ials for Tic kets 1 Merchandise Brokering 1

Commodities 1 Mobile Diagnostic Lab 1

Commodity Trading Course 1 Mortgage Forec losure Business 1

Coupons- Gum Vending 1 Phone Sales 1

Coupons/Computer Products 1 Product Advancement Services 1

Credit Card Terminal 1 Real Estate Support 1

Diet Program 1 Recruiting Franchisees 1

Direct Mail Business 1 Referal Service 1

Discount Property 1 Representation of Injury Vic tims 1

Discounted Products 1 Research Specialist 1

Distressed Property 1 Tax Evasion/Offshore Investments 1

Double Zipper Organizer Planners 1 Telecommunications: Cellular Service 1

DRVs (and prepaid mailers) 1 Telecommunications: Cellular Telephones 1

E-mail Addresses Generator: for Spamming 1 Telemarketing 1

Environmental 1 Telephone Bill Auditing 1

Flooring 1 Television Production 1

Fuel Cards 1 Television Programming 1

Fundraiser Organizing Program 1 Temp Services 1

Furniture 1 Unsolic ited Faxes 1

Get Started Kit 1 Vending Machine Locating 1

Gold Machines 1 Weight Loss 1

Hearing Aids 1

Hearing Oil Units 1 Internet Count

Home Security Systems 1 Unknown or N/A 4333

Internet Advertising 1 Shopping Malls 43

IPI Kit 1 Online Services 32

JC Penney Program 1 Yellow Pages 18

Laser Tag 1 Advertising 17

Laundry Kit 1 Internet Access (Kiosks) 14

Lead Generating Display Boxes 1 Consulting 12

Leads for Primary Business 1 Other 10

Maps 1 Web Building 7

Marine Oil 1 Unspecified 4

Medical Diagnostic Equipment 1 Web Pages 3

Metal Conditioner Products 1 Miscellaneous 3

Mobile Homes 1 Internet Access 2
56

Money-Making Course 1 Web Site 2

Mortgage Leads 1 Web TV 2

Natural Health Products 1 Access Via Television 1

Oil 1 Adult Web Site 1

Outsourcing 1 Cybercash Processor 1

Peppermint Patty Vending Machines 1 E-commerce Stores 1

Personal Hygene/Health (from Vending Machines) 1 Job Recruiting 1

Pest Repellant 1 Marketing 1

Pet Supplies 1 Undescribed 1

Satellite Tracking Device 1 Web Hosting 1

Silver Ingots 1

Sporting Goods 1

Sports Cards 1

Sports Memorabilia 1

Stickers 1

Trading Systems 1

Travel 2000 promotion 1

Travel Vouchers 1

Used Software 1

Valuelink Memberships 1

Video Games 1

Vouchers 1

Watches 1

Water Filters 1

Workshop Program 1

Breakdown of Product and Service Types (continued)

Product Count Services Count
57

Appendix 5

Total Complaints 4512

Consumer Expectations Count % of Total

No Promised Support 225 4.99%

No Promised Training 32 0.71%

No Promised Locations 192 4.26%

Misrepresented Exclusive Territory 31 0.69%

Misrepresented # of Buyers 8 0.18%

Earnings Claims 592 13.12%

Other Support Problem 352 7.80%

Misrepresented Costs 104 2.30%

Franchise and Business Opportunity 

Consumer Expectations Franchises % of Franchise

Business 

Opportunities

% of BizOps

No Promised Support 17 5.90% 184 5.42%

No Promised Training 1 0.35% 28 0.83%

No Promised Locations 5 1.74% 184 5.42%

Misrepresented Exclusive Territory 5 1.74% 23 0.68%

Misrepresented # of Buyers 1 0.35% 7 0.21%

Earnings Claims 40 13.89% 494 14.56%

Other Support Problem 21 7.29% 293 8.64%

Misrepresented Costs 9 3.13% 85 2.51%

Disclosures Count % of Total

No Disclosure Document 82 1.82%

Disclosure Issue 128 2.84%

Franchise and BizOp Disclosure 

Records Franchises % of Franchise

Business 

Opportunities

% of BizOps

No Disclosure Document 25 8.68% 52 1.53%

Disclosure Issue 46 15.97% 66 1.95%

Post-Sale Issues Count % of Total

Consumer Wants to Cancel 1050 23.27%

Refund Policy Issue or No Refund 952 21.10%

Billing Dispute 83 1.84%

Franchise and Business Opportunity 

Post-Sale Issues

Franchises % of Franchise

Business 

Opportunities

% of BizOps

Consumer Wants to Cancel 39 13.54% 818 24.12%

Refund Policy Issue or No Refund 31 10.76% 752 22.17%

Billing Dispute 0 0.00% 59 1.74%

Expectations, Disclosures, and Post-Sale Summary Sheet
58

Total 332

Franchises 59

Business Opportunities 273

Type Number

Franchise 22

NFC Referrals 8

Business Opportunity 148

# of Victims Cases

Less than 100 14

101-500 35

501-1000 20

1001-5000 13

5001-10,000 3

10,001-25,000 6

25,001-50,000 7

50,001 or more 3

Investigations 1993-1999

Law Enforcement Section Summary

Appendix 6
59

Appendix 7

Complaints without any specific allegations 37

Complaints that raise state issues only 11

Pre-Sale Issues

Application issues 7

Franchisor changed terms or conditions 3

Franchisor wanted advanced fee 2

Franchisor misrepresented legal requirements 2

Franchisor misrepresented nature of opportunity 7

Franchisor misrepresented product capabilities 3

Unspecified misrepresentations 5

Other misrepresentations 3

False advertising 2

Bait and switch 1

Disclosure Issues

Earnings claims 40

No disclosure document 25

Disclosure Issue 46

Disclosure avoidance 2

Timing provisions 9

Franchisor's background 5

State licensing requirements 1

Litigation 2

Costs 9

Franchisee information 5

Territories 5

Financing availability/terms 5

Patent/trademark 3

Financial information 5

No contract attached 1

Unspecified disclosure issue 21

Other disclosure issue 3

Post-Sale: Goods-Delivery

Non-delivery 14

Partial delivery 1

Quality of goods 6

Defective goods 0

Other goods problems 7

Post-Sale: Performance

Beach of contract 76

No promised support 17

No promised training 1

No promised locatins 5

Other support problem 21

Post-Sale: Relationship Issues

Lack of continued franchisor cooperation 1

Franchisor changed terms or conditions 3

Encroachment/territory dispute 6

Chruning of territories 1

Franchisor unresponsive 4

Franchisor will not permit termination 1

Franchisee pressured to buy/perform 2

Use of franchisee fees/funds 3

FBOD Franchise Complaint Allegations
60

FBOD Franchise Complaint Allegations (continued)

Illegal seizure of franchisee property 1

Renewal dispute 1

Franchisor auditing confidential information 1

Franchisee threatened with termination 1

Termination/cancellation terms or conditions 4

Unspecified post-sale relationship issue 3

Other post-sale relationship issue 8

Contractual Issues

Level or calculation of fees/royalties 3

Contract interpretation 3

Required supplier 1

Price fixing 2

Other contractual issue 5

Miscellaneous

Franchisee dissatisfied 13

Disclosures are to protect franchisor 1

Franchisee wants inclusion in redress program 4

Franchisee can't sell route 1

Franchisee forced to drop law suit/no recourse 1

Franchisee forced to shut down 1

Franchisor may go bankrupt 1

Cancellation 39

Refund 31

Billing dispute 0
61

Consumer Education Materials Distributed - Paper and Web

Publication Title or Internet Campaign FY 96 FY99 FY00

Total Paper Web Total Paper Web Total Paper Web Total Paper Web Total

Answering the Knock of a Business 'Opp' 20294 49070 10396 59466 20773 8299 29072 13050 10723 23773 14900 5085 19985

The Bottom Line About Multilevel Marketing Plans 4925 18147 23072 11750 33174 44924

Consumer Guide to Buying a Franchise 14618 12535 3450 15985 9533 7229 16762 4717 11574 16291 3015 20234 23249

Costly Coupon Scams 8375 368 8743 5201 2840 8041 4400 6805 11205 6450 7251 13701

Could Biz Opp Offers Be Out for Your Coffers? 18600 16575 35175

Don't Get Burned...By a Pyramid Scheme Campaign 7285 7285 16703 16703 38800 38800

Franchise and Business Opportunities 21745 34181 9870 44051 13863 9341 23204 16325 11458 27783 8700 12746 21446

Get-Rich-Quick and Self-Employment Schemes Campaign 2863 2863 4303 4303 5990 5990 7229 7229

The Gifting Club "Gotcha" 16600 12127 28727

Going to Display Rack and Ruin 10375 381 10756 3847 2511 6358 3950 2517 6467 1900 4052 5952

Lotions and Potions: The Bottom Line About MLM Plans 16000 9290 25290

Medical Billing Business Opportunity Schemes 21201 4755 25956 8700 25032 33732 9400 44563 53963

Multilevel Marketing Plans 46781 18569 65350 21961 12780 34741 15950 22299 38249 10755 38914 49669

Net Based Business Ops: Are Some Flop-portunities? 2750 9144 11894 3000 12812 15812

Project Trade Name Games Campaign 1024 1024 1371 1371 2326 2326 2560 2560

The Seminar Pitch: A Real Curve Ball 6965 1672 8637 10350 6612 16962 11700 7525 19225

Wealth Building Scams 28860 34276 9508 43784 21232 6387 27619 16375 11121 27496 11300 16001 27301

Work-at-Home Schemes 55351 14068 69419 45952 16442 62394 28750 27214 55964 25050 85849 110899

Totals 85517 250944 70497 321441 170528 85215 255743 130242 187665 317907 169120 374787 543907

Year Paper Web

FY 96 85517 0

FY 97 250944 70497

FY 98 170528 85215

FY 99 130242 187665

FY 00 169120 374787

Year Total

FY 96 85517

FY 97 321441

FY 98 255743

FY 99 317907

FY 00 543907

FY 97 FY98

Appendix 8


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