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SEALED 

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 	 	 Roberto Anguizola 

Illinois Bar# 6270874 

(Admitted in the D. Nev. pursuant to LR IA 11-3) 

Tel. (202) 326-3284 

Email: ranguizola@ftc.gov 

Miry Kim 

Washington Bar# 31456 

(Seeking admission pursuant to LR IA 11-3) 

Tel. (202) 326-3622 

Email: mkim@ftc.gov 

Gregory J. Evans 

DC Bar# 1033184 

(Seeking admission pursuant to LR IA 11-3) 

Tel. (202) 326-3425 

Email: gevans2@ftc.gov 

Federal Trade Commission. 

600 Pennsylvania Avenue, NW 

Mail Drop CC-8528 

Washington, DC 20580 

Attorneys for Plaintiff 

FEDERAL TRADE COMMISSION 

-FILED ___ _ 

-ENTERED ---rnc£ivfo7 

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I 

MAR I 4 2018 

1 

CUWK: /llS DISTRICT COURf 

B Y:_ IIllSTiRICf OF NEVADA 

~ ---======================~DE~PU!_DTYU 

UNITED STATES DISTRICT COURT 

DISTRICT OF NEV ADA 

FEDERAL TRADE COMMISSION, 

Plaintiff, 

v. 

A WS, LLC, a Nevada limited liability company; 

FBA DISTRIBUTORS, LLC, a Massachusetts 

limited liability company; FBA STORES, LLC, a 

Nevada limited liability company; INFO PROS, 

LLC, a Nevada limited liability company; 

ONLINE AUCTION LEARNING CENTER, 

INC., a Massachusetts corporation; ONLINE 

AUCTION LEARNING CENTER, INC., a 

Nevada corporation; CHRISTOPHER F. 

BOWSER; ADAM S. BOWSER; and JODY 

MARSHALL, 

Defendants. 

1 

Case No. 2:18-cv-00442-JCM-PAL 

FILED UNDER SEAL 

TEMPORARY RESTRAINING 

ORDER 

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 	 	 Plaintiff, the Federal Trade Commission ("Commission"), has filed its Complaint for 

Permanent Injunction and Other Equitable Relief pursuant to Sections 13(b) and 19 of the 

Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, and the Business 

Opportunity Rule, 16 C.F.R. Part 437, and has moved, pursuant to Fed. R. Civ. P. 65(b), for a 

temporary restraining order, asset freeze, other equitable relief, and an order to show cause why a 

preliminary injunction should not issue. 

FINDINGS OF FACT 

The Court, having considered the Complaint, the ex parte Motion for a Temporary 

Restraining Order, declarations, exhibits, and the memorandum of points and authorities filed in 

support thereof, and being otherwise advised, finds that: 

A. This Court has jurisdiction over the subject matter of this case, and there is good 

cause to believe that it will have jurisdiction over all parties hereto and that venue in this District 

1s proper. 

B. There is good cause to believe that Defendants A WS, LLC, FBA Distributors, 

LLC, FBA Stores, LLC, Info Pros, LLC, Online Auction Learning Center, Inc. (Mass. Corp.), 

Online Auction Learning Center, Inc. (Nev. Corp.), Christopher F. Bowser, Adam S. Bowser, 

and Jody Marshall have advertised, marketed, distributed, promoted, or sold business 

opportunities to consumers in this District and throughout the United States. 

C. There is good cause to believe that Defendants have engaged in and are likely to 

engage in acts or practices that violate Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and 

multiple sections of the Business Opportunity Rule, 16 C.F.R. Part 437, as amended, and that the 

Commission is therefore likely to prevail on the merits of this action. 

2 

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 	 	 D. As demonstrated by the Commission investigator declarations, the declaration of 

the Commission's expert Randy Hlavac, consumer declarations, Defendants' mail and Internet 

advertising, transcripts of undercover recordings, financial records, public records, and additional 

evidence contained in the volumes of exhibits filed by the Commission in support of its ex parte 

Motion for Temporary Restraining Order, the Commission has established a likelihood of 

success in showing that Defendants have: (1) made false or unsubstantiated earnings claims 

regarding the business opportunities they market and sell to consumer, and (2) failed to furnish 

prospective purchasers of Defendants' business opportunities with the disclosure documents and 

earnings claim statements required by the Business Opportunity Rule. 

E. There is good cause to believe that immediate and irreparable harm will result 

from Defendants' ongoing violations of the FTC Act and the Business Opportunity Rule unless 

Defendants are restrained and enjoined by order of this Court. 

F. There is good cause to believe that immediate and irreparable damage to the 

Court's ability to grant effective final relief for consumers - including monetary restitution, 

rescission, disgorgement, or refunds - will occur from the sale, transfer, destruction or other 

disposition or concealment by Defendants of their assets or records, unless Defendants are 

immediately restrained and enjoined by order of this Court; and that, in accordance with 

Fed. R. Civ. P. 65(b), the interests of justice require that this Order be granted without prior 

notice to Defendants. Thus, there is good cause for relieving the Commission of the duty to 

provide Defendants with prior notice of its Motion for a Temporary Restraining Order. 

G. Good cause exists for appointing a temporary receiver over the Corporate 

Defendants A WS, LLC, FBA Distributors, . LLC, FBA Stores, LLC, Info Pros, LLC, Online 

Auction Learning Center, Inc. (Mass. Corp.), Online Auction Learning Center, Inc. (Nev. Corp.); 

3 

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 	 	 freezing Defendants' assets; permitting the Commission and the receiver immediate access to the 

Defendants' business premises; and permitting the Commission and the receiver to take 

expedited discovery. 

H. Weighing the equities and considering the Commission's likelihood of ultimate 

success on the merits, a temporary restraining order with an asset freeze, the appointment of a 

temporary receiver, immediate access to business premises, expedited discovery, and other 

equitable relief is in the public interest. 

I. This Court has authority to issue this Order pursuant to Sections 13(b) and 19 of 

the FTC Act, 15 U.S.C. §§ 53(b) and§ 57b; Federal Rule of Civil Procedure 65; and the All 

Writs Act, 28 U.S.C. § 1651. 

J. No security is required of any agency of the United States for issuance of a 

temporary restraining order. Fed. R. Civ. P. 65(c). 

DEFINITIONS 

For the purpose of this Order, the following definitions shall apply: 

A. "Asset" means property of all kinds, including any legal or equitable interest in, 

right to, or claim to, any tangible or intangible property, and any real or personal property, 

wherever located and by whomever held. 

B. "Corporate Defendants" means A WS, LLC, FBA Distributors, LLC, FBA 

Stores, LLC, Info Pros, LLC, Online Auction Learning Center, Inc. (Mass. Corp.), Online 

Auction Learning Center, Inc. (Nev. Corp.) and each of their subsidiaries, affiliates, successors, 

and assigns. 

C. "Defendants" means each Corporate Defendant, Christopher F. Bowser, Adam S. 

Bowser, and Jody Marshall, individually, collectively, or in any combination. 

4 

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 	 	 D. "Document" is synonymous in meaning and equal in scope to the usage of 

"document" and "electronically stored information" in Federal Rule of Civil Procedure 34(a), 

Fed. R. Civ. P. 34(a), and includes writings, drawings, graphs, charts, photographs, sound and 

video recordings, images, internet sites, web pages, websites, electronic correspondence, 

including e-mail and instant messages, contracts, accounting data, advertisements (including 

advertisements placed on the World Wide Web), FTP Logs, Server Access Logs, USENET 

Newsgroup postings, books, written or printed records, handwritten notes, telephone logs, 

telephone scripts, receipt books, ledgers, personal and business canceled checks and check 

registers, bank statements, appointment books, computer records, customer or sales databases, 

and any other electronically stored information, including Documents located on remote servers 

or cloud computing systems, and other data or data compilations from which information can be 

obtained directly or, if necessary, after translation into a reasonably usable form. A draft or nonidentical copy is a separate document within the meaning of the term. 

E. "Earnings Claim" means any oral, written, or visual representation to a 

consumer, prospective purchaser or investor that conveys, expressly or by implication, a specific 

level or range of actual or potential sales, or gross or net income or profits. Earnings claims 

include, but are not limited to any: (1) chart, table, or.mathematical calculation that 

demonstrates possible results based upon a combination of variable; and (2) statements from 

which a consumer, prospective purchaser or investor can reasonably infer that he or she will earn 

a minimum level of income (e.g., "earn enough to buy a Porsche," "earn a six-figure income," or 

"earn your investment back within one year"). 

F. "Electronic Data Host" means any person or entity in the business of storing, 

hosting, or otherwise maintaining electronically stored information. This includes, but is not 

5 

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 	 	 limited to, any entity hosting a website or server, and any entity providing "cloud based" 

electronic storage. 

G. "Individual Defendants" means Christopher F. Bowser, Adam S. Bowser, and 

Jody Marshall, individually or collectively. 

H. "Person" means a natural person, organization, or legal entity, including a 

corporation, partnership, proprietorship, association, cooperative, government or governmental 

subdivision or agency, or any other group or combination acting as an entity. 

I. "Receiver" means the temporary receiver appointed in Section XI of this Order 

and any deputy receivers that shall be named by the temporary receiver. I 

J. "Receivership Entities" means the Corporate Defendants as well as any other 

entity that the Receiver determines is controlled or owned by any Defendant and (1) conducted 

any business related to Defendants' advertising, marketing, distributing, promoting, or selling of 

business opportunities, (2) commingled or pooled Assets with any Defendant, or (3) otherwise 

participated in the transfer of Assets stemming from the advertising, marketing, distributing, 

promoting, or selling of business opportunities. Upon determining that a nonparty entity is a 

Receivership Entity, the Receiver shall promptly notify the entity as well as the parties, and shall 

inform the entity that it can challenge the Receiver' determination by filing a motion with the 

Court. Provided, however, that the Receiver may delay providing such notice for up to 48 hours 

if the Receiver determines that notice to the entity or the parties before the Receiver establishes 

control over the entity may result in the destruction of records, dissipation of Assets, or any other 

obstruction of the Receiver's control of the entity. 

6 

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 	 	 	 ORDER 

I. PROHIBITED BUSINESS ACTIVITIES 

IT IS THEREFORE ORDERED that Defendants, Defendants' officers, agents, 

employees, and attorneys, and all other Persons in active concert or participation with them, who 

receive actual notice of this Order, whether acting directly or indirectly, in connection with 

promoting or offering for sale any good or service, are temporarily restrained and enjoined from: 

A. making any earnings claim, unless the earnings claim is non-misleading, and, at 

the time such claim is made, Defendants: (1) have a reasonable basis for their claim; (2) have in 

their possession written materials that substantiate the claim; and (3) make the written 

substantiation available upon request to the consumer, potential purchaser or investor, the 

Receiver, and to the Commission; 

B. misrepresenting or assisting others in misrepresenting, expressly or by implication 

any other fact material to consumers concerning any product or service, such as the total costs; 

any material restrictions, limitations, or conditions; or any material aspect of its performance, 

efficacy, nature, or central characteristics; or 

C. from violating the Business Opportunity Rule, 16 C.F.R. Part 437, a copy of 

which is attached as Attachment A. 

II. PROHIBITION ON RELEASE OF CUSTOMER INFORMATION 

IT IS FURTHER ORDERED that Defendants, Defendants' officers, agents, employees, 

and attorneys, and all other Persons in active concert or participation with any of them, who 

receive actual notice of this Order, whether acting directly or indirectly, are hereby temporarily 

restrained and enjoined from: 

A. Selling, renting, leasing, transferring, or otherwise disclosing, the name, address, 

birth date, telephone number, email address, credit card number, bank account number, Social 

7 

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 	 	 Security number, or other financial or identifying information of any person that any Defendant 

obtained in connection with any activity that pertains to the subject matter of this Order; and 

B. Benefitting from or using the name, address, birth date, telephone number, email 

address, credit card number, bank account number, Social Security number, or other financial or 

identifying information of any person that any Defendant obtained in connection with any 

activity that pertains to the subject matter of this Order. 

Provided, however, that Defendants may disclose such identifying information to a law 

enforcement agency, as required by any law, regulation, or court order, or in any filings, 

pleadings or discovery in this action, provided the Defendants comply with any protective order 

in the case. 

III. ASSET FREEZE 

IT IS FURTHER ORDERED that Defendants and their officers, agents, employees, 

and attorneys, and all other Persons in active concert or participation with any of them, who 

receive actual notice of this Order, whether acting directly or indirectly, are hereby temporarily 

restrained and enjoined from: 

A. Transferring, liquidating, converting, encumbering, pledging, loaning, selling, 

concealing, dissipating, disbursing, assigning, relinquishing, spending, withdrawing, granting a 

lien or security interest or other interest in, or otherwise disposing of any Assets, wherever 

located, including outside the United States, that are: 

1. owned or controlled, directly or indirectly, by any Defendant; 

2. held, in part or in whole, for the benefit of any Defendant; 

3. in the actual or constructive possession of any Defendant; or 

4. owned or controlled by, in the actual or constructive possession of, or 

otherwise held for the benefit of, any corporation, partnership, asset 

8 

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 	 	 protection trust, or other entity that is directly or indirectly owned, 

managed or controlled by any Defendant, including any Assets held by, 

for, or subject to access by, any Defendant at any bank or savings and loan 

institution, or with any broker-dealer, escrow agent, title company, 

insurance company, commodity trading company, precious metal dealer, 

payment processor, credit card processor, acquiring bank, merchant bank, 

independent sales organization, third party processor, payment gateway, or 

other financial institution or depository of any kind. 

B. Opening or causing to be opened any safe deposit boxes, commercial mail boxes, 

or storage facilities titled in the name of any Defendant or subject to access by any Defendant, 

except as necessary to comply with written requests from the Receiver acting pursuant to its 

authority under this Order; 

C. Incurring liens or other encumbrances on real property, personal property, or 

other Assets held, controlled, or subject to access by, or held for the benefit of, any Defendant or 

any corporation, partnership, or other entity directly or indirectly owned, managed, or controlled 

by any Defendant; 

D. Incurring charges or cash advances on any credit or bank card issued in the name, 

individually or jointly, of any Corporate Defendant or any corporation, partnership, or other 

entity directly or indirectly owned, managed, or controlled by any Defendant or of which any 

Defendant is an officer, director, member, or manager. This includes any corporate bankcard or 

corporate credit card account for which any Defendant is, or was on the date that this Order was 

signed, an authorized signor; or 

9 

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 	 	 E. Cashing any checks or depositing any money orders or cash received from 

consumers, clients, or customers of any Defendant. 

Provided that the Assets affected by this Section shall include: (1) all Assets of 

Defendants as of the time this Order is entered; and (2) Assets obtained by Defendants after this 

Order is entered if those Assets are derived from any activity that is the subject of the Complaint 

in this matter or that is prohibited by this Order. 

This Section does not prohibit transfers to the Receiver, as specifically required in 

Section XIII (Transfer of Receivership Property to Receiver) of this Order, nor does it prohibit 

the repatriation of foreign Assets, as specifically required in Section VI (Foreign Asset 

Repatriation) ofthis Order.· 

IV. DUTIES OF HOLDERS OF DEFENDANTS' ASSETS 

IT IS FURTHER ORDERED that any financial or brokerage institution, Electronic 

Data Host, credit card processor, payment processor, merchant bank, acquiring bank, 

independent sales organization, third party processor, payment gateway, insurance company, 

business entity, or Person who receives actual notice of this Order (by service or otherwise) that 

(a) holds, controls, or maintains custody of any electronically stored information or Document on 

behalf of any Defendant, any Asset subject to Section III or any account holding any Asset 

subject to Section III; (b) holds, controls, or maintains custody of any Document or any Asset 

associated with credits, debits or charges made on behalf of any Defendant, including reserve 

funds held by payment processors, credit card processors, merchant banks, acquiring banks, 

independent sales organizations, third party processors, payment gateways, insurance companies, 

or other entities; or ( c) has held, controlled, or maintained custody of any such Document, Asset, 

or account at any time since the date of entry of this Order shall: 

10 

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 	 	 A. Hold, preserve, and retain within its control and prohibit the withdrawal, removal, 

alteration, assignment, transfer, pledge, encumbrance, disbursement, dissipation, relinquishment, 

conversion, sale, or other disposal of any such Document or Asset, as well as all Documents or 

other property related to such Assets, except by further order of this Court; 

B. Deny any Person, except the Receiver, access to any safe deposit box, commercial 

mail box, or storage facility that is titled in the name of any Defendant, either individually or 

jointly, or otherwise subject to access by any Defendant; 

C. Provide Commission counsel and the Receiver, within five (5) days ofreceiving 

a copy of this Order, a sworn statement setting forth: 

1. The identification number of each such account or Asset; 

2. The balance of each such account, or a description of the nature and value 

of each such Asset as of the close of business on the day on which this 

Order is served, and, if the account or other Asset has been closed or 

removed, the date closed or removed, the total funds removed in order to 

close the account, and the name of the Person to whom such account or 

other Asset was remitted; and 

3. The identification of any safe deposit box, commercial mail box, or 

storage facility that is either titled in the name, individually or jointly, of 

any Defendant, or is otherwise subject to access by any Defendant; and 

D. Upon the request of Commission counsel or the Receiver, promptly provide 

Commission counsel and the Receiver with copies of all records or other Documents pertaining 

to such account or Asset, including originals or copies of account applications, account 

statements, signature cards, checks, drafts, deposit tickets, transfers to and from the accounts, 

11 

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 	 	 including wire transfers and wire transfer instructions, all other debit and credit instruments or 

slips, currency transaction reports, 1099 forms, and all logs and records pertaining to safe deposit 

boxes, commercial mail boxes, and storage facilities. 

V. FINANCIAL DISCLOSURES 

IT IS FURTHER ORDERED that each Defendant, within five (5) days of service of 

this Order upon them, shall prepare and deliver to Commission counsel and the Receiver 

completed financial statements on the forms attached to this Order as Attachment B (Financial 

Statement of Individual Defendant) for each Individual Defendant, and Attachment C (Financial 

Statement of Corporate Defendant) for each Corporate Defendant. 

VI. FOREIGN ASSET REPATRIATION 

IT IS FURTHER ORDERED that within five (5) days following the service of this 

Order, each Defendant shall: 

A. Provide Commission counsel and the Receiver with a full accounting, verified 

under oath and accurate as of the date of this Order, of all Assets, Documents, and accounts 

outside of the United States which are: (1) titled in the name, individually or jointly, of any 

Defendant; (2) held by any Person for the benefit of any Defendant or for the benefit of, any 

corporation, partnership, asset protection trust, or other entity that is directly or indirectly owned, 

managed or controlled by any Defendant; or (3) under the direct or indirect control, whether 

jointly or individually, of any Defendant; 

B. Take all steps necessary to provide Commission counsel and the Receiver access 

to all Documents and records of the accounts or Assets described above in subsection A, 

including signing the Consent to Release of Financial Records appended to this Order as 

Attachment D and serving this Order on any financial institution or other entity holding the 

assets; 

12 

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 	 	 C. Transfer to the territory of the United States and deliver to the Receiver all 

Documents and Assets located in foreign countries which are: (1) titled in the name,jointly or 

individually, of any Defendant; (2) held by any Person for the benefit of any Defendant or for the 

benefit of, any corporation, partnership, asset protection trust, or other entity that is directly or 

indirectly owned, managed or controlled by any Defendant; or (3) under the direct or indirect 

control, whether jointly or individually, of any Defendant; and 

D. The same business day as any repatriation, (1) notify the Receiver and counsel 

for the Commission of the name and location of the financial institution or other entity that is the 

recipient of such Documents or Assets; and (2) serve this Order on any such financial institution 

or other entity. 

VII. NON-INTERFERENCE WITH REPATRIATION 

IT IS FURTHER ORDERED that Defendants, Defendants' officers, agents, employees, 

and attorneys, and all other Persons in active concert or participation with any of them, who 

receive actual notice of this Order, whether acting directly or indirectly, are hereby temporarily 

restrained and enjoined from taking any action, directly or indirectly, which may result in the 

encumbrance or dissipation of foreign Assets, or in the hindrance of the repatriation required by 

this Order, including, but not limited to: 

A. Sending any communication or engaging in any other act, directly or indirectly, 

.that results in a determination by a foreign trustee or other entity that a "duress" event has 

occurred under the terms of a foreign trust agreement until such time that all Defendants' Assets 

have been fully repatriated pursuant to this Order; or 

B. Notifying any trustee, protector or other agent of any foreign trust or other related 

entities of either the existence of this Order, or of the fact that repatriation is required pursuant to 

13 

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 	 	 a court order, until such time that all Defendants' Assets have been fully repatriated pursuant to 

this Order. 

VIII. CONSUMER CREDIT REPORTS 

IT IS FURTHER ORDERED that any consumer reporting agency served with this 

Order shall: 

A. Promptly furnish consumer reports as requested concerning any Defendant to the 

Commission, pursuant to Section 604(a)(l) of the Fair Credit Reporting Act, 

15 U.S.C. § 1681 b(a)(l); and 

B. Promptly furnish any Documents related to any dispute of the accuracy of 

information contained in a credit report initiated by any Defendant, including, but not limited to, 

correspondence and other Documents submitted by any Defendant to the consumer reporting 

agency and any response from the consumer reporting agency to any Defendant. 

IX. PRESERVATION OF RECORDS 

IT IS FURTHER ORDERED that Defendants, Defendants' officers, agents, employees, 

and attorneys, and all other Persons in active concert or participation with any of them, who 

receive actual notice of this Order, whether acting directly or indirectly, are hereby temporarily 

restrained and enjoined from: 

A. Destroying, erasing, falsifying, writing over, mutilating, concealing, altering, 

transferring, or otherwise disposing of, in any manner, directly or indirectly, Documents that 

relate to: ( 1) the business, business practices, Assets, or business or personal finances of any 

Defendant; (2) the business practices or finances of entities directly or indirectly under the 

control of any Defendant; or (3) the business practices or finances of entities directly or 

indirectly under common control with any other Defendant; and 

14 

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 	 	 B. Failing to create and maintain Documents that, in reasonable detail, accurately, 

fairly, and completely reflect Defendants' incomes, disbursements, transactions, and use of 

Defendants' Assets. 

X. REPORT OF NEW BUSINESS ACTIVITY 

IT IS FURTHER ORDERED that Defendants, Defendants' officers, agents, employees, 

and attorneys, and all other Persons in active concert or participation with any of them, who 

receive actual notice of this Order, whether acting directly or indirectly, are hereby temporarily 

restrained and enjoined from creating, operating, or exercising any control over any business 

entity, whether newly formed or previously inactive, including any partnership, limited 

partnership, joint venture, sole proprietorship, or corporation, without first providing 

Commission counsel and the Receiver with a written statement disclosing: (1) the name of the 

business entity; (2) the address and telephone number of the business entity; (3) the names of the 

business entity's officers, directors, principals, managers, and employees; and (4) a detailed 

description of the business entity's intended activities. 

XI. TEMPORARY RECEIVER 

IT IS FURTHER ORDERED that Robb Evans and Associates LLC is appointed as 

temporary receiver of the Receivership Entities with full powers of an equity receiver. The 

Receiver shall be solely the agent of this Court in acting as Receiver under this Order. 

XII. DUTIES AND AUTHORITY OF RECEIVER 

IT IS FURTHER ORDERED that the Receiver is directed and authorized to accomplish the 

following: 

A. Assume full control of Receivership Entities by removing, as the Receiver deems 

necessary or advisable, any director, officer, independent contractor, employee, attorney, or 

15 

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 	 	 agent of any Receivership Entity from control of, management of, or participation in, the affairs 

of the Receivership Entity; 

B. Take exclusive custody, control, and possession of all Assets and Documents of, 

or in the possession, custody, or under the control of, any Receivership Entity, wherever situated; 

C. Conserve, hold, manage, and prevent the loss of all Assets of the Receivership 

Entities, and perform all acts necessary or advisable to preserve the value of those Assets. The 

Receiver shall assume control over the income and profits therefrom and all sums of money now 

or hereafter due or owing to the Receivership Entities. The Receiver shall have full power to sue 

for, collect, and receive, all Assets of the Receivership Entities and of other Persons whose 

interests are now under the direction, possession, custody, or control of, the Receivership 

Entities. Provided, however, that the Receiver shall not attempt to collect any amount from a 

consumer if the Receiver believes the consumer's debt to the Receivership Entities has resulted 

from the deceptive acts or practices or other violations of law alleged in the Complaint in this 

matter, without prior Court approval; 

D. Obtain, conserve, hold, manage, and prevent the loss of all Documents of the 

Receivership Entities, and perform all acts necessary or advisable to preserve such Documents. 

The Receiver shall: divert mail; preserve all Documents of the Receivership Entities that are 

accessible via electronic means ( such as online access to financial accounts and access to 

electronic documents held onsite or by internet service providers ( cloud service, email service 

and web hosts)), by changing usemames, passwords, or other log-in credentials; and take 

possession of all electronic Documents of the Receivership Entities stored onsite or remotely; 

16 

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 	 	 	 E. Choose, engage, and employ attorneys, accountants, appraisers, and other 

independent contractors and technical specialists, as the Receiver deems advisable or necessary 

in the performance of duties and responsibilities under the authority granted by this Order; 

F. Make payments and disbursements from the receivership estate that are necessary 

or advisable for carrying out the directions of, or exercising the authority granted by, this Order, 

and to incur, or authorize the making of, such agreements as may be necessary and advisable in 

discharging his or her duties as Receiver. The Receiver shall apply to the Court for prior 

_ approval of any payment of any debt or obligation incurred by the Receivership Entities prior to 

the date of entry of this Order, except payments that the Receiver deems necessary or advisable 

to secure Assets of the Receivership Entities, such as rental payments; 

G. Suspend business operations of the Receivership Entities if in the judgment of the 

Receiver such operations cannot be continued legally and profitably; 

H. Take all steps necessary to secure and take exclusive custody of each location 

from which the Receivership Entities operate their businesses. Such steps may include, but are 

not limited to, any of the following, as the Receiver deems necessary or advisable: (1) securing 

the location by changing the locks and alarm codes and disconnecting any internet access or 

other means of access to the computers, internet, or any records maintained at that location; and 

(2) requiring any persons present at the location to leave the premises, to provide the Receiver 

with proof of identification, and/or to demonstrate to the satisfaction of the Receiver that such 

persons are not removing from the premises Documents or Assets of the Receivership Entities. 

Law enforcement personnel, including, but not limited to, police or sheriffs, may assist the 

Receiver in implementing these provisions in order to keep the peace and maintain security. If 

requested by the Receiver, the United States Marshal will provide appropriate and necessary 

17 

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 	 	 assistance to the Receiver to implement this Order and is authorized to use any necessary and 

reasonable force to do so; 

I. Take all steps necessary to prevent the modification, destruction, or erasure of any 

web page or website registered to and operated, in whole or in part, by any of the Defendants, 

and to provide access to all such web page or websites to the Commission's representatives, 

J . Enter into and cancel contracts and purchase insurance as advisable or necessary; 

K. Prevent the inequitable distribution of Assets and determine, adjust, and protect 

the interests of consumers who have transacted business with the Receivership Entities; 

L. Make an accounting, as soon as practicable, of the Assets and financial condition 

of the receivership and file the accounting with the Court and deliver copies thereof to all parties; 

M. Institute, compromise, adjust, appear in, intervene in, defend, dispose of, or 

otherwise become party to any legal action in state, federal, or foreign courts, or arbitration 

proceedings as the Receiver deems necessary and advisable to preserve or recover the Assets of 

the Receivership Defendants, or to carry out the Receiver's mandate under this Order, including 

but not limited to, actions challenging fraudulent or voidable transfers; 

N. Issue subpoenas to obtain Documents and records pertaining to the Receivership, 

and conduct discovery in this action on behalf of the receivership estate; 

0. Open one or more bank accounts at designated depositories for funds of the 

Receivership Defendants. The Receiver shall deposit all funds of the Receivership Defendants in 

such a designated account and shall make all payments and disbursements from the receivership 

estate from such an account. The Receiver shall serve copies of monthly account statements on 

all parties; 

P. Maintain accurate records of all receipts and expenditures incurred as Receiver; 

18 

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 	 	 Q. Allow the Commission's representatives, agents, and assistants, as well as 

Defendants' representatives and Defendants themselves, reasonable access to the premises of the 

Receivership Entities, or any other premises where the Receivership Entities conduct business. 

The purpose of this access shall be to inspect and copy any books, records, Documents, accounts, 

and other property owned by, or in the possession of, the Receivership Entities or their agents. 

The Receiver shall have the discretion to determine the time, manner, and reasonable conditions 

of such access; 

R. Allow the Commission's representatives, agents, and assistants, as well as 

Defendants and their representatives reasonable access to all Documents in the possession, 

custody, or control of the Receivership Entities, including, but not limited to electronic 

Documents; and 

S. Cooperate with reasonable requests for information or assistance from any state or 

federal civil or criminal law enforcement agency. 

XIII. TRANSFER OF RECEIVERSHIP PROPERTY TO RECEIVER 

IT IS FURTHER ORDERED that the Defendants, their Representatives, and any other 

Person with possession, custody, or control of property of, or records relating to, the 

Receivership Entities shall, upon notice of this Order by personal service or otherwise, fully 

cooperate with and assist the Receiver in taking and maintaining possession, custody, or control 

of the Assets and Documents of the Receivership Entities and immediately transfer or deliver to 

the Receiver possession, custody, and control of, the following: 

A. All Assets held by or for the benefit of the Receivership Entities; 

B. All Documents of the Receivership Entities; 

19 

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 	 	 C. All computers, electronic devices, mobile devices, and machines used to conduct 

~e business of the Receivership Entities; 

D. All Assets and Documents belonging to other Persons whose interests are under 

the direction, possession, custody, or control of the Receivership Entities; and 

E. All keys, codes,. user names and passwords necessary to gain or to secure access 

to any Assets or Documents of the Receivership Entities, including access to their business 

premises, means of communication, accounts, computer systems ( onsite and remote), remote 

computing service,. or other property. 

In the event that any Person fails to deliver or transfer any Asset or Document, or 

otherwise fails to comply with any provision of this Section, the Receiver may file an Affidavit 

of Non-Compliance regarding the failure and a motion seeking compliance or a contempt 

citation. 

XIV~ PROVISION OF INFORMATION TO RECEIVER 

IT IS FURTHER ORDERED that Defendants shall immediately provide to the 

Receiver: 

A. A list of all Assets 'and property, including accounts, of the Receivership Entities 

that are _held in any name other than the name of a Receivership Entity, or by any Person other 

than a Receivership Entity; 

B. A list of all agents, employees, officers, attorneys, servants and those Persons in 

active concert and participation with the Receivership Entities, or who have been associated or 

done business with the Receivership Entities; and 

20 

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 	 	 C. A description of any documents covered by attorney-client privilege or attorney 

work product, including files where such documents are likely to be located, authors or recipients 

of such documents, and search terms likely to identify such electronic documents. 

XV. COOPERATION WITH THE RECEIVER 

IT IS FURTHER ORDERED that Defendants, Receivership Entities, Defendants' or 

Receivership Entities' officers, agents, employees, and attorneys, and all other Persons in active 

concert or participation with any of them, who receive actual notice of this Order; and any other 

Person served with a copy of this Order shall fully cooperate with and assist the Receiver. This 

cooperation and assistance shall include, but is not limited to, providing information to the 

Receiver that the Receiver deems necessary to exercise the authority and discharge the 

responsibilities of the Receiver under this Order; providing any username and password required 

to access any computer (onsite or remotely) and any cloud account (including specific method to 

access account), electronic file, or telephonic data in any medium; advising all Persons who owe 

money to any Corporate Defendant that all debts should be paid directly to the Receiver; and 

transferring funds at the Receiver's direction and producing records related to the Assets and 

sales of the Receivership Entities. 

XVI. INTERFERENCE WITH THE RECEIVER 

IT IS FURTHER ORDERED that Defendants, Receivership Entities, Defendants' or 

Receivership Entities' officers, agents, employees, attorneys, and all other Persons in active 

concert or participation with any of them, who receive actual notice of this Order, and any other 

Person served with a copy of this Order, are hereby restrained and enjoined from directly or 

indirectly: 

A. Interfering with the Receiver's efforts to manage, or take custody, control, or 

possession of, the Assets or Documents subject to the receivership; 

21 

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 	 	 B. Transacting any of the business of the Receivership Entities; 

C. Transferring, receiving, altering, selling, encumbering, pledging, assigning, 

liquidating, or otherwise disposing of any Assets owned, controlled, or in the possession or 

custody of, or in which an interest is held or claimed by, the Receivership Entities; or 

D. Refusing to cooperate with the Receiver or the Receiver's duly authorized agents 

in the exercise of their duties or authority under any order of this Court. 

XVII. STAY OF ACTIONS 

IT IS FURTHER ORDERED that, except by leave of this Court, during the pendency 

of the receivership, Defendants, Defendants' officers, agents, employees, attorneys, and all other 

Persons in active concert or participation with any of them, who receive actual notice of this 

Order, and their corporations, subsidiaries, divisions, or affiliates, and all investors, creditors, 

stockholders, lessors, customers and other Persons seeking to establish or enforce any claim, 

right, or interest against or on behalf of Defendants, and all others acting for or on behalf of such 

Persons, are hereby enjoined from taking action that would interfere with the exclusive 

jurisdiction of this Court over the Assets or Documents of Receivership Entities, including, but 

not limited to: 

A. Filing or assisting in the filing of a petition for relief under the Bankruptcy Code, 

11 U.S.C. § 101 et seq., or of any similar insolvency proceeding on behalf of Corporate 

Defendants; 

B. Commencing, prosecuting, or continuing a judicial, administrative, or other action 

or proceeding against the Receivership Entities, including the issuance or employment of process 

against the Receivership Entities, except that such actions may be commenced if necessary to toll 

any applicable statute of limitations; or 

C. Filing or enforcing any lien on any asset of the Receivership Entities, taking or 

22 

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 	 	 attempting to take possession, custody, or control of any Asset of the Receivership Entities; or 

attempting to foreclose, forfeit, alter, or terminate any interest in any Asset of the Receivership 

Entities, whether such acts are part of a judicial proceeding, are acts of self-help, or otherwise. 

Provided, however, that this Order does not stay: (1) the commencement or continuation 

of a criminal action or proceeding; (2) the commencement or continuation of an action or 

proceeding by a governmental unit to enforce such governmental unit's police or regulatory 

power; or (3) the enforcement of a judgment, other than a money judgment, obtained in an action 

or proceeding by a governmental unit to enforce such governmental unit's police or regulatory 

power. 

XVIII. COMPENSATION OF RECEIVER 

IT IS FURTHER ORDERED that the Receiver and all personnel hired by the Receiver 

as herein authorized, including counsel to the Receiver and accountants, are entitled to 

reasonable compensation for the performance of duties pursuant to this Order and for the cost of 

actual out-of-pocket expenses incurred by them, from the Assets now held by, in the possession 

or control of, or which may be received by, the Receivership Entities. The Receiver shall file 

with the Court and serve on the parties periodic requests for the payment of such reasonable 

compensation, with the first such request filed no more than sixty (60) days after the date of 

entry of this Order. The Receiver shall not increase the hourly rates used as the bases for such 

fee applications without prior approval of the Court. 

XIX. RECEIVER'S BOND 

IT IS FURTHER ORDERED that the Receiver shall file with the Clerk of this Court a 

bond in the sum of $20,000.00 with sureties to be approved by the Court, conditioned that the 

Receiver will well and truly perform the duties of the office and abide by and perform all acts the 

Court directs. 28 U.S.C. § 754. 

23 

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 	 	 XX. IMMEDIATE ACCESS TO BUSINESS PREMISES AND RECORDS 

IT IS FURTHER ORDERED that: 

A. In order to allow the Commission and the Receiver to preserve Assets and 

evidence relevant to this action and to expedite discovery, the Commission and the Receiver, and 

their representatives, agents, contractors, and assistants, shall have immediate access to the 

business premises and storage facilities, owned, controlled, or used by the Corporate Defendants. 

Such locations include, but are not limited to, 293 Libbey Industrial Parkway, Suites 150 & 250, 

Weymouth, Massachusetts 02189; 197 East California Avenue, #260, Las Vegas, Nevada 89104; 

350 South 400 West, Lindon, Utah 84042; 114 New South Road, Hicksville, New York 11801; 

110 New South Road, Hicksville, New York 11801; and any off site location, storage unit, or 

commercial mailbox used by any Corporate Defendant. The Receiver may exclude Defendants, 

Receivership Entities, and their employees from the business premises during the immediate 

access; 

B. The Commission and the Receiver, and their representatives, agents, contractors, 

and assistants are authorized to remove Documents from the Corporate Defendant's premises in 

order that they may be inspected, inventoried, and copied. The Commission shall return any 

removed materials to the Receiver within seven (7) days of completing inventorying and 

copying, or such time as is agreed upon by the Commission and the Receiver; 

C. The Commission's access to the Receivership Entities' documents pursuant to this 

Section shall not provide grounds for any Defendant to object to any subsequent request for 

documents served by the Commission; 

D. If any Documents, computers, or electronic storage devices containing 

information related to the business practices or finances of the Receivership Entities are at a 

location other than those listed herein, including personal residence(s) of any Defendant, then, 

24 

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 	 	 immediately upon receiving notice of this order, Defendants and Receivership Entities shall 

produce to the Receiver all such Documents, computers, and electronic storage devices, along 

with any codes or passwords needed for access. In order to prevent the destruction of computer 

data, upon service of this Order, any such computers or electronic storage devices shall be 

powered down in the normal course of the operating system used on such devices and shall not 

be powered up or used until produced for copying and inspection; and 

E. If any communications or records of a Corporate Defendant are stored with a 

remote computing service, such Defendant shall, immediately upon receiving notice of this 

order, provide the Receiver with the username, passwords, and any other login credential needed . 

to access the communications and records, and shall not attempt to access the communications or 

records. 

XXI. DISTRIBUTION OF ORDER BY DEFENDANTS 

IT IS FURTHER ORDERED that Defendants shall immediately provide a copy ofthis 

Order to each affiliate, telemarketer, marketer, sales entity, successor, assign, member, officer, 

director, employee, agent, independent contractor, client, attorney, spouse, subsidiary, division, 

and representative of any Defendant, and shall, within fourteen (14) days from the date of entry 

of this Order, and provide the Commission and the Receiver with a sworn statement that this 

provision of the Order has been satisfied, which statement shall include the names, physical 

addresses, phone number, and email addresses of each such Person who received a copy of the 

Order. Furthermore, Defendants shall not take any action that would encourage officers, agents, 

members, directors, employees, salespersons, independent contractors, attorneys, subsidiaries, 

affiliates, successors, assigns or other Persons in active concert or participation with them to 

disregard this Order or believe that they are not bound by its provisions. 

25 

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 	 	 xxn. EXPEDITED DISCOVERY 

IT IS FURTHER ORDERED that, notwithstanding the provisions of the Fed. R. Civ. P. 

26(d) and (f) and 30(a)(2)(c), and pursuant to Fed. R. Civ. P. 30(a), 34, and 45, discovery in this 

case shall commence upon entry of this Order. The Commission is also granted leave, at any 

time after service of this Order, to conduct limited expedited discovery for the purpose of 

discovering: (1) the nature, location, status, and extent of Defendants' Assets; (2) the nature, 

location, and extent of Defendants' businesses transactions and operations; (3) Documents 

reflecting Defendants' business transactions and operations; ( 4) the existence and identity of 

other Persons who were or are engaged in the conduct alleged in the Complaint in active concert 

or participation with the Defendants; or (5) compliance with this Order. The expedited discovery 

set forth in this Section shall be designated as such by marking any notices or written discovery 

requests as "Expedited" and proceed as follows: 

A. The Commission and the Receiver may take the expedited deposition of parties 

and non-parties. Notice of forty-eight (48) hours shall be sufficient notice for such depositions. 

The limitations and conditions set forth in Rules 30(a)(2)(B) and 31(a)(2)(B) of the Federal 

Rules of Civil Procedure regarding subsequent depositions of an individual shall not apply to 

depositions taken pursuant to this Section. Any such deposition taken pursuant to this subsection shall not be counted towards the deposition limit set forth in Rules 30(a)(2)(A) and 

31 (a)(2)(A) and depositions may be taken by telephone or other remote electronic means; 

B. The Commission and the Receiver may serve upon parties expedited requests for 

production of Documents or inspection that require production or inspection within seven (7) 

days of service, provided that three (3) days of notice shall be deemed sufficient for the 

production of any such Documents that are maintained or stored only in an electronic format; 

26 

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 	 	 	 C. The Commission and the Receiver may serve upon parties expedited 

interrogatories that require response within seven (7) calendar days after the Commission serves 

such interrogatories; 

D. The Commission and the Receiver may serve expedited subpoenas upon nonparties that direct production or inspection within seven (7) days of service; 

E. Service of expedited discovery upon a party to this action, taken pursuant to this 

Section, shall be sufficient if made by facsimile, email, or by overnight delivery; 

F. Any expedited discovery taken pursuant to this Section is in addition to, and is not 

subject to, the limits on discovery set forth in the Federal Rules of Civil Procedure and the Local 

Rules of this Court. The expedited discovery permitted by this Section does not require a 

meeting or conference of the parties, pursuant to Rules 26(d) & (f) of the Federal Rules of Civil 

Procedure; and 

G. The Parties are exempted from conferring under Fed. R. Civ. P. 26(f) and making 

initial disclosures under Fed. R. Civ. P. 26(a)(l) until further order of this Court. 

XXIII. SERVICE OF THIS ORDER 

IT IS FURTHER ORDERED that copies of this Order as well as the Motion for 

Temporary Restraining Order and all other pleadings, Documents, and exhibits filed 

contemporaneously with that Motion (other than the complaint and summons), may be served by 

any means, including facsimile transmission, electronic mail or other electronic messaging, 

personal or overnight delivery, U.S. Mail or FedEx, by agents and employees of Commission, by 

any law enforcement agency, or by private process server, upon any Defendant or any Person 

(including any financial institution) that may have possession, custody, or control of any 

property, property right, Document, or Asset of any Defendant, or that may be subject to any 

provision of this Order pursuant to Rule 65(d)(2) of the Federal Rules of Civil Procedure. For 

27 

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 	 	 purposes of this Section, service upon any branch, subsidiary, affiliate or office of any entity 

shall effect service upon the entire entity. This Order shall bind Persons that may be subject to 

any provision of this Order pursuant to Rule 65( d)(2) of the Federal Rules of Civil Procedure 

upon such Person's receipt of actual notice, by personal service or otherwise, of this Order. 

XXIV. CORRESPONDENCE AND SERVICE ON THE COMMISSION 

IT IS FURTHER ORDERED that, for the purpose of this Order, all correspondence 

and service of pleadings on the Commission shall be addressed to: 

Roberto Anguizola 

Miry Kim 

Gregory J. Evans 

Federal Trade Commission 

600 Pennsylvania A venue NW 

Mail Drop CC-8528 

Washington, D.C. 20580 

Fax: (202) 326-3395 

Email: ranguizola@ftc.gov; mkim@ftc.gov; gevans2@ftc.gov 

XXV. PRELIMINARY INJUNCTION HEARING 

IT IS FURTHER ORDERED that, pursuant to Fed. R. Civ. P. 65(b), Counsel for the 

Commission and Defendants shall appear before this Court on March 27, 2018, at 10AM 

(Pacific Standard Time) at the United States Courthouse, 333 S. Las Vegas Blvd, Las Vegas, 

NV 89101 in Courtroom 6A, for an evidentiary hearing on the Commission's motion for a 

preliminary injunction, pending final ruling on the Complaint against Defendants, enjoining the 

violations of the law alleged in the Complaint, continuing the freeze of Defendants' Assets, 

continuing the receivership, and imposing such additional relief as may be appropriate. 

XXVI. BRIEFS AND AFFIDAVITS CONCERNING PRELIMINARY INJUNCTION 

IT IS FURTHER ORDERED that: 

A. The Defendants shall file with the Court, and serve on Commission counsel, any 

pleadings concerning preliminary injunction, including responses or oppositions, affidavits, 

28 

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 	 	 motions, expert reports or declarations, or legal memoranda no later than March 22, 2018. The 

Commission shall file a proposed preliminary injunction order no later than March 26, 2018. 

The Commission may reply and file responsive or supplemental pleadings, materials, affidavits, 

or memoranda with the Court and serve the same on Defendants no later than March 26, 2018; 

and 

B. The parties must serve any filings or pleading concerning preliminary injunction 

by personal or overnight delivery, or by email, to be rec~ived by the other party or parties no 

later than 5:00 PM (Pacific Standard Time) on the applicable dates set forth in subsection A, 

above. 

XXVII. DURATION OF THE ORDER 

IT IS FURTHER ORDERED that this Order shall expire on March 27, 2018, unless 

the Order is extended for an additional period pursuant to Fed. R. Civ. P. 65(b)(2). The 

Commission shall file any request to extend the duration of this Order no later than March 26, 

2018. 

XXVIII. RETENTION OF JURISDICTION 

IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for 

all purposes. 

IT IS SO ORDERED: 

- 1~ -J ________ _ 

rn,r TE STATES DISTRICT JUDGE 

DATED: -------

TIME: ---------

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ATTACHMENT A 

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FEDERAL REGISTER 

Vol. 76 Thursday, 

No. 236 December 8, 2011 

Part II 

Federal Trade Commission 

16 CFR Part 437 

Business Opportunity Rule; Final Rule 

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 	 	 76816 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 

FEDERAL TRADE COMMISSION 

16 CFR Part 437 

RIN 3084-AB04 

Business Opportunity Rule 

AGENCY: Federal Trade Commission 

(FTC or Commission). 

ACTION: Final rule. 

SUMMARY: The Commission is adopting 

final amendments to its Trade 

Regulation Rule entitled "Disclosure 

Requirements and Prohibitions 

Concerning Business Opportunities" 

("Business Opportunity Rule" or 

"Rule"). Among other things, the 

Business Opportunity Rule has been 

amended to broaden its scope to cover 

business opportunity sellers not covered 

by the interim Business Opportunity 

Rule, such as sellers of work-at-home 

opportunities, and to streamline and 

simplify the disclosures that sellers 

must provide to prospective purchasers. 

The final Rule is based upon the 

comments received in response to an 

Advance Notice of Proposed 

Rulemaking ("ANPR"), an Initial Notice 

of Proposed Rulemaking ("INPR"), a 

Revised Notice of Proposed Rulemaking 

("RNPR"), a public workshop, a Staff 

Report, and other information discussed 

herein. This document also contains the 

text of the final Rule and the Rule's 

Statement of Basis and Purpose ("SBP"), 

including a Regulatory Analysis. 

DATES: The provisions of the final Rule 

will become effective on March 1, 2012. 

ADDRESSES: Requests for copies of the 

final Rule and the SBP should be sent 

to Public Reference Branch, Room 130, 

Federal Trade Commission, 600 

Pennsylvania Avenue NW., Washington, 

DC 20580. The complete record of this 

proceeding is also available at that 

address. Relevant portions of the 

proceeding, including the final Rule and 

SBP, are available at http://www.ftc.gov. 

FOR FURTHER INFORMATION CONTACT: 

Christine M. Todaro, (202) 326-3711, 

Division of Marketing Practices, Room 

H-286, Bureau of Consumer Protection, 

Federal Trade Commission, 600 

Pennsylvania Avenue NW., Washington, 

DC 20580. 

SUPPLEMENTARY INFORMATION: The final 

Rule modifies the interim Business 

Opportunity Rule in two significant 

ways. First, the final Rule contains an 

expanded definition of "business 

opportunity" aimed at extending the 

scope of the Rule to business 

opportunities previously not covered, 

such as work-at-home programs. 

Second, although the final Rule's scope 

is broader than the interim Business 

Opportunity Rule, the compliance 

burden is reduced. Specifically, in 

contrast to the extensive disclosures 

previously required, the final Rule now 

requires that business opportunity 

sellers provide prospective customers 

with a substantially simplified and 

streamlined one-page disclosure 

document. The final Rule also adds 

affirmative prohibitions on 

misrepresentations and omissions, as 

well as disclosure requirements for sales 

conducted in Spanish and other 

languages besides English. 

Statement of Basis and Purpose 

Key Terms and Abbreviations Used 

Throughout This Statement of Basis and 

Purpose 

"Amended Franchise Rule" refers to the 

amended Franchise Rule published at 72 

FR 15444 (Mar. 30, 2007) and codified at 

16 CFR436. 

"ANPR" refers to the Trade Regulation Rule 

on Franchising and Business Opportunity 

Ventures: Advanced Notice of Proposed 

Rulemaking, 62 FR 9115 (Feb. 28, 1997). 

"Initial Proposed Disclosure Document" 

refers to the original version of the 

Disclosure Document that was proposed in 

the INPR in 2006. 

"INPR" refers to the Initial Notice of 

Proposed Rulemaking for the l:lusiness 

Opportunity Rule, 71 FR 9054 (Apr. 12, 

2006). 

"Interim Business Opportunity Rule" refers 

to the Business Opportunity Rule, codified 

at 16 CFR 437 that is currently in effect and 

is the subject of these amendment 

proceedings. 

"WBOR" refers to the Initial Proposed 

Business Opportunity Rule, which was 

proposed in the INPR in 2006 .. 

"Macro Report" refers to Macro International, 

Inc.'s report to the FTC on the Disclosure 

Form, available at http://www.ftc.gov/bcp/ 

workshopslbizoppsldisclosure-formreport.pdf 

"Original Franchise Rule" refers to the 

original Franchise Rule published at 43 FR 

59614 (Dec. 21, 1978). 

"RJ>JPR" refers to the Revised Notice of 

Proposed Rulernaking for the Business 

Opportunity Rule, 73 FR 16110 (Mar. 26, 

2008). 

"RPBOR" refers to the Revised Proposed 

Business Opportunity Rule, which was 

proposed in the RNPR in 2008. 

"Staff Report" refers to FTC stafrs Staff 

Report to the Federal Trade Commission 

and Proposed Revised Trade Regulation 

Rule (16 CFR Part 437). The StaffReport 

is available at http://www.ftc.gov/oslfedreg 

1201O!october/101028business 

opportunitiesstaffreport.pdf 

"Workshop" refers to the June 1, 2009, public 

workshop held in Washington, DC, to 

discuss the proposed Disclosure Document 

and other aspects of the Business 

Opportunity Rule. 

"Workshop Notice" refers to the Federal 

Register Notice announcing the Workshop, 

74 FR 18712 (Apr. 24, 2009). 

I. Introduction 

A. Overview of the Franchise Rule and 

the Evolution of the Interim Business 

Opportunity Rule 

1. The Franchise Rule 

On December 21, 1978, the 

Commission promulgated a Trade 

Regulation Rule entitled "Disclosure 

Requirements and Prohibitions 

Concerning Franchising and Business 

Opportunity Ventures" (the "Original 

Franchise Rule"), to address deceptive 

and unfair practices in the sale of 

franchises and business opportunity 

ventures. 1 The Original Franchise Rule 

covered, in a single Code of Federal 

Regulations part, both franchises and 

certain business opportunity ventures. 

With franchises, the franchisee sells 

goods or services that are associated 

with the franchisor's trademark, and the 

franchisee is subject to significant 

control by, or receives significant 

assistance from, the franchisor. The 

franchisee typically distributes goods or 

services supplied by the seller or an 

affiliate and receives accounts or 

locations in which lo conduct the 

business. By contrast, business . 

opportunities often do not involve a 

trademark. Vending machines or rack 

display routes are typical examples of 

business opportunities. Based upon the 

original mlemaking record, the 

Commission found that unfair and 

deceptive practices were widespread in 

the sale of franchises and business 

opportunities, causing serious economic 

harm to consumers. 

The Commission adopted the Original 

Franchise Rule to prevent unfair and 

deceptive practices in the sale of 

franchises and business opportunities 

through pre-sale disclosure of spt)cified 

items of material information. The 

purpose of the Original Franchise Rule 

was neither to regulate the substantive 

terms of a franchise or business 

opportunity agreement nor to regulate 

the relationship between the seller and 

the buyer. Rather, it was to ensure that 

sellers disclose material information to 

prospective buyers. The Original · 

Franchise Rule was posited on the 

notion that a fully informed prospective 

buyer can determine whether a 

articular offering is in his or her best 

interest. 

The Original Franchise Rule required 

xtensive disclosures on a score of 

specified topics, such as, information 

bout the seller; the business 

ackground of the seller's principals 

nd their litigation and bankruptcy 

istories; the terms and conditions of 

1 43 FR 59614 (Dec. 21, 1978). 

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 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76817 

the offer; statistical analyses of existing 

franchised and company-owned outlets; 

information about prior purchasers, 

including the names and addresses of at 

least 10 purchasers nearest the 

prospective buyer; and audited financial 

statements. 

The Commission recognized that 

requiring these extensive disclosures 

would likely impose significant 

compliance costs on businesses covered 

by the Original Franchise Rule. It 

therefore sought to strike the proper 

balance between prospective 

purchasers' need for pre-sale disclosure 

and the burden imposed on those 

selling business ventures covered by the 

Rule. To achieve this balance, the 

Commission limited the scope of the 

Original Franchise Rule's coverage in 

three significant ways. 

First, the Original Franchise Rule 

covered only those opportunities that 

required a purchaser to make a payment 

of al least $500 within the first six 

months of operation. In transactions 

where a purchaser may incur high 

financial losses if the seller withholds 

material information, the benefit for 

prospective purchasers of the Original 

Franchise Rule's pre-sale disclosure 

requirements outweighs the sellers' cost 

to make those disclosures. By contrast, 

when the investment required to 

purchase a business opportunity is 

comparatively small, prospective 

purchasers face a relatively small 

financial risk. In such circumstances, 

compliance costs may outweigh the 

benefits of pre-sale disclosure. 

Therefore, the Original Franchise Rule 

did not reach opportunities that charged 

lower fees. 

Second, the "inventory exemption" 

excluded certain types of payments 

from the Original Franchise Rule's $500 

minimum cost threshold. The 

"inventory exemption" is the franchise 

industry's shorthand term for the 

Commission's determination that, as a 

matter of policy, voluntary purchases of 

reasonable amounts of inventory at bona 

fide wholesale prices for resale do not 

count toward the required threshold 

payment. An important consequence of 

this policy determination was to 

eliminate from Original Franchise Rule 

coverage many pyramid marketing plans 

because purchasers of such plans 

typically do not make a required 

payment of or exceeding $500, but 

instead make voluntary purchases of 

inventory in reasonable amounts and at 

bona fide wholesale prices for resale. 

Third, in addition to franchise 

opportunities, the Commission focused 

the Original Franchise Rule on the types 

of business opportunities that the record 

showed were likely to result in 

significant consumer injury, such as 

vending machines, rack displays, and 

similar opportunities, which frequently 

were sold through deceptive conduct. A 

feature common to these types of 

opportunities was the promise of 

assistance in securing locations or 

accounts. Thus, the Commission 

incorporated this characteristic into the 

Original Franchise Rule's definitional 

elements to ensure coverage of 

demonstrably injurious schemes. Other 

forms of assistance that business 

opportunity sellers frequently offersuch as training and the buy-back and 

resale of goods assembled by the 

purchaser (an element of many craft 

assembly opportunities) did not bring a 

business opportunity within the scope 

of the Original Franchise Rule's 

coverage. 

In addition to these limits on the 

scope of the Original Franchise Rule's 

coverage-driven by balancing 

prospective purchasers' need for presale disclosure against the burden 

imposed on business opportunity 

sellers-another aspect of the Original 

Franchise Rule's language further 

limited the scope of coverage. 

Specifically, the Original Franchise Rule 

provided that a business opportunity 

was covered only if the purchaser of the 

opportunity sells goods or services 

directly to end-users other than the 

business opportunity seller. The effect 

of this limitation was to exclude many 

work-at-home opportunities-such as 

envelope stuffing and craft assembly 

ventures-from Original Franchise Rule 

coverage. In those opportunities, the 

purchaser typically performs work for 

the seller or produces various goods for 

the seller, who then purportedly 

distributes them to end-users. 

In 1995, as part of its systematic 

review of FTC rules, the Commission 

published in the Federal Register a 

request for comment on the Original 

Franchise Rule to determine its 

continued effectiveness and impact. 2 

Based upon the comments received 

during the rule review, the Commission 

entatively determined to retain the 

riginal Franchise Rule, but sought 

dditional comment on possible 

mendments. To that end, in February 

997, the Commission published an 

NPR, seeking comment on various 

ssues, including whether the 

ommission should separate the 

isclosure requirements for business 

pportunities from those for franchises. 3 

Based upon comments responding to 

he ANPR, the Commission found that 

he Original Franchise Rule continued 

260 FR 17656 (Apr. 7, 1995). 

'62 FR 9115 (Feb. 28, 1997). 

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to serve a vital purpose and that pre-sale 

disclosure was necessary to protect 

purchasers of franchises and business 

opportunities from fraudulent and 

deceptive sales practices. At the same 

time, however, the Commission agreed 

with the overwhelming view of the 

commenters who suggested that there 

are material differences between 

franchises and business opportunities 

nd that these two types of distinct 

usiness arrangements require separate 

disclosure approaches. For example, 

any of the Original Franchise Rule's 

re-sale disclosures, in particular those 

ertaining to the structure of the parties' 

elationship, do not apply to the sale of 

ost business opportunities because 

hose sales typically involve 

omparatively simple contracts. In 

ddition, the Commission recognized 

hat the Original Franchise Rule's 

etailed disclosure obligations may 

reate barriers to entry for legitimate 

usiness opportunity sellers.4 

ccordingly, in 1999, the Commission 

nnounced its intention to conduct a 

eparate rulemaking proceeding for 

usiness opportunity sales. 5 

. The Interim Business Opportunity 

ule 

Much of the information revealed by 

he Commission's regulatory review of 

he Original Franchise Rule highlighted 

he differences between franchises and 

usiness opportunity ventures, and the 

istinct regulatory challenges presented 

y these two types of offerings-that 

ranchises typically are expensive and 

nvolve complex contractual licensing 

elationships, while business 

pportunity sales are generally less 

ostly and involve comparatively simple 

urchase agreements that pose less of a 

inancial risk to purchasers. Based on 

he record amassed during the review 

roceeding, the Commission concluded 

hat the Original Franchise Rule's 

xtensive disclosure requirements 

mposed unnecessary compliance costs 

n both business opportunity sellers 

nd buyers, and determined to bifurcate 

he Original Franchise Rule into two 

eparate parts-one covering the sale of 

usiness format franchises 6 and one to 

overn the sale of business 

pportunities. Accordingly, in the 

NPR, the Commission solicited 

4 64 FR 57296 (Oct. 22, 1999). 

•Id. 

"The industry term "business format franchise" 

pecifically rerers to franchises in which 

anchisees operate under a common trademark or 

ther commercial symbol and are required to 

dhere to the specific business format or method of 

oing business prescribed by the franchisor. 

usiness format franchises are commonly called 

franchlses" by the general public, and the two 

rms are used interchangeably here. 

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 	 	 76818 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 

comment on several proposed 

regulatory modifications, including the

creation of a separate trade regulation 

rule governing the sale of business 

opportunities. 7 

Subsequently, the Commission 

completed all procedural steps 

prescribed by Section 18 of the FTC Ac

to finalize the Amended Franchise Rule

along with a Statement of Basis and 

Purpose, in March 2007. 8 At that time, 

the Amended Franchise Rule-no 

longer covering business 

opportunities-was codified at Part 436

in Title 16 of the CFR. The Original 

Franchise Rule with all definitional 

elements and references regarding 

business format franchising deleted, wa

retained and redesignated as Part 437. 

Part 437 was titled the "interim 

Business Opportunity Rule." 11 The 

interim Business Opportunity Rule 

contained no new substantive 

disclosure requirements or prohibitions

and in all material respects was 

substantially identical to the Original 

Franchise Rule. Until the final Rule 

becomes effective, Part 437 governs 

sales of non-franchise business 

opportunities. 10 

B. Rule Amendment Proceedings 

1. Initial Notice of Proposed Rulemakin

and Initial Proposed Business 

Opportunity Rule 

In 2006, having determined that a 

separate business opportunity rule was 

necessary, the Commission published 

an Initial Notice of Proposed 

Rulemaking ("INPR"), announcing its 

intention to proceed with its proposal 

for a separate Business Opportunity 

Rule (the "initial proposed Business 

Opportunity Rule" or "IPBOR").11 The 

INPR proposed to amend the interim 

Business Opportunity Rule by updating 

it, streamlining it, and expanding its 

scope of coverage. 12 The IPBOR 

7 62 FR at 9115. In response to !he ANPR, the 

Commission received 166 written comments. The 

staff also held six public workshops on the issues 

raised in the comments, three of which specifically 

addressed business opportunities. 

• 72 FR 15444 (Mar. 30, 2007). 

"For example, references to "franchisor" and 

"franchisee" used in the Original Franchise Rule 

were changed in the i11terim Business Opportunity 

Rule to "business opporlunity seller" and "business

opportunity purchaser," and the Original Franchise 

Rule's definition of •'franchise" was changed to 

"business opportunity." See id. 

rn 73 FR 16111, 16112 (Mar. 26, 2008). 11 71 FR 19054 (Apr. 12, 2006). 2 ·• The lNPR also specified the process the 

Commission would follow in amending the 

Business Opportunity Rule. Pursuant lo the 

onunission's Rules of Practice, 16 CFR 1.20, the 

ommission determined to use a modified version 

f the rulemaking process set forth in section 1.13 

f those Rules. Specifically, the C'.ommission 

m1ounced that it would publish a Notice of 

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contained an expansive definition of 

"business opportunity" that 

encompassed business opportunities 

previously covered by the Original 

Franchise Rule as well as work-at home, 

medical billing, and multi-level 

marketing (MLM) 1:1 operations. It also 

eliminated the $500 threshold for Rule 

coverage. 14 

Streamlining the interim Business 

Opportunity Rule and tailoring it to fit 

business opportunities (as opposed to 

business format franchises) has been a 

primary focus of this proceeding. Both 

the Original Franchise Rule and the 

interim Business Opportunity Rule 

require extensive disclosures covering 

over twenty specified topics. In the 

· INPR, the Commission recognized that 

these extensive disclosure requirements 

entail disproportionate compliance 

costs for sellers of comparatively lowcost business opportunity ventures. 15 

Therefore, the Commission proposed to 

mitigate the compliance burden by 

simplifying and streamlining the 

disclosure requirements. 16 

Specifically, the INPR proposed a 

one-page business opportunity pre-sale 

disclosure document (the "initial 

proposed disclosure document") with 

only six required material disclosures.17 

The initial proposed disclosure 

document was intended to provide 

prospective purchasers with essential 

material information they could use in 

making a purchase decision. The INPR 

proposed to require sellers to use the 

Proposed Rulemaking, with a 60-day commont 

period, followed by a 40-day rebuttal period. In 

addition, pursuant to Section 18(c) or the FTC Act, 

the Commission announced that it would hold 

hearings wilh cross-examination and rebuttal 

submissions only if an interested party requested a 

hearing. The Commission also stated that, if 

requested to do so, it would contemplate holding 

one or more informal public workshops in lieu of 

hearings. Finally, pursuant to 16 CFR 1.13(0. the 

Commission announced that staff would issue a 

Report on the Business Opportunity Rule ("Staff 

Report"), which would be subject to additional 

public comment. 71 FR at 19079-R0. 

13 Multi-level marketing is one form or direct 

selling. and refers to a business model in which a 

company distributes products through a network of 

distributors who earn income from their own retail 

sales of the product and from retail sales made by 

the distributors' direct and indirect recruits. 

Because they earn a commission from the sales their 

recruits make, each member in the MLM nelwork 

has an incentive to conlinue recruiting additional 

sales representatives into their "down lines." See 

Peter J. Vander Nat & William W. Keep, Marketing 

Fraud: An Approach to Differentiating Multilevel 

Marketing from Pyramid Schemes, 21 J. Pub. Pol'y 

& Marketing 140 (Spring 2002). 14 Promoters of business opportunities were able 

to evade coverage under the Original Franchise 

Rule and the interim Business Opportunity Rule by 

pricing their offerings oppm1unities below $500, 

the monetary threshold or coverage. 

"71 FR at 19057. 16 Id. 17 71 FR at 19091. 

exact form and language set forth by the 

Commission and to include information 

regarding (1) the seller; (2) earnings 

claims; (3) legal actions involving the 

offered business and its key personnel; 

( 4) the existence of cancellation or 

refund policies; (5) the number of 

cancellation or refund requests; and (6) 

references. 16 

In response to the INPR, the 

Commission received more than 17,000 

comments, the overwhelming majority 

of which came from individuals active 

in the MLM industry. 19 MLM 

ompanies, their representatives and 

rade associations, as well as individual 

articipants in various MLM plans, 

xpressed grave concern about the 

urdens the IPBOR would impose on 

hem and urged the Commission to 

xclude them from the scope of the 

PBOR, to implement various safe 

arbor provisions, and to reduce the 

equired disclosures. 20 The Commission 

lso received approximately 187 

omments, primarily from individual 

onsumers or consumer groups, in favor 

f the IPBOR.21 Only a handful of 

omments came from non-MLM 

ompanies and industry groups, 

xpressing various concerns about 

bligations that the IPBOR would 

mpose upon them. 22 None of the 

omments addressed the form of the 

nitial proposed disclosure document. 

. The Revised Notice of Proposed 

ulemaking and Revised Proposed 

usiness Opportunity Rule 

Based on an extensive review of the 

omments received in response to the 

NPR and the Commission's law 

nforcement history, the Commission 

ssued a revised Notice of Proposed 

ulemaking ("RNPR") on March 28, 

008, that set forth a revised proposed 

ule (the "Revised Proposed Business 

pportunity Rule" or "RPBOR") that 

as more narrowly tailored than the 

BOR,23 

In the RNPR, the Commission 

cognized that there were two main 

rnblems with the IPBOR's breadth of 

overage. First, the IPBOR would have 

nintentionally swept in numerous 

ommercial arrangements, including 

10 71 FR al 19068. 

'"CommenLs responding to the INPR are available 

http://www.ftc.gov/os/comment.<I 

sinessopprule!index.shtm. References to INPR 

mments are cited herein as: Name of the 

mmenter-INPR (e.g., Avon-INPR). 

20 Thousands of comments were form letters 

bmitted by participants in various MLM 

ograms. 73 FR at 16113. 21 Numerous letters came from individuals having 

gative experiences with various Ml.Ms. 73 FR at 

113 n.37. 

22 73 FR at 16113. 

"Id. at 16110. 

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 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76819 

retail product distribution, training and/

or educational organizations, where 

there was little or no evidence that fraud

was occurring. 24 Recognizing this 

legitimate concern, the Commission, in 

the RNPR, proposed to narrow the 

definition of "business opportunity." 

Specifically, the RPBOR provided that 

the "required payment" prong of the 

business opportunity definition would 

not include payments for the purchase 

of reasonable amounts of inventory at 

bona fide wholesale prices; za 

eliminated as an element of the business

opportunity definition the making of an 

earnings claim; 26 and narrowed the 

types of "business assistance" that 

would trigger the business opportunity 

definition to just those types of 

assistance that are the hallmark of 

business opportunity fraud: Location, 

account, and "buy-back" assistance. 27 

Second, the Commission determined 

that the IPBOR was unworkable with 

respect to MLMs and would have 

imposed greater burdens on the MLM 

industry than other types of business 

opportunity sellers without sufficient 

countervailing benefits to consumers. 

After careful consideration of the 

record, the Commission decided to 

narrow the scope of the RPBOR to avoid 

broadly sweeping in all sellers of MLM 

opportunities. This decision was based 

on the overwhelming majority of the 

approximately 17,000 comments that 

argued that the IPBOR failed to 

differentiate between unlawful pyramid 

schemes-which the Commission 

intended to cover-and legitimate 

companies using an MLM model. 

Finallv, the RPBOR eliminated two 

disclosu~es that would have been 

required by the IPBOR-information 

24 Id. As one commenter described it, the IPBOR 

would have swept in traditional arrangements for 

distribution of "food and beverages, construction 

equipment, manufactured homes, electronic 

components, computer systems, medical supplies 

and equipment, automotive parts, automotive tools 

and other tools, petroleum products, industrial 

chemicals, office supplies and equipment, and 

magazines." IBA-INPR at 5; see also TimberlandINPR (noting that numerous manufacturers 

structure their retail distribution in this manner). 

2s This amendment was based on concerns raised 

by some commenters that if a "required payment" 

did not exclude the purchase of inventory, many 

traditional product distribution arrangements could 

be brought within the scope of the Rule. 73 FR at 

16113. 

26 This amendment was based on concerns raised 

by some commenters that a broad range of 

commercial arrangements easily would fall under 

the business opportunity definition if the company 

made some representation about sales or profits 

sufficient to constitute an earnings claim. Id. at 

16114; st1e also infm Section III.A.3. 

21 Id. at 16123. The Commission eliminated two 

additional types of assistance that would have 

triggered the Rule's strictures and disclosure 

obligations-tracking payments and providing 

training. 

about legal actions pertaining to a 

business opportunity selle(s sales 

personnel, and the number of 

cancellation or refund requests the 

seller received. 28 Eliminating the 

disclosure of legal actions involving 

sales employees was based on the 

Commission's recognition that the 

burden of collecting litigation histories 

for every sales person was not 

outweighed by the corresponding 

benefit to prospective purchasers. 29 

With respect to the disclosure of the 

number of cancellation or refund 

requests received, the Commission 

determined that such disclosure was no

useful, and further, may have had the 

perverse effect of discouraging 

legitimate businesses from offering 

refunds. 30 

The RNPR sought public comment on 

issues relevant to the Commission's 

consideration of the RPBOR, including 

whether the RPBOR would adequately 

accomplish the Commission's stated 

purpose of protecting consumers against

fraud and, if it did not, what alternatives

the Commission could consider.31 In 

contrast to the INPR, which generated 

more than 17,000 comments, the 

Commission received fewer than 125 

comments and rebuttal comments in 

response to the RNPR. 32 Again, 

however, the vast majority of 

commenters were from the MLM 

industry, but this time they supported 

the Commission's proposal to narrow 

the scope of the Business Opportunity 

Rule, albeit with suggestions for finetuning.33 It is noteworthy that only one 

comment came from a business 

opportunity seller.:l4 The Commission 

also received comments from two 

consumer groups 35 and approximately 

twelve individuals :rn who expressed 

their disappointment that the FTC's 

proposed rule would exclude MLMs 

from coverage. 

20 Id. at 16125. 

20 /d. 

"' Id. ,., Id. at 16133. 

J2 Comments responding to the RNPR are 

vailable at http://www.ftc.gov/os/commcnts/ 

izoprevised/index.shtm. References to RNPR 

ommenls are cited herein as: Name of commenterNPR. 

33 Some commenters suggested changes to the 

anguage of certain definitions proposed in the 

NPR to ensure that the multi-level marketing 

ndustry was not inadvertently swept into the ambit 

f the rule. Sec, e.g .. DSA-RNPR; Babencr-RNPR; 

BA-RNPR. 

"Planet Antams-RNPR. 

35 The two consumer groups are the Consunrnr 

wareness Institute ("CAI") and Pyramid Scheme 

lert ("PSA"). 

36 Some letters came from individuals having 

egative experiences with MLMs. 

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3. Consumer Testing of Disclosure 

Document and Public Workshop 

In the RNPR, the Commission 

announced that it had retained a 

consultant to assess the proposed 

disclosure document, with the objective 

of achieving the proper format and 

content for communicating material 

information to consumers. Following 

publication of the RNPR, Macro 

International, Inc. ("Macro"), the FTC's 

consultant, conducted extensive 

consumer testing of the initial proposed 

disclosure document that resulted in 

substantial improvement to both the 

layout and the wording of the form. 37 

The Commission made Macro's report 

as well as the revised proposed Business 

Opportunity Disclosure Document 

("revised proposed disclosure 

document") 38 public in a Federal 

Register Notice ("Workshop Notice") 

that also announced a one-day public 

workshop in Washington, DC.:rn The 

Workshop Notice focused on whether 

the revised proposed disclosure 

document was an effective means of 

conveying material information to 

prospective purchasers of business 

opportunities. The Workshop Notice 

also sought comment to further develop 

the public record on issues that had 

been raised in the comments received in 

response to the RNPR. Five individuals 

who represented a range of interests in 

the proposed Rule were chosen to 

participate as panelists, including a 

federal law enforcer, a state law 

enforcer, a consumer advocate, the 

general counsel of a national multi-level 

marketing company, and a former 

director of the FTC's Bureau of 

Consumer Protection.40 Staff convened 

the public workshop with these five 

panelists in Washington, DC, on June 1, 

2009. At the conclusion of the workshop 

discussion of the revised proposed 

disclosure document, panelists and 

audience members were invited to 

express their views about other issues 

related to the RPBOR. 41 Following 

37 A copy of the expert's report to the I-TC, 

"Design and Testing of Business Opportunity 

Disclosures," ("Macro Report") is available at 

http:l/www.ftc.gov/bcp/workshops/bizopps/ 

disclos11rn-form-1'tlport.pdf. 

:rn The version of the revised proposed disclosure 

document that was tested by Macro inadvertently 

omitted the phrase "or pay any money" fr_om the 

conclusion of the penultimate sentence of the 

revised proposed disclosure docwnent. Macro 

determined that this omission had no effect on the 

results of its testing. See Macro Report at 2. 

'" See 74 FR 18712 (Apr. 24, 2009). 4° Commission staff selected individuals as 

panelists based upon their comments, backgrounds, 

and interest in the subject matter. 

•·• A copy of the transcript of the June 1, 2009 

workshop is available at http:llwww.ftc.gov/bcp/ 

workshopslbizopps/index.shtml. References to the 

Continued 

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 	 	 76820 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 

robust discussion on various topics, the

Commission received follow-up written

comment from six individuals and 

entities. 42 

4. Staff Report 

Pursuant to the Rule amendment 

process announced in the INPR, the 

Commission's Bureau of Consumer 

Protection issued a Staff Report on the 

Business Opportunity Rule in Novembe

2010Y1 The Staff Report explained in 

detail the history of the Rule 

amendment proceeding and 

summarized the issues raised during th

various notice and comment periods, 

particularly those raised in response to 

the RNPR. It also addressed the public 

workshop discussion and subsequent 

comments, as well as additional issues 

that the staff raised on its own initiative

based on the Commission's law 

enforcement experience. 

Twenty-seven comments were 

submitted in response to the Staff 

Report, 44 including eleven comments 

submitted by consumer group Consume

Awareness Institute ("CAI"). The 

Commission also received comments 

from the Departm11nt of Justice ("DOJ"), 

the Direct Selling Association ("DSA"), 

MLM companies,45 one franchise lead 

generator, a consumer group named 

Pyramid Scheme Alert ("PSA"), and ten

individuals. A few commenters 

suggested changes to some of the Rule's 

definitions and the scope of coverage,46 

while others encouraged the 

Commission to adopt the Rule as 

recommended in the StaffReport.47 The 

majority of comments submitted by 

individuals, and the comments 

transcript from the June 2009 Business Opportunity

Rule public workshop are cited herein as: Name of 

commenter, June 09 Tr at page no. (e.g., Jost, June 

09 Tr at 12). 42 Comments received in response to the 

Workshop Notice arc available at http://www.ftc. 

gov/os/comments/bizoprulerev»Tkshplindex.shtm. 

Refttrences lo workshop comments are cited herein 

as: Name of commenter-Workshop. 43 See Bureau of Consumer Proleclion, Staff 

Repo,t to the Federal Trade Commission and 

Proposed Revised Trade Regulation Rule (16 CFR 

Part 437) (Nov. 2010) ("Staff Report"). The Staff 

Report is available at http://www.ftc.gov/os/fedreg/ 

2010/october/ 

10102 Bbusinessopportunitiesstaffrepoit.pdf. In 

November, the Commission published a notice in 

the Federal Register announcing the availability of, 

and se,,,king comment on, the Slaff Report. See 75 

FR 68559 (Nov. 8, 2010]. 44 Comments received in response lo the Staff 

Report are available al http://www.ftc.gov/os/ 

comments/bizoppstaffreport/index.shtm. 

References to Staff Report comments are cited 

herein as: Name of commenter-Staff Report. 45 Comments on behalf of the MLM industry were 

submilted by Tupperware and Primerica. 46 E.g., Dub-Slaff Report; Tupperware-Slaff 

eport. 

47 DOJ-Slaff Report; Primerica-Slaff Report; DSAtaff Report. 

r 

e 

, 

r 

R

S

submitted by CAI and PSA, opposed the

Commission's decision to narrow the 

scope of the Rule to avoid broadly 

sweeping in MLMs.48 In crafting the 

final Rule, the Commission has carefull

considered the comments received in 

response to the Staff Report and 

throughout the Rule amendment 

proceeding. 49 

C. Overview of the Final Rule 

The final Rule significantly modifies 

the scope, disclosure requirements, and 

prohibitions of the interim Business 

Opportunity Rule. This proceeding was, 

in major part, prompted by the 

recognition that the interim Business 

Opportunity Rule's extensive disclosure

requirements are ill-suited to many 

business opportunities and place 

unnecessary compliance costs on both 

business opportunity sellers and buyers.

Similarly, commenters have observed 

that business opportunities and 

business format franchises are distinct 

business arrangements that pose very 

different regulatory challenges. To 

account for these differences, to avoid 

unnecessary compliance burdens, and 

to ensure that consumers are best 

protected against deceptive practices in 

the sale of business opportunities, the 

Commission has amended the interim 

Rule to: 

(1) Expand its scope to cover many 

business opportunities that were not 

covered under the interim Business 

Opportunity Rule; 

(2) Streamline pre-sale disclosures; 

(3) Prohibit various specific 

misrepresentations and other 

misleading practices often engaged in by

fraudulent business opportunity sellers; 

and 

(4) Require that for offers conducted 

in Spanish or other languages besides 

English, that the disclosures be 

provided in the same language as the 

offer is made. The sections that follow 

describe these four aspects of the final 

Rule. 

1. Scope of the Final Rule 

The definition of "business 

opportunity" dictates the scope of 

coverage under the final Rule. To ensure 

appropriate coverage, this definition has 

been crafted to capture the sale of 

business opportunities that historically 

have been associated with deceptive 

4 ' " E.g., CAI-Staff Report; PSA-Staff-Report; 

O'Handley-Staff Report; Brooks-Staff Report; 

Johnson-Staff Report. 49 The Slaff Report comments addressing specific 

provisions of the Rule are discussed within the 

substantive discussions on the relevant provisions. 

The comments regarding MLMs are discussed in 

Subsection C.1.c below, addressing the 

Commission's decision Lo exclude MLMs from 

coverage. 

y 

practices. As discussed below, the final 

Rule (1) extends coverage to those types 

of opportunities that previously were 

not covered under the Original 

Franchise Rule and the interim Business 

Opportunity Rule; (2) continues to cover 

business opportunities that previously 

were covered under the Original 

Franchise Rule and interim Business 

Opportunity Rule; and (3) avoids 

broadly sweeping in MLMs and certain 

other types of arrangements that are not 

characterized by the deceptive and 

unfair practices the final Rule aims to 

prevent. 

a. The Final Rule Covers Many Business 

Opportunities That Previously Escaped 

Coverage 

The final Rule includes an expansive 

definition of "business opportunity" 

aimed at extending the scope of the Rule 

to certain business opportunitiesnamely work-at-home opportunities 

such as envelope-stuffing, product 

assembly, and medical billing-that 

often were not covered by the interim 

Business Opportunity Rule. The . 

Commission's law enforcement 

experience and complaint data show 

that these types of business 

opportunities are sources of prevalent 

and persistent problems. These 

opportunities, however, often escaped 

coverage of the Original Franchise Rule 

and the interim Business Opportunity 

Rule due to the following two 

limitations: (1) A minimum payment 

threshold set at $500; and (2) coverage 

was limited to business opportunities in 

which products were sold directly to 

third party end-users, rather than back 

to the business opportunity seller. 50 

Each limitation is discussed below. 

First, the Original Franchise Rule and 

the interim Business Opportunity Rule 

covered only business opportunity 

ventures costing $500 or more. Ventures 

such as product assembly, medical 

billing, and envelope stuffing, however, 

often require payments of less than $500 

and thus were not covered by the 

interim Business Opportunity Rule. 51 

50 73 FR al 16112. 

51 See, v.g., FTCv. Med. Bj}}ers Network, Inc., No. 

05 C,1V 2014 (RJH) (S.D.N.Y. 2005) ($200-$295 foe); 

FTCv. Sun Ray Tmding, No. Civ. 05-20402-CIVSeitz/Bandslra (S.D. Fla. 2005) ($160 fee]; FTC v. 

Wholesale Mktg. Gmup. LLC, No. 05 CV 6485 (N.D. 

Ill. 2005) ($65 to $175 registration fees); FTC v. 

Vinyard Enters .. Inc., No. 03-23291-CIVALTONAGA (S.D. Fla. 2003) ($139 fee); FTCv. 

Leading Edge ProcessiJ.Jg. Inc., 6:02-CV-681-0RL19 DAB (M.D. Fla. 2002) ($150 fee); FTC v. 

Healthcare Claims Ni,twork, Inc., No. 2:02-CV4569 MMM (AMWx) (C.D. Cal. 2002] ($485 fee); 

FTC v. Stujfi11gforc11sh.com, Corp., No. 92 C 5022 

(N.D. Ill. 2002) ($45 fee): FTC v. Kamaco Int'/, No. 

CV 02--04566 LGB (RNBx] (C.D. Cal. 2002] ($42 fee]; 

FTC v. Medicor U.C, No. CV0l-1896 (CBM) (C.D. 

Cal. 2001) ($375 fee); FTCv. SkyBiz.com, No. 01-

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 	 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76821 

Some commenters asserted that setting 

the threshold for coverage at a specific 

dollar amount simply provides scam 

operators a means to circumvent the 

Rule, noting that sellers of business 

opportunities may charge less than $500 

to skirt the interim Business 

Opportunity Rule's disclosure 

requirements. 52 The Commission has 

concluded that the scope of the final 

Rule should be broad enough to reach 

business opportunities that the 

Commission's law enforcement history 

and consumer complaints show are a 

widespread and persistent problem, 

regardless of the price at which they are 

offered. Accordingly, the final Rule 

eliminates the monetary threshold. 

A second limitation to the Original 

Franchise Rule and the interim Business 

Opportunity Rule's scope of coverage 

was the requirement that the purchaser 

of the opportunity had to sell goods or 

services directly to third party endusers-someone other than the business 

opportunity seller. The effect of this 

limitation was to exclude most work-athome opportunities-such as envelope 

stuffing and craft assembly venturesfrom coverage. Promoters of these types 

of opportunities often tell prospective 

purchasers that they (1) will work 

directly for the seller or a third party the 

seller identifies or (2) will produce 

various goods for the seller, who will 

then purportedly distribute the goods to 

end-users or retail markets. 5 :i In order to 

reach these types of business 

opportunities, coverage of the final Rule 

is not limited to transactions where the 

purchaser of the opportunity sells goods 

or services directly to individuals other 

than the business opportunity seller. 

b. The Final Rule Continues To Cover 

Those Types of Opportunities Covered 

Under the Original Franchise Rule and 

the Interim Business Opportunity Rule 

In addition to those types of business 

opportunities that often evaded 

coverage under the Original Franchise 

Rule and Interim Business Opportunity 

Rule, the final Rule continues to cover 

the types of business opportunities that 

CV--0396-EA (X) (N.D. Okla. 2001) ($125 foe); FJ'C 

v. Paro-Unk Int'], No. 8:00-CV-2114-T-27E (M.D. 

Fla. 2000) ($395 to $495 fee); see also Consumer 

Fraud in the United States: The Second FTC Survey 

(October 2007) at 48, available at http:// 

www.ftc.gov/opa/2007/10/froud.pdf(indicating a 

median payment for work-at-home schemes of 

$200). 

52 See 71 FR at 19079 (citing comments submitted 

in earlier proceedings by NCL, SBA Advocacy, 

Finnigan, and Purvin). 5 3 E.g., FTC v. D<1rli11g Angel Pin Croatians, lnc., 

No. 8:10--cv--00335-JSM-TGW (M.D. Fla. Feb. 

2010); FTCv. Jndep. Mktg. Exch. Inc., No. 1:10--cv00568-NLH-KMW (D.N.J. Feb. 2010); FTCv. 

Preferred Platinum Svcs. Network U..C. No. 3:10-

cv-00538-MLC-LHG (D.N.J. Feb. 2010). 

previously had been covered, such as 

vending machine opportunities, rack 

display opportunities, and similar 

arrangements. The Commission's law 

enforcement experience demonstrates 

that sales of these types of opportunities 

are fraught with unfair and deceptive 

practices, in particular, false or 

unsubstantiated earnings claims. 

Indeed, such practices are widespread 

in promotion and sale of such business 

opportunities. Since 1995, the 

Commission has brought over 80 law 

enforcement actions 54 in connection 

with more than ten law enforcement 

sweeps 55 that targeted business 

opportunity scams involving the sale of 

54 In bringing these FTC law enforcement actions, 

the FTC partnered with sister federal agencies-­

such as the DOJ and tho United States Postal 

Inspection Service-and with the various state 

attorneys general, including the District of 

Columbia. Thus, these "sweeps" entailed many 

more actions besides those brought by the FTC. 

ss E.g., Project Fal$e Hope$, see FTC News 

Release: Federal, State Law Enforcers Complete 

Bogus Business Opportunity Sweep (Dec. 12, 2006], 

available cit http://wv.w.ftc.gov/os/caselistl 

projectfalsehopes.shtm; Project Biz Opp Flop, see 

FTC News Release: Criminal and Civil Enforcement 

Agencies Larmch Major Assault Against -Promoters 

of Business Opportunity and Work-at-Home 

Schemes (Feb. 22, 2005), availahle at http:// 

www.ftc.gov/opo/2005/02lbizoppflop.htm; Project 

Busted Opportrmity, see FTC News Release: State, 

Federal Law Enforcers Launch Sting on Business 

Opportunity, Work-at-Home Scams (June 20, 2002), 

availoble at http://www.ftc.gov/op<1/2002/06/ 

bizopswe.shtm: Project Biz-illion$, see FTC News 

Release: State-Federal Crackdown on Phony 

Business Opportunities Intensifies (March 6, 2000), 

available at http://www.ftc.gov/opa/2000/03/ 

biz.shim; Operation Money Pit, see FTC News 

Release: "Operation Mo11ey Pit" Targets Fraudulent 

Business Opportunity Schemes (Feb. 20, 1998), 

availoble at http://..,ww.ftc.gov/opa/1998/02/ 

oneypit.shtm; Project Vend Up Broke, see FTC 

ews Release: FTC Announces "Operation Vend 

p Broke" (Sept. 3, 1998), available at http:!/ 

www.ftc.gov/opal1998/09lve11dup2.sbt111: Project 

rade Name Garnes, see FTC News Release: Display 

acks for Trade-Named Toys and Trinkets rre 

astest in Business Opportunity Fraud Schemes 

Aug. 5, 1997). available at http://www.ftc.gov!opa/ 

997/0IJ/trodenam.shtm; Operation Missed Fortrme 

TC News Release: Operation Missed Fortrme (Nov. 

3, 1996], available <1t http://www.ftc.gov/opa/ 

996/11/misdfort.shtrn; Project Telesweep, see FTC 

ews Release: Major State-Fed Crackdown Targets 

usiness Opportunity Scam "Epidemic" (July 18, 

995), available at http://www.ftc.gov/opa/1995/07/ 

carn.sbtm. Recent law enforcement sweeps 

Operation Bottom Dollar" and "Operation Short 

hange," challenged, among other things, "work-atome" opportunities. See FTC News Release: FTC 

racks Down on Scammers Trying to Take 

clva11tage of the Economic: Downturn (Feb. 17, 

010), av<1ilable at http://www.ftc.gov/opa/2010/02/ 

ottomdollar.shtm; FTC News Reloase: FTC Targets 

cams Spawned by Economic Downturn (July 1, 

009], availobfo at http:l/www.jlc.gov/opal2009/07/ 

hortchange. sh tm. 

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vending machines, 50 rack displays, 57 

public telephones, 58 Internet kiosks, 59 

and 900-number ventures,60 among 

others. These persistent scams will 

continue to be covered under the final 

Rule. 

c. The Final Rule Avoids Broadly 

Sweeping in MLMs 

The final Rule's definition of business 

opportunity avoids broadly sweeping in 

all sellers of MLM opportunities. n, The 

decision in the RPBOR to exclude 

MLMs from the scope of the Rule's 

coverage was based on the 

overwhelming majority of the 

approximately 17,000 comments that 

argued that the IPBOR failed to 

differentiate between unlawful pyramid 

56 See .. e.g., United States v. Ufestyle Vending, 

Inc ... No. CV-06-6421 (E.D.N.Y. 2006); FTCv. Arn. 

Entm't Distribs., Inc., No. 04-22431-CIV-Huck 

(2004); FTCv. Inspired Ventures, T11c., No. 02-

21760-CIV-Jordan (S.D. Fla. 2002); FTCv. Essex 

Mk1g. Group, Inc., No. 2:02-<:v--03415-TCP-AKT 

(E.D.N.Y 2002); United States v. Univend, U,C, No. 

02--0433-P-L (S.D. Ala. 2002); FTC v. Pathway 

Merch., Inc., No. 0l-CIV-8987 (S.D.N.Y. 2001); 

United States v. Photo Vond l11t'l, Inc., No. 98-

6935-CIV-Ferg11son (S.D. Fla. 1998); FTCv. Hi 

Tech Mint Sys., Inc., No. 98 CIV 5881 (JES) 

(S.D.N.Y. 1998); FTC v. Claude A. Blanc, Jr ... No. 

2:92-CV-129-WCO (N.D. Ga. 1992); see also FTC 

News Release: FTC Announces "Operation Vend 

Up Broke" (Sept. 3, 1998), available at http:// 

wv.w.ftc.gov/opa/1998/09/vendup2.shtm (FTC and 

10 states announce 40 enforcement actions against 

fraudulent vending business opportunities). 7 5 See, e.g., United States v. Elite Designs, lnc., 

No. CA 05 058 (D.R.I. 2005); United States. v. QX 

Int'l, No. 398-CV--0453-D (N.D. Tex. 1998); FTCv. 

C<1rousel of Toys, No. 97-8587-CIV-UngaroBenages (S.D. Fla. 1997); FTC v. Raymond Urso, No. 

97-2680-CIV-Ungaro-Benages (S.D. Fla. 1997); FJ'C 

v. Infinity Multimedia, Inc., No. 96-6671-CIVGonzalez (S.D. Fla. 1996); FTC v. O'Rourke, No. 93-

6511-CIV-Ferguson (S.D. Fla. 1993); see also FTC 

News Release: Display Racks for Tracie-Named Toys 

and Trinkets are the Latest in Business Opportrmity 

Fraud Schemes (Aug. 5, 1997], available at http:// 

www.ftc.gov/opal1997/0l!/trodenam.htm (FTC and 

8 states filed 18 enforcement actions against sellers 

of bogus display opportrmities that use trademarks 

of well-known companies). 58 See, e.g., FTC v. Adv<1nced Pub. Commc'ns 

orp., No. 00-00515-CIV-Ungaro-Benages (S.D. 

la. 2000); FTC v. Ameritel Payphone DistJ-ibs., lnc., 

o. 00--0514-CIV-Gold (S.D. Fla. 2000); FTCv. 

Com Tel Commc'11s Global Network, Inc ... No. 96-

134-CIV-Highsmith (S.D. Fla. 1996); FTCv. 

ntellipay, Inc .. No. H92 2325 (S.D. Tex. 1992). 50 See, e.g., FTC v. Bikini Vending Corp., No. CV­

-05-0439-LDG-RJJ (D. Nev. 2005); FJ'Cv. 

etwork Serv. Depot, Inc., No. CV-SD--05-0440-

DG-LRL (D. Nev. 2005); United States v. Am. 

erch. Tech., No. 05-20443-CIV-Huck (S.D. Fla. 

005); FTCv. Hart Mktg. Enter. Ltd., lnc., No. 98-

22-CIV-T-23 E (M.D. Fla. 1998); see also FTCv. 

utureNet, Inc., No. CV-98-1113 GHK (BQRx) (C.D. 

al. 1998); FTCv. TouchNet, Inc., No. C98--0176 

W.D. Wash. 1998). 00 See, e.g., FTC v. Bureau 2000 Int'], Inc., No. 

:96-cv-01473-WMB-RC (C.D. Cal. 1996); FTCv. 

enesis One Co17,., No. CV-96-1516-MRP (MCX) 

C.D. Cal. 1996); FTC v. lnnovative Telemedia, Inc., 

o. 96-8140-CIV-Fergnson (S.D. Fla. 1996); FTC 

. Ad-Com lnt'l, No. 96-1472 LGB (VAP) (C.D. Cal. 

996). 

"' See 73 FR at 16120. 

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 	 	 76822 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

schemes-which the Commission 

intended to cover-and legitimate 

companies using an MLM model. 

As detailed more fully in the RNPR, 

several common themes emerged from 

the numerous comments submitted by 

the MLM industry. Many commenters 

suggested that the low economic risks of 

participating in a typical MLM do not 

justify imposing burdensome 

regulations that would threaten to 

strangle the MLM industry.62 These 

commenters focused on the low feesoften less than $100-that top MLM 

companies charge prospective 

distributors for the right to sell their 

products, and on the relatively low risk 

that consumers would lose money on 

large purchases of inventory.63 In 

addition, industry commenters 

contended that the various disclosure 

requirements were ill-suited for the 

MLM business model and that many of 

the disclosure obligations would show 

direct selling companies in a distorting 

negative light.64 For example, according 

to one commenter, the requirement to 

disclose prior legal actions would cast 

successful and long-established 

companies in a worse light than fly-bynight frauds simply because larger 

companies with more sales 

representatives and more years of 

operation are likely to get involved in a 

larger number of lawsuits. 65 Moreover, 

industry commenters uniformly asserted 

that the cost of compliance with the 

IPBOR would be extremely high for 

them-first, from the burden of 

developing, providing and keeping 

records of proposed disclosures, and 

second, from the impaired ability to 

recruit prospective distributors.66 

Finally, industry commenters argued 

that unlike traditional business 

opportunities, the MLM industry is not 

permeated with fraud. 67 

In contrast to the overwhelming 

majority of comments that opposed 

regulating MLMs through the Business 

Opportunity Rule, only a small minority 

of commenters were in favor of a mle 

that would cover MLMs. These 

commenters included two consumer 

groups, CAI and PSA, a few consumer 

advocates, individuals who regretted 

becoming involved in MLMs, and other 

MLM participants.68 Many of the 

consumer advocates contended that the 

MLM industry is comprised primarily of 

pyramid schemes masquerading as 

2 • Id. at 16114. 

""id. 

64 ld. al 16115. 

os Id. 

oo Id. at 16116. 

111 Id. at 16114. 

""Id.at 16116. 

legitimate companies.69 The 

commenters also asserted that MLMs 

deceptively market their 

distributorships as a low-risk 

opportunity with high earnings 

potential, when in fact, the costs of 

participating in an MLM can be high 

and the earnings comparatively small. 70 

In the RNPR, the Commission 

concluded that although there is 

significant concern that some pyramid 

schemes may masquerade as legitimate 

MLMs, assessing the incidence of such 

practices is difficult.and indeed, 

determining whether an MLM is a 

pyramid scheme requires a factintensive, case-by-case analysis. 

Further, the record developed was 

insufficient as a basis for crafting MLM 

disclosures that would effectively help 

consumers make an informed decision 

about the risks of joining a particular 

MLM. 

Based on the record and the 

Commission's law enforcement 

experience, the RNPR announced the 

Commission's determination that it 

would not be practicable to apply the 

requirements of the proposed Rule to 

MLM companies. Drawing on its law 

enforcement experience, the 

Commission acknowledged that some 

MLMs do engage in unfair or deceptive 

acts or practices, including operating 

pyramid schemes or making 

unsubstantiated earnings claims that 

cause consumer harm. The Commission, 

however, was not persuaded that 

workable, meaningful disclosures could 

be devised that would help consumers 

identify a fraudulent pyramid scheme. 

This being the case, the Commission 

decided that the proposed Rule was too 

blunt an instrument to alleviate fraud in 

the sale of MLMs. The Commission 

therefore determined to continue to 

challenge unfair or deceptive practices 

in the MLM industry through law 

enforcement actions alleging violations 

of Section 5 of the FTC Act and not 

through the Business Opportunity Rule. 

The Staff Report's recommendations 

were consistent with this decision. 71 

In response to the Staff Report, the 

Commission received 24 comments 

addressing the Commission's decision 

to narrow the scope of the Rule to avoid 

broadly sweeping in MLMs. 

0 • C'.AI-INPR at 2 ("I can certify that MIM 1;~ic) are 

not direct selling progroms, but chain selling 

progroms'1; CAl-lNPR Rebuttal of DSA Comments 

at 3 ("The Direct Selling Association (DSA), 

recently taken over by chuin sellers now promotes 

chain selling (pyramid marketing)-even more than 

legitimate direct selling"); soe also Brooks-INPR at 

2 ("In my opinion, most MlM firms operate in a 

deceptive or fraudulent manner"). 

1u PSA-INPR ·at 3-4; Brooks-lNPR al 4; JohnsonlNPR at 1. 

71 Staff Report at 20. 

Specifically, 19 comments opposed the 

Commission's decision, 72 one 

commenter agreed with the decision to 

narrow the scope of the Rule, but 

suggested modifying the Rule to contain 

bright line exemptions and to clarify the 

definition of "required payment," 73 and 

two commenters advocated that the 

Commission adopt the Rule as 

recommended. 74 

Commenters opposing the decision to 

avoid sweeping MLMs within the scope 

of the Rule's coverage set forth the same 

basic premise-that MLMs frequently 

misrepresent the level of earnings 

achieved by their distributors and 

therefore, should be subject to 

regulation. 75 More specifically, many of 

the commenters advocated that the 

MLM industry should be required to 

disclose the average income of their 

participants. 76 The Commission has 

carefully considered the comments 

submitted in response to the Staff 

Report on the issue of MLMs. While 

some of the commenters provided an 

analysis of the MLM industry with 

concrete examples of the types of 

problems that exist within that 

industry, 77 many did not. Instead, many 

commenters expressed in general terms 

their low opinion of MLMs and their 

general opinion that MLMs should be 

regulated. 78 More to the point, none of 

the commenters provided persuasive 

arguments for why the Business 

Opportunity Rule is the proper vehicle 

to address the problems they identified 

within the MLM industry. 

Before discussing the comments in 

further detail, however, one point in the 

rulemaking record requires clarification. 

Several comments focused on the 

72 These included eleven comments submitted by 

consumer group CAI, as w~ll as comments 

submitted by PSA and seven individuals. In 

addition, two individuals submitted comments 

supporting the statistical analysis provided by CAI 

President, Jon Taylor. See McKee-Staff Report; 

Ashby-Staff Report. 

'"Tupporware-Staff Report. 1• DSA-Staff Report; Primerica-Staff Report. 

"' See, e.g., O'Handley-Staff Report ("I personally 

believe that this industry is a borderline scam at 

best and needs MORE oversight than everyone elseNOT LESS."); Welling-Staff Report ("I find it 

amazing that • • • the MIM industry has little or 

no regulations."). 

10 See, e.g., Barrett-Staff Report (FTC should 

"demand truthful disclosure of income potentials 

for MLM"); Brooks-Staff Report (MLM~ should 

produce "actual, verifiable data concerning the 

earnings and losses of their distributors"); CAI-Staff 

Report at 7-3 (advocating for the disclosure of 

"information supporting earnings claims"), 

77 See. e.g., CAI-Staff Report (reporting research 

on the MLM industry and quoting representations 

made by various M!Ms). 78 See, e.g., Craig-Staff Report (tbere is "ample 

evidence of problems with MLM to warrant 

inclusion in the rule"); Afoa-Staff Report 

(commenting on personal experience with one 

MIM). 

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 	 	 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 76823 

following language contained in the 

Staff Report: "Two key problems 

emerged with the IPBOR's breadth of 

coverage. First, the IPBOR would have 

unintentionally swept in numerous 

commercial arrangements where there is

little or no evidence that fraud is 

occurring." 79 The commenters suggest, 

incorrectly, that the quoted language 

reveals a finding by the Commission 

that there is little or no evidence of 

fraud occurring within the MLM 

industry. 110 This language, however, 

referred to a passage from the RNPR that

addressed traditional product 

distribution arrangements, not MLMs.81 

The Commission has not made a finding

that there is little or no evidence of 

fraud within the MLM industry; to the 

contrary, it has specifically recognized, 

through its own law enforcement 

experience, that some MLMs may be 

pyramid schemes in masquerade and 

may make false and unsubstantiated 

earnings claims. 11 2 

In any event, the comments submitted

in response to the Staff Report do not 

persuade the Commission that the 

Business Opportunity Rule is the proper

tool to address these problems. sa Two of

the affirmative disclosure requirements 

illustrate the difficulty in applying the 

Rule to MLMs: (1) The disclosure of 

substantiation for earnings claims; and 

(2) the disclosure of references. 

First, as the Commission has 

acknowledged, the varied and complex 

structure of MLMs makes it exceedingly 

difficult to make an accurate earnings 

disclosure and likely would require 

different disclosures for different levels 

of participation in the company. For 

instance, it would be difficult to craft an 

accurate earnings disclosure that would 

account for "inactive" participants that 

use their distributorship as a "buyers 

club" and are interested only in 

purchasing goods at a wholesale price 

for their own use. 84 This problem 

appears to be unique to MLMs and, so 

79 See, e.g., CAI-Staff Report at 1, 10-41; PSAStaff Report. 8° CAI-Staff Report at 10-41; PSA-Staff Report 

("The basis of the exclusion appears to be the 

extraordinary claim that there is insufficient 

evidence of widespread fraud in the multi-level 

marketing field."). 81 Indeed, the language quoted by CAI and PSA 

contains a footnote referencing the section of the 

RNPR that discussed traditional product 

clislribulion arrangements. See Staff Report at 30 

(citing 73 FR at 16113). 

82 See 73 FR al 16119; see also Slaff Repm1 al 20. 

na Indeed, one commenter recommended a 

completely separate set of disclosures for MLM 

opportunities, further suggesting that the Business 

Opportunity Rule is a poor fil for the MLM 

industry. See Johnson-Staff Report (recommending 

that the FTC convert its consumer education on 

investing with an MLM into a series of disclosures 

that would be MLM-specific). 114 See 73 FR at 16120. 

far as the Commission is aware, does not

arise in other forms of business 

opportunities. 

Furthermore, it may be difficult to 

determine retail income if the MLM is 

not in a position to verify the extent to 

which a distributor has resold the 

product at retail, is warehousing the 

product, or bought the product for his 

or her own personal consumption. Even 

where the MLM has policies in place 

purportedly to ensure that a portion of 

its distributors' income is derived from 

retail sales, these policies could go 

unenforced, or even where ostensibly 

enforced, could be circumvented by 

distributors who may have an incentive 

to "inflate" their retail sales by 

"certifying" that such sales occurred in 

order to qualify for higher levels of 

commissions. In light of these 

difficulties, and because the comments 

submitted in response to the Staff 

Report did not refute these findings, the 

Commission continues to believe that 

developing a standard, useful, and 

understandable earnings disclosure that 

would apply to both the MLM industry 

and the other business opportunities 

covered by the Rule remains elusive.85 

Second, the reference disclosure 

required under the final Rule would 

make little sense in the MLM context. 

As the Commission has previously 

recognized, those prior purchasers 

appearing on the reference list likely 

would stand to receive a financial 

benefit if they could convince a 

prospect to enroll into their downline. 86 

Under these circumstances, information 

provided by such a reference might not 

be a reliable indicator of the potential 

risk and rewards of enrollment in the 

MLM. 

In response to the Staff Report, the 

Commission received one comment 

attempting to refute this reasoning. The 

commenter argued that, contrary to the 

Commission's view, prior purchasers 

would have little incentive to 

misrepresent the success of the MLM 

because that incentive would exist only 

if the prospective purchaser would 

become parl of the prior purchaser's 

downline, which the commenter 

implies would not always be the case.H7 

The commenter further argued that the 

fact that the prospective purchaser had 

received the disclosure document 

would indicate that the prospective 

purchaser had already been recruited, 

85 While CAI prosentod its proposal for an 

earnings disclosure, it is clear that the disclosure 

would be specific lo MLMs and would have no 

application lo the other types of business 

opportunities addressed by the Rule. See CAI-Staff 

Report at 7-33. 

8 r; See 73 FR at 16121. 

87 Brooks-Staff Report at 8. 

and therefore would be unlikely to face 

further recruitment by the prior 

purchaser.88 

The Commission finds these 

arguments unpersuasive. To the extent 

there is any financial incentive for a 

reference to puff or exaggerate the 

benefits of buying into a business, that 

reference obviously cannot provide a 

disinterested opinion to the prospect. 

The MLM model is inherently 

structured to create financial incentives 

for distributors to recruit prospects into 

their downlines. 89 Thus, those financial 

incentives are present whenever a 

potential recmit enquires into the 

business. To illustrate the point, even 

dissatisfied distributors have an 

incentive to refrain from disparaging the 

MLM because any losses they have 

suffered could potentially be recouped 

by the recmitment of the prospect into 

their downline. Whether they are 

ultimately successful in their attempt to 

woo a recmit from another distributor is 

immaterial; they have every incentive to 

try,!l0 

Thus, the Commission continues to 

believe that the final Rule's reference 

disclosure would not provide 

prospective MLM participants with an 

accurate account of the MLM experience 

or with information necessary to make 

an informed purchasing decision. 

Moreover, these challenges appear to be 

unique to MLMs, and as far as the 

Commission is aware, are not inherent 

in the other types of business 

opportunities addressed by the final 

Rule. 

Accordingly, while the Commission 

recognizes that problems may exist 

within the MLM industry, it continues 

to find that the Business Opportunity 

Rule is not the appropriate vehicle 

through which to address them. Rather, 

the Commission will continue to 

challenge unfair or deceptive practices 

in the MLM industry through Section 5 

of the FTC Act. Thus, the final Rule has 

•• Id. 

"" Multi-level marketing is a business model in 

which a company distributes products through a 

network of distributors who earn income from their 

own retail sales of the product and from retail sales 

made bv the distributors' direct and indirect 

recruits. Because they earn a commission from the 

sales their recmits make, each member in the MLM 

network. has an incentive to continue recruiting 

additional sales representatives into their "down 

lines." See Vander Nat & Keep, supra note 13. 

11° Comments submitted in response to the Staff 

Report did not refute these arguments, but actually 

bolstered them. For instance, one commenter noted 

that MLM recruiters will ofton pretend they are 

wealthy when they are not, simply to entice others 

to join theMLM. SeeO'Handley-SlaffRopm1 al 2; 

see also C'.Al-Slaff Report al 5 (noting that in MLMs, 

"every major victim is of necessity a perpetrator 

(recruiter) because to have any hope of recouping 

their ongoing investments • • • they must recruit 

others to do what they have done"). 

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 	 	 76824 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

been crafted to avoid broadly sweeping 

inMLMs.91 

2. Streamlined Disclosure Requirements

Although the scope of coverage is 

broader, the compliance burden is 

lighter under the final Rule than under 

the interim Business Opportunity Rule. 

In contrast to the voluminous 

disclosures that business opportunity 

sellers are required to make under the 

interim Business Opportunity Rule, the 

final Rule has significantly streamlined 

the disclosures to focus on the types of 

information most material to business 

opportunity purchasers: (1) The seller's 

identifying information; (2) whether the

seller makes an earnings claim; 92 (3) 

whether the seller, its affiliates, or key 

personnel, have been involved in any 

legal actions; 9 :i (4) whether the seller 

has a cancellation or refund policy; and 

(5) a list of purchasers who have bought 

the business opportunity within the 

previous three years. The final Rule also

requires the disclosure of 

supplementary information that 

substantiates earnings claims, identifies 

legal actions, and states the material 

terms of the seller's cancellation or 

refund policy. These disclosures are 

consistent with the Commission's 

experience concerning common 

practices in the sale of business 

opportunities, and the types of 

information most meaningful to 

prospective purchasers. 94 For example, 

the Commission's experience 

1 " The final Rule, however, does not explicitly 

exempt MLMs from coverage, but instead contains 

a narrow delinition of "business opportunity." As 

discussed in Section III.A.3 infra, the final Rule's 

definition of "business opportunity" eliminates two 

types of business assistance that previously would 

have triggered the Rule's coverage ofMLMs: (1) 

Tracking or paying commissions or other 

compensation for recruitment or sales; and (2) 

providing generalized training or advice for the 

business. The final Rule is thus more narrowly 

tailored to those types of deceptive business 

assistance representations that are the hallmark of 

fraudulent business opportunity schemes: location, 

account, and "buy back" assistance. 73 FR at 16123. 

92 If the business opportunity seller indicates that 

it does make earnings claims, then it must complete 

a separate earnings claim statement setting forth the 

earnings daiin, the number and percentage of 

purchasers who achieved the represented level of 

earnings, the date range during which the 

represented earnings were achieved, and additional 

information. 

"" If the business opportunity seller indicates that 

ii or its affiliates or key personnel have been subject 

to legal actions, then it must complete a separate 

attachment setting forth the full caption of each 

action, and may choose to include a brief 100-word 

description oflhe action. 0 • To fully develop the rulemaking record on 

business opportunities, in the ANPR, the 

Commission solicited comment about what pre-sale 

disclosures would ensure that business opportunity 

purchasers receive material information necessary 

to make an investment decision and prevent fraud 

in the sale of business opportunities. 62 FR at 9121, 

Questions 15 & 16. 

demonstrates that earnings claims are 

highly relevant to consumers in making 

their investment decisions and are often 

the single most decisive factor in such 

decisions. Furthermore, the presence of 

a legal action against the seller or its key

personnel may warn the purchaser of 

potential risk associated with the 

business opportunity. Information about

the seller's cancellation or refund policy

is relevant to consumers when weighing

their investment risks. Finally, 

providing the contact information for 

prior purchasers will allow prospective 

purchasers to discuss the business 

opportunity with other purchasers prior 

to committing themselves to the 

business opportunity venture. 

These streamlined disclosure 

requirements strike the appropriate 

balance by providing consumers with 

material information in a 

straightforward and focused document 

that will allow them to make informed 

purchasing decisions. At the same time, 

the streamlined form eases the 

compliance burden currently imposed 

on business opportunity sellers. Like the

Original Franchise Rule and the interim 

Business Opportunity Rule, the final 

Rule is posited on the notion that a fully 

informed consumer is in a better 

position to determine whether a 

particular offering is in his or her best 

interest when sellers are required to 

disclose to them material information. 

Consumers should be protected against 

receiving inaccurate information and 

self-serving unsubstantiated statements 

from business opportunity sellers. 

Accordingly, the final Rule requires that 

business opportunity sellers disclose 

just the types of information that the 

Commission has determined are most 

material to potential purchasers in 

making a purchasing decision: The 

seller's identifying information; whether 

the seller makes an earnings claim, and 

if so, the substantiation for that claim; 

whether the seller offers a refund or 

cancellation policy, and if so, the 

material terms of that policy; whether 

the seller or its affiliates and key 

personnel have been the subject of prior 

legal actions; and the names and 

business telephone numbers of prior 

purchasers to contact. The Commission 

has determined that these streamlined 

disclosure requirements will provide 

potential purchasers with the tools they 

need to protect themselves from false 

claims, while at the same time 

minimizing compliance costs for 

legitimate business opportunity sellers. 

3. Express Prohibitions 

In addition to mandating disclosures 

to prospective purchasers, the final Rule 

includes prohibitions on sellers from 

engaging in a number of deceptive 

practices, which were absent from the 

interim Business Opportunity Rule. In 

drafting the final Rule, the Commission 

relied heavily on its experience in 

addressing a wide array of deceptive 

and unfair business opportunity 

practices through law enforcement 

actions under the Original Franchise 

Rule, the interim Business Opportunity 

Rule, and Section 5 of the FTC Act. The 

Commission also relied on the staffs 

analysis of consumer complaints 

submitted to the FTC. By far, the most 

frequent allegations in Commission 

business opportunity cases pertain to 

false or unsubstantiated earnings 

claims.95 False testimonials or fictitious 

references and misrepresentations 

concerning the profitability of locations, 

availability of support and assistance, 

nature of the products or services sold, 

prior success of the seller or locator, full 

extent of investment costs, and refund 

policies are also prevalent in 

Commission business opportunity 

cases/m These alleged material 

misrepresentations or omissions also 

were frequently mentioned in 

complaints to the Commission 

submitted by business opportunity 

purchasers. 97 

"' See, e.g., FTCv. Darli11g Angel Pi11 Creations, 

Inc., No. 8:10-Cv-00335-JSM-TGW (M.D. Fla. Feb. 

2010) (representing likely earnings of $500 per 

week); FTCv. Route Wizard, Inc., No. 1:06-cv00815-KD-B (S.D. Ala. 2006) (representing that 

purchasers could earn $3,000 a month); FTCv. Bus. 

Card Experts, Inc., No. 06-CV-4671 (PJS/RLE) (D. 

Minn. 2006) (claiming likely earnings of $150,000 

in first voar); FTCv. Richardson d/b/a Mid-South 

Distri/J;., No. CV-06-S-4754-NW (N.D. Ala. 2006) 

(representing likely earnings of over $2,000 a month 

or $65,000 a year); FTCv. Accent Mktg., Inc., et al., 

No. 02-405-CB-M (S.D. Ala. 2002) (representing 

likely earnings of $3,200 per month to $16,000 per 

onth). 

•• See, e.g., FTC v. Bus. Carri Experts, Inc., No. 

6-CV-4671 (PJS/RLE) (D. Minn. 2006) (used paid 

eferences); FJ'C v. Route Wizurd, Inc., No. 1:06-cv0815-KD-B (S.D. Ala. 2006) (misrepresented 

ocation assistance); FTC v. Ricl,ardson d/bla Midouth Dis/ribs., No. CV-06-S-4754-NW (N.D. Ala. 

006) (promised high-traffic, high-profit locations); 

TC v. Am. Entm't Disll'ibs., Inc., No. 04-22431-

iv-Martinez (S.D. Fla. 2004) (used fictitious 

eferences, misrepesented locations); FTCv. 

idelity A TM, Inc., No. 06-81101-Civ-Hurley/ 

opkins (S.D. Fla. 2004) (misrepresented level of 

upport or assistance); FTCv. Accent Mktg .. Inc., et 

l., No. 02-405-CB-M (S.D. Ala. 2002) 

misrepresented that references purchased the 

usiness venture or would provide reliable 

escriptions of their experience); FTC v. Associated 

ecord Distribs., Inc., No. 02-21754--CIV-Graham/ 

arber (S.D. Fla. 2002) (misrepresented business 

ssistance and that references either purchased the 

usiness venture or would provide reliable 

escriptions of their experience). 

97 In 2010, the Commission logged over 12,000 

omplaints against franchises, business 

pportunities, and work-at-home schemes. Se11 

onsumer Sentinel Network Datahook (March 2011) 

t 76, available at http://ftc.gov/sentinel/repo1ts/ 

entinel-mwual-reports/sentinel-cy2010.pdf. 

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 	 	 Federal Regiter / Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76825 

Therefore, among other things, under 

the final Rule, business opportunity 

sellers arc prohibited from 

misrepresenting: (1) Earnings; (2) the 

cost, efficacy, nature, or central 

characteristics of the business 

opportunity or the goods or services 

sold to the purchaser as part of the 

business opportunity; (3) their 

cancellation or refund policies; ( 4) 

promised assistance; (5) the calculation 

and distribution of commissions, 

bonuses, incentives, premiums, or other 

payments from the seller; (6) the 

likelihood of finding locations for 

equipment or accounts for services; (7) 

that the business opportunity is an offer 

of employment; (8) territorial 

exclusivity or more limited territorial 

protections; (9) endorsements; and (10) 

references. The final Rule also prohibits 

business opportunity sellers from failing 

to make promised refunds, and from 

assigning to any purchaser a purported 

exclusive territory that has been sold to 

another purchaser. 

The final Rule prohibits entities 

covered by the Rule from engaging in 

the specific acts or practices identified 

as deceptive or unfair through the 

Commission's law enforcement 

experience, as well as the rulemaking 

record. Engaging in any of those acts or 

practices is a violation of both the final 

Rule and Section 5 of the FTC Act. 8 9 Of 

course, the Commission, under Section 

5, also may challenge any conduct that 

is not enumerated in the final Rule if the 

Commission determines that such 

conduct constitutes an unfair or 

deceptive act or practice. 

4. Disclosures in Spanish or Other 

Languages Besides English 

The Commission's law enforcement 

history demonstrates that some business 

opportunities are marketed primarily to 

Spanish speaking consumers. 99 Based 

"" 15 U.S.C. 57a(d)(3). 

•• E.g., FTC v. Zoi/o Cruz, No. 3:0~v--01877-JP 

(D. P.R. 2008) (envelope stuffing sc.heme marketed 

in Spanish-language newspapers and on a Web site 

available in Spanish and English]; FTC v. Integrity 

Mktg. Team, Inc., No. 07-cv-61152 (S.D. Fla. 2007) 

(envelope stuffing scheme marketed in Spanishlanguage classified advertisements); FTCv. 

Hispanexo, Inc., No. 1:06-cv-00424-JCC-TRJ (E.D. 

Va. 2006) (assistance in starting a c:onslmclion, 

gardening, or cleaning business marketed through 

Spanish-language television and radio stations); 

FTCv. Juan Matos, No. 06-61429-CIV-Altonaga 

(S.D. Fla. 2006) (craft assembly business marketed 

through Spanish-language advertisements); FTCv. 

Not'] Vending Consultants, Inc., CV-S-05-0160-

RCJ (PAL) (D. Nev. 2005) (deceptively marketed 

vending machine business opportunities-with 

many marketing efforts specifically targeting 

Spanish-speaking consumers); FTC v. Amoda 

Guerm, No. 6:04-CV-1395 (M.D. Fla. 2004) 

(product assembly scheme telemarketed to Spanishspeaking consumers]; FTCv. USS Elder Enter., Inc., 

No. SACV--04-1039 AHS (Am;) (C.D. Cal. 2004) 

on this experience, the Staff Report 

discussed the limited utility of Englishlanguage disclosures for business 

opportunities marketed in Spanish. 

Specifically, the staff questioned 

whether the disclosure document could 

be made more effective by translating it 

into Spanish and requiring that when a 

business opportunity is marketed in 

Spanish, the disclosure document and 

any disclosures required by the Rule be 

provided in Spanish. The Staff Report 

further suggested that when a business 

opportunity seller purposefully reaches 

out to a particular population by 

marketing in the foreign language 

spoken by members of that community, 

all of the disclosures required by the 

Rule should be accessible and 

comprehensible to each of those 

potential purchasers. The Staff Report 

recommended, therefore, that because 

the Commission has specific law 

enforcement experience with business 

opportunities marketed in Spanish, a 

Spanish translation of the disclosure 

document was necessary to attach as an 

appendix to the final Rule. It further 

recommended that where the business 

opportunity is marketed in a language 

other than Spanish, the business 

opportunity seller should be required to 

translate the disclosure document into 

the language of the sale and provide all 

the disclosures required by the Rule in 

that language. 

It is the long-held policy of the 

Commission that disclosures required 

by Commission orders, rules, or guides 

should be made in the predominant 

language used in the related 

advertisement or sales material.100 Upon

consideration of this policy, the staffs 

recommendation, and the rationale for 

the staff's recommendation, the 

Commission agrees with the staff's 

ecommendation. Accordingly, the final 

ule contains a new provision,§ 437.5, 

hich specifies the disclosure 

equirements for sales conducted in 

panish or other languages besides 

nglish. 

I. The Legal Standard for Amending 

he Rule 

The Commission is amending 16 CFR 

art 437 pursuant to Section 18 of the 

TC Act, 15 U.S.C. 57a et seq., and Part 

, subpart B of the Commission's Rules 

work at home assembly scheme offered through 

panish-language newspapers and magazines); FTC 

. Estoban Barrios Vega, No. H--04-1478 (S.D. Tex. 

004) (docoptivc product assembly opportunity 

arkeltld through Spanish-language newspaptlr and 

1agazine advArtisements). 

100FTc Enforcenrnnt Policy Stalernonl 

oncerning Clear and Conspicuous Disclosures in 

oreign Language Advertising and Sales Materials, 

6 CFR 14.9. 

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F

1

of Practice.101 This authority permits 

the Commission to promulgate, modify, 

and repeal trade regulation rules that 

define with specificity acts or practices 

that are unfair or deceptive in or 

affecting commerce within the meaning 

of Section 5(a)(1) of the FTC Act, 15 

U.S.C. 45(a)(1). 

The Commission's Rules of Practice 

further provide that if the Commission 

determines to promulgate a rule, it shall 

adopt a Statement of Basis and Purpose 

("SBP"), which must address four 

factors: (1) The prevalence of the acts or 

practices addressed by the rule; (2) the 

manner and context in which the acts or 

practices are unfair or deceptive; (3) the 

economic effect of the rule, taking into 

account the effect on small businesses 

and consumers; and (4) the effect of the 

rule on state and local laws. 102 In this 

section, the Commission summarizes its 

findings regarding each of these 

factors. 103 

A. Prevalence of Acts or Practices 

Addressed by the Rule 

The Commission promulgated the 

Original Franchise Rule in 1978 based 

upon its finding of prevalent deception 

in the offer and sale of franchises and 

business opportunity ventures, leading 

to significant consumer injury. Since 

1995, when the Commission 

commenced a regulatory review of the 

Original Franchise Rule to ensure that 

the Original Franchise Rule continued 

to serve a useful purpose, the 

Commission has sought comment 

several times to ascertain the need for a 

separate trade regulation rule to address 

widespread fraud in the sale of business 

opportunities.104 

Throughout the Rule amendment 

proceedings, the Commission has 

described its experience in combating a 

wide array of business opportunity 

fraud through law enforcement actions. 

Indeed, the Commission's law 

enforcement experience in conducting 

numerous sweeps of the business 

opportunity industry demonstrates that 

deceptive and unfair practices in the 

sale of business opportunities are not 

only prevalent but persistent. 105 

101 16 CFR 1.7, 5 U.S.C. 551 et seq. 

2 JU Rules of Practice, 16 CFR 1.14(a)(1)(i]-(iv). Jn 

addition, in accordance with 16 CFR 1.14(a)(l)(v), 

the regulatory analysis is provided at Section V of 

this Statement of Basis and Purpose. 

10" Support in the record for each factor is set 

forth in the substantive discussion of each 

provision of tho final Rule. 

HH Seo 60 FR at 17657: 62 FR at 9117; 71 FR at 

19084; 73 FR at 161~3; 74 FR al 18172; 75 FR at 

68559. 5 10 Since 1995, the Commission has conducted 

more than 18 law enforcement sweeps to combat 

deceptive business opportunity programs, many 

Continued 

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 	 	 76826 Federal Register/ Vol. 76, No. 236 /Thursday, December 8, 2011 / Rules and Regulations 

The Commission ha:s amended the 

interim Rule to address the sale of 

deceptive work-at-home schemes, where 

unfair and deceptive practices have 

been both prevalent and persistent. 

These schemes prey upon stay-at-home 

parents, the physically disabled, those 

who do not speak English, and others 

who cannot obtain employment outside 

of the home. Sellers of fraudulent workat-home opportunities deceive their 

victims with promises of an ongoing 

relationship in which the seller will buy 

the output that business opportunity 

purchasers produce, often 

misrepresenting to purchasers that there 

is a market for the purchasers' goods 

and services. In addition, the 

Commission's law enforcement 

experience demonstrates that fraudulent 

work-at-home opportunity sellers 

frequently invent undisclosed 

conditions and limitations for rejecting 

the work performed by purchasers and 

refusing to buy back the goods the 

purchasers produce. Similarly, these 

sellers' promises of continuing support 

and assistance frequently prove empty, 

leaving work-at-home opportunity 

purchasers with no help in figuring out 

how to assemble misshapen 

components into finished products. 

Finally, as the Commission's cases and 

complaint data demonstrate, con artists 

who promote fraudulent work-at-home 

schemes frequently dupe consumers 

with false earnings claims. 

with other law enforcement partners. E.g., 

Operation Bottom Dollar (2010); Operation Short 

Change (2009); Project Fal$e Hope$ (2006); Project 

Biz Opp Flop (2005); Project Bustod Opportunity 

(2002); Project Teleswtlep (1995]; Project Biz-illion$ 

(1999); Operation Money Pit (1998); Project Vend 

Up Broke (1998); Project Trade Name Games (1997); 

and Operation Missed Fortune (1996). In addition 

to joint law enforcement sweeps, the Commission 

also targeted specific business opportunity ventures 

such as envelope stuffing (Operation Pushing the 

Envelope, see FTC News Release: Agencies 

"Pushing the Envelope" to Protect Consumers (Dec. 

16, 2003), available at http:!!www.ftc.gov/apa/ 

2003/12/pushenvelape.shtm); medical billing 

(Operation Dialing for Deception, sec FTC News 

Release: FTC Sweep Protects Consumers from 

"Dialing for Deception" (Apr. 15, 2002), available 

at http://www.ftc.gov/apa/2002/04/dialing.shtm 

and Project Housecall, see FTC News Release: 

Bogus Business Opportunity Scams Targeted by 

Frc (Jan. 28, 1998), available at http://www.ftc.gov/ 

apa/1998/01/hausecal.shtm); seminars (Operation 

Showtime, set, Operation "Show Time" Targets 

Seminars Selling Fraudulent Business 

Opportunities and Investments (May 5, 1998), 

available at http://www.ftc.gov/opa/1998/05/ 

shawtime.shtm); Internet-related services (Net 

Opportunities 1998); vending machines (Operation 

Yankee Trader, see FTC News Release: Operation 

"Yankee Trader" Targets Bogus Vending Machine 

Business Opportunities (Sept. 11, 1997), available 

at http://www.ftc.gov/opa/1997/09/still.shtm); and 

900 numbers (Project Buylines, see FTC News 

Release: Newest Business Opportunily Fraud ls For 

900-Nun,ber Lines, Warns Federal Trade 

Commission (March 7, 1996), avai/a/Jle at http:// 

www.ftc.gov/opa/1996/03/buyline.shtm). 

Since 1990 the Commission has 

brought over 75 work-at-home cases. 106 

These actions have targeted a variety of 

schemes, ranging from envelope stuffing 

and craft assembly programs, to 

technology-driven opportunities and 

medical billing plans.107 

Data compiled by the Commission 

demonstrate the prevalence ofwork-athome opportunities that do not deliver 

the represented level of earnings. 

Indeed, the Commission's 2005 

consumer fraud survey revealed that 

work-at-home plans from which !he 

respondents who had purchased them 

did not earn at least half the level of 

promised earnings ranked fifth in terms 

of the estimated number of victims and 

third in terms of estimated number of 

incidents reported during the year. 108 

According to the survey, an estimated 

2.4 million individuals experienced 

work-at-home fraud, and there were an 

estimated 3.8 million incidents during 

the one year period surveyed.109 

Consumer complaints, survey data, 

and the Commission's law enforcement 

experience convince the Commission 

that deception is prevalent in work-athome offers. The final Rule's disclosure 

requirements and prohibitions provide 

potential work-at-home purchasers with 

the tools they need to protect 

themselves from false claims. 

In addition to work-at-home 

opportunities, the final Rule also covers 

the same types of business opportunities 

that previously were covered under the 

Original Franchise Rule and the interim 

Business Opportunity Rule, such as 

opportunities involving vending 

machines, rack displays, Internet kiosks, 

106 Many of these cases were brought in 

cnnneclion with law enforcement sweeps of 

fraudulent work-at-home and related employment 

opportunities, including Operation Bottom Dollar 

(2010); Operation Short Change (2009); Project 

Fal$e Hope$ (2006); Project Biz Opp Flop (2005]; 

Project Homework (2001); Operation Top Ten Dot 

Con, see FTC News Release: Law Enforcers Target 

"Top 10" Online Scams (Oct. 31, 2000), available 

at http:/ /www.ftc.gov/opal2000/10/topten.shtm; 

and Operation Missed Fortune, see FTC News 

Release: FTC, State Enforcers Target Got-Rich-Quick 

Self-Employment Schemes (Nov. 13, 1996), 

available at http://www.ftc.gov/apal1996/11/ 

misdfort.shtm. 

10, See, e.g., FTCv. Real Wealth .. Inc., 10-CV0060-W-FJG (W.D. Mo. 2010) (envelope stuffmg); 

Fl'C v. Darling Angel Pin Cmations, Inc., No. 8:10-

cv-0033.5-JSM-TGW (M.D. Fla. 2010) (craft 

assembly); FTC v. The Results Group L.L.C, No. CV 

06 2843 PHX )AT (D. Ariz. 2006] (work-at-home 

involving becoming a Web-based affiliate); FfC v. 

Mazzoni & Son, me., No.1:06CV2385 (N.D. Ohio 

2006) (medical billing). 108 See Consumer Fraud in the United States: The 

Second 1-~rc Survey (October 2007) at 22, available 

at http:l/www.ftc.gov/opCJ/2007/JO/fmud.pdf 

(studying consumer experience wilh a variety of 

products and services, including \.Veight·loss 

products, foreign lotteries, and prize promotions, 

among others). 

mo Id. 

·

and the like, which, as the 

Commission's experience demonstrates, 

have been a persistently fertile ground 

for fraud and deception.110 The 

Commission has conducted numerous 

law enforcement sweeps that targeted a wide variety of business opportunity 

scams involving the sale of vending 

machines, rack displays, and other 

opportunities covered by the Original 

Franchise Rule and the interim Business 

Opportunity Rule. 111 Consumer 

complaint data indicates that these 

types of business opportunities continue 

to be a significant source of consumer injury.112 

B. Manner and Context in Which the 

Acts or Practices Are Deceptive or 

Unfair 

The final Rule has been carefully 

crafted to address common deceptive or 

unfair practices engaged in by 

fraudulent business opportunity 

sellers.1 n By far, the most frequent 

allegations in the Commission's 

business opportunity cases pertain to 

inducing consumers to pay significant 

amounts of money by means of false or 

unsubstantiated earnings claims.114 This 

is followed by inducement through false 

testimonials or fictitious references and 

by misrepresentations concerning: The 

profitability of locations; tJ.ie availability 

of assistance; the nature of the products 

or services being sold; the prior success 

of third-party entities in finding 

successful locations; the full extent of 

110 See id. at 16 (reporting that an estimated 

800,000 individuals were victims of business 

opportunity fraud during the year surveyed). 

''' E.g., Project Fal$e Hope$ (2006) (vending 

machine and rack display opportunities); Project 

Biz Opp Flop (2005) (vending machine 

opportunities); Project Busted Opportunity (2002) 

(vending machine and rack display opportunities); 

Projecl Biz-illion$ (1999); Operation Money Pit 

(1998) (rack display opportunities); Project Vend 

Up Broke (1998) (vending machine opportunities); 

Project Trade Name Games I 1997) (rack display 

opportunilies); Operation Missed Fortune (1996); 

Project Telesweep (1995) (vending machine and 

rack display opportunities); see also supra note 55. 112 See Consumer Senlinel Network Databook 

(Marc.h 2011) at p. 76, available at http://ftc.gov/ 

sentinel/reports/sentinel-annual-reports/sentinel• 

cy2010.pdf(reporting thal in 2010, over 12,000 

complaints were filed against franchises, business 

opportunities, and work-at-home schemes). 

'"' An act or practice is deceptive under Section 

5(a) if it involves a material representation or 

omission that is likely to mislead consumers, acting 

reasonably under the circumstances, to their 

detriment. See FTC Policy Slatement on Deception, 

appended to Cliffd<lle Associates, Inc ... 103 F.T.C. 

110, 174 (1984). An act or practice is unfair under 

Section 5 if: (1) It causes or is likely to cause 

substantial injury to consumers; (2) the ham1 to 

consumers is not outweighed by any countervailing 

benefits; and (3) the harm is not reasonably 

avoidable by consumers. See FTC Policy Statement 

on Unfairness, appended to In re International 

Harvester. 104 F.T.C. 949, 1062 (1984). Sec 15 

U.S.C. 45(n). 114 See supra note 95. 

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 	 	 Federal Register /Vol. 76, No. 236 /Thursday, December 8, 2011 / Rules and Regulations 76827 

the investment costs; and refund 

policies.115 The numerous business 

opportunity complaints that consumers 

submit to the Commission each year 

consistently reference these same 

concerns. The disclosure requirements 

under the final Rule address each of 

these deceptive or unfair practices. 

1. Earnings Claims 

In the Commission's experience, 

earnings claims are highly material to 

consumers in making their investment 

decisions and typically are the single 

most decisive factor in such decisions. 

Earnings claims lie al the heart of 

business opportunity fraud, and are 

typically the enticement that persuades 

consumers to invest their money. In the 

overwhelming majority of the 

Commission's more than 245 cases 

against business opportunity sellers, the 

business opportunity seller has lured 

unsuspecting consumers through false 

or deceptive earnings representations. 

These claims have taken the form of 

purported historical earnings statistics 

(e.g., "Our operators have earned 

$100,000 a year"), as well as wild and 

unsupported earnings projections (e.g., 

"You will earn $100,000 in your first 

year"). Promoters of work-at-home 

opportunities frequently dupe 

consumers with false earnings claims. 

For example, in one recent envelopestuffing case brought under Section 5 of 

the FTC Act, the defendants promised 

purchasers weekly earnings ranging 

from $1,200 to $4,40o. 11 n In another 

case targeting Spanish-speaking 

consumers, the defendants promised 

that purchasers could earn $1,400 per 

week stuffing envelopes from home. 117 

Often earnings claims are express, but 

may be implied. Sellers often convey 

these false and unsubstantiated earnings 

claims orally, although it is not unusual 

for such claims to be in writing. Nor is 

it unusual for these false earnings 

claims to contradict inconspicuous 

disclaimers the seller has hidden in 

contracts or other printed materials. At 

any rate, false or unsubstantiated 

earnings claims are inherently likely to 

mislead consumers. Certainly, no aspect 

of the sales transaction is more material 

than the level of earnings a purchaser 

can reasonably expect. Moreover, 

prospective purchasers reasonably 

interpret earnings claims at face value. 

Thus, false or unsubstantiated earnings 

5 11 See supra note 96. 

116 FTC v. Global U.S. Resources, No. 10-CV1457 (RNC) (D. Conn. 2010). 117 FTC v. Zailo Cruz, No. 3:08-cv-01877-JP 

(D.P.R. 2008). 

claims are deceptive and unlawful 

under Section 5 of the FTC Act. 118 

Under the Original Franchise Rule 

and the interim Business Opportunity 

Rule, Lhe Commission sought to ensure 

the accuracy and reliability of earnings 

claims, both written and oral, express or implied, by prohibiting sellers from 

making an earnings claim, unless the 

seller possessed a reasonable basis for 

the claim, along with written 

substantiation for the claim, at the time 

the claim was made. Sellers were also 

required to provide prospective 

purchasers with a separate earnings 

claims statement that set forth the claim 

and the substantiation for that claim. 

The final Rule continues to address false 

and deceptive earnings claims by 

requiring business opportunity sellers to 

disclose whether they make an earnings 

claim. Sellers who make earnings claims 

must attach to the required disclosure 

document an ean1ings claim statement 

setting forth the earnings claim, the 

number and percentage of purchasers 

who achieved the represented level of 

earnings, the date range during which 

the -represented earnings were achieved, 

and otlier information. These disclosure 

requirements are designed to help 

consumers identify and evaluate an 

earnings claim, if one is made, or to 

arouse suspicion if an earnings claim is 

made orally but is disclaimed in 

writing. The final Rule, in § 437.6(d), 

also prohibits misrepresenting "the 

amount of sales, or gross or net income 

or profits a prospective purchaser may 

earn, or that prior purchasers have 

earned." 

2. References 

The use of paid references or "shills" 

is a common practice in the sale of 

fraudulent business opportunities. In 

many of the Commission's cases against 

fraudulent business opportunity sellers, 

the defendants had offered to provide 

prospective purchasers with 

purportedly independent references, 

who in reality were nothing more than 

paid shills-individuals who were 

compensated by the defendants to claim 

that they were successful operators of 

defendants' business ventures. 119 The 

business opportunity sellers, however, 

had not disclosed to prospective 

11• See FTC Policy Statement on Deception, 

appended to Cliffdale Associates, Inc., 103 F.T.C. 

110, 174 (1984). 

11• E.g., FTC v. Am. Entm't Distribs., Inc., No. 04-

22431-CIV-Martincz (S.D. Fla. 2004); U.S. v. 

Vaughn, No. 01-20077-01-KHV (D. Kan. 2001); 

FTCv. Harl Mktg. Enter. Ltd., Inc., No. 98-222-

CIV-T-23 E (M.D. Fla. 1998); FTC v. Inetintl.nom, 

No. 98-2140 (C.D. Cal. 1998); FTCv. Infinity 

Multimedia, Inc., No. 96-6671-CIV-Gonzalez (S.D. 

Fla. 1996); FTC v. Allstate Bu.9. Consultants Group, 

Inc., No. 95-6634-CIV-Ryskamp (S.D. Fla. 1995). 

purchasers that the references were paid 

or otherwise received a benefit for 

providing a favorable account of the 

opportunity. The use of fictitious 

references is an objectionable, but very 

effective means of misleading 

consumers about a highly material 

fact-whether other purchasers have 

actually achieved earnings as the seller 

represents, and whether those 

purchasers' overall experience of 

operating the business has been 

positive. When the information a 

reference provides on these questions is 

fictitious, a prospective purchaser has 

no way of knowing the information is 

false and unreliable. Thus, the use of 

fictitious references-shills-is a 

deceptive practice. 1211 

The Original Franchise Rule and the 

interim Business Opportunity Rule 

sought to remedy this deceptive practice 

by requiring business opportunity 

sellers to provide prospective 

purchasers with the names and contact 

information for at least 10 current 

purchasers of the opportunity. The final 

Rule continues to remedy this deceptive 

practice by requiring a business 

opportunity seller to disclose a list of all 

prior purchasers of the business 

opportunity during the previous three 

years. The disclosure of prior 

purchasers is instrumental in preventing 

fraud because it enables prospective 

purchasers to independently verify the 

seller's claims. The final Rule also, in 

§ 437.6(q), prohibits misrepresenting 

that any person has purchased a 

business opportunity, or that any person 

an provide an independent assessment 

of the offering, when such is not the 

ase. 

3. Refund Policies 

Fraudulent business opportunity 

ellers often offer prospective 

purchasers the right to cancel or to seek 

whole or partial refund, but when a 

urchaser seeks to cancel, he finds there 

re hidden limitations or conditions on 

he refund policy. More often, the seller 

imply ignores the purchaser's request. 

hus, refund offers are frequently just 

llusory, and misleading. Cancellation 

r refund offers are material to 

rospective purchasers because they 

urport to reflect the potential risk of 

he proposed transaction, and may 

reate the impression that the business 

pportunity offer is either risk free or a 

ow financial risk. Purchasers 

easonably interpret a refund policy to 

e, in fact, as stated. Thus, representing 

1 zo See FTC Policy Statement on Deception, 

ppended to Cliff dale Associates, Inc., 103 F.T.C. 

10, 174 (1984). 

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 	 	 76828 Federal Register/ Vol. 76, No. 236 /Thursday, December 8, 2011 / Rules and Regulations 

an illusory refund policy is deceptive 

under Section 5 of the FTC Act. 

Moreover, the failure to honor refund 

promises is an unfair practice in 

violation of Section 5(n) of the FTC 

Act.121 It often results in substantial 

injury to business opportunity 

purchasers that they cannot reasonably 

avoid.122 Moreover, the record is devoid 

of any evidence suggesting that this 

harm is outweighed by any 

countervailing benefits. 

To remedy this practice, under the 

Original Franchise Rule and the interim 

Business Opportunity Rule, it was a 

violation for a seller to fail to refund a 

purchaser's funds, in certain instances. 

The final Rule continues to address this 

practice. Under §437.3(a)(4) of the final 

Rule, a seller is not required to have a 

refund or cancellation policy. The 

seller, however, is required to disclose 

whether it has either a refund or 

cancellation policy, and if so, the seller 

must disclose, in an attachment to the 

disclosure document, the material terms 

of the policy. Moreover, §437.6(k) 

prohibits any misrepresentation of a 

seller's refund or cancellation policies, 

and§ 437.6(1) prohibits failure to 

provide a refund or cancellation when 

the purchaser has satisfied the terms 

and conditions disclosed. 

4. Legal Actions 

The Commission's law enforcement 

experience amply demonstrates that 

fraudulent business opportunity sellers 

often operate through multiple related 

affiliates, or use, sequentially or 

simultaneously, a variety of corporate 

identities in order to obscure their 

negative reputation or to avoid alerting 

consumers of the potential for fraud. 

This subterfuge is designed to mislead, 

and actually does mislead prospective 

business opportunity purchasers about a 

crucially material fact: The reliability 

and trustworthiness of the seller with 

whom the consumer is transacting. It is 

not unreasonable for a consumer lo 

believe that a seller is as represented; 

the consumer is not obliged to suspect 

an apparently legitimate seller has a 

history of fraud hidden behind multiple 

defunct or impossible to trace corporate 

entities. Thus, it is a deceptive practice 

and a violation of Section 5 for a seller 

to obfuscate past activities that would 

121 An act or practice is unfair if it Hcauses or is 

likely to cause substantial injury to consumers 

which is not reasonably avoidable by consumers 

themselves and not outweighed by countervailing 

be11el1ts to consumers or to competition." 15 U.S.C. 

5(n). 

122 See. e.g., In re Orkin Exterminating Co., 108 

F.T.C. 263 (1986), afrd, Orkin Exterminating Co. v. 

FTC. 849 F.2d 1354 (11 Cir. 1988). 

alert a prospective purchaser of a likelihood of fraud. 1 2:i 

One of the key indicia of a seller's 

reliability and trustworthiness is 

whether there have been law 

enforcement actions or lawsuits for 

fraud and similar infractions targeting 

that seller. Accordingly, und.er the 

Original Franchise Rule and the interim 

Business Opportunity Rule, the 

Commission required sellers to disclose 

certain legal actions in which they or 

their principals have been involved. 

Similarly, the final Rule requires a 

business opportunity seller to disclose 

any legal actions that the seller, its 

affiliates, and certain key personnel 

have been involved in during the 

previous ten years involving 

misrepresentation, fraud, securities Jaw 

violations, or unfair or deceptive 

practices, including violations of any 

FTC Rule. Knowledge of such legal 

actions against the seller and other key 

persons associated with the seller is 

material to a prospective purchaser's 

decision to go forward with the 

transaction. 

These disclosure requirements are 

tailored to address common deceptive 

or unfair practices in the sale of 

business opportunities, as demonstrated 

by the Commission's extensive law 

enforcement experience with business 

opportunity fraud. In addition to these 

disclosures, the final Rule requires 

sellers to disclose certain identifying 

information about themselves and 

expressly prohibits a variety of material 

misrepresentations and omissions that 

the Commission's experience 

demonstrates to be most commonly 

associated with deceptive and unfair 

practices in the sale of business 

opportunities. 

C. The Economic Effect of the Rule 

At every stage of the Rule amendment 

proceeding, the Commission solicited 

comment on the economic impact of the 

Rule, as well as the costs and benefits 

of each proposed Rule amendment. In 

issuing the final Rule, the Commission 

has carefully considered the comments 

received and the costs and benefits of 

each amendment. As discussed 

throughout this SBP, the final Rule's 

disclosure requirements and specific 

prohibitions will provide a substantial 

benefit to consumers weighing the risks 

of investing their money in specific 

business opportunity offers. In 

particular, the mandated disclosures 

will help consumers evaluate the 

earnings claims made by a seller, 

123 See FTC Policy Statement on Deception, 

appended to Cliffdale As.sociates, Inc ... 103 F.T.C. 

110, 174 (1984). 

investigate the litigation history of the 

seller, identify the seller's refund or 

cancellation policy, and check on the 

experiences of other purchasers. By · 

providing consumers with access to this 

information before money changes 

hands, the final Rule will substantially 

reduce economic harm caused by 

misleading sales practices. 

The Commission has attempted to 

reduce sellers' compliance costs 

wherever possible. In general, 

compliance with the final Rule's 

disclosure requirements is significantly 

less burdensome than with the Original 

Franchise Rule or the interim Business 

Opportunity Rule. Most notably, the 

final Rule streamlines the more than 20 

separate categories of disclosures 

required by the interim Business 

Opportunity Rule to just five. The final 

Ruic also employs specific prohibitions 

in place of affirmative disclosures 

wherever possible in an attempt to 

further reduce compliance costs. 

A variety of other amendments have 

been made in an attempt to reduce 

compliance costs for business 

opportunity sellers. For example, in the 

RNPR, the Commission eliminated the 

requirement that sellers disclose the 

litigation histories of their sales 

personnel, recognizing that such 

disclosure would place a burden on 

business opportunity sellers that would 

not be outweighed by countervailing 

benefits to prospective purchasers.124 

The final Rule also does not require 

sellers with prior legal actions against 

them to detail the nature of the legal 

action, but rather, permits sellers to 

provide a brief 100-word description of 

the case if they so choose. Also, in an 

attempt to reduce compliance costs, the 

final Ruic permits sellers to comply 

with the cancellation or refund 

disclosure requirement by attaching to 

the disclosure document a copy of a preexisting document-such as a company 

brochure-that details the seller's 

cancellation or refund policy. The final 

~ule also provides sellers with a less 

burdensome means of complying with 

the reference disclosure requirement: In 

lieu of a list of the 10 prior purchasers 

nearest the prospect, a seller may 

provide a prospect with a national list 

of all purchasers. For example, a seller 

making disclosures online could simply 

maintain an electronic list of purchasers 

that it updates periodically. This would 

enable the seller to avoid having to 

tailor the disclosure to each prospective 

12• 73 FR at 16126. The Commission's decision to 

1ia1Tow the Rule so that MLMs would not be 

burdened with unworkable disclosure requirements 

was similarly prompted by concern that any 

potential benefits would be outweighed by 

compliance costs. Id. at 16119-21. 

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 	 	 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 76829 

purc:haser, thereby further reduc:ing 

compliance costs. 

D. The Effect of the Rule on State and 

Local Laws 

Section 437.9(b) of the final Rule 

provides that the Commission does not 

intend to preempt state or local business

opportunity laws, except to the extent 

that they conflict with the Rule. A law 

does not conflict with the Rule if it 

affords prospective purchasers equal or 

greater protection, such as a 

requirement for registration of 

disclosure documents or more extensive 

disclosures. 

Although state laws offering equal or 

greater protections are not preempted, 

§437.6(c) of the final Rule, which 

addresses extraneous materials, 

prohibits sellers from providing 

disclosures required under state law in 

the same document with the disclosures 

required under the final Rule. One of 

the main goals of revising and tailoring 

the disclosure requirements for business 

opportunity sellers is to simplify and 

streamline the disclosures into a singlepage document. The Commission has 

determined, therefore, that allowing 

business opportunity sellers to mix 

federal and state disclosures into one 

document would be a means for sellers 

to present lengthy and confusing 

information to prospective purchasers, 

and would be contrary to the 

Commission's goal of requiring sellers to 

provide a simple, clear, and concise 

disclosure document. 125 

III. Section-by-Section Analysis of Part 

437 

The final Rule is divided into ten 

sections. Section 437.1 defines 19 key 

terms employed in the Rule's text. 

Section 437.2 establishes the business 

opportunity seller's obligation to furnish 

prospective purchasers with material 

information in the form of a written 

basic disclosure document. Section 

437.3 specifies the content and form of 

the disclosure document. Section 437.4 

sets forth the requirements that business 

opportunity sellers must follow if they 

elect to make representations regarding 

earnings. Section 437.5 addresses sales 

conducted in Spanish or other 

languages besides English, and the 

disclosure requirements for those sales. 

Section 437.6 prohibits a number of 

specific deceptive claims and other 

deceptive practices in connection with 

business opportunity sales. Section 

437.7 sets forth the Rule's recordkeeping 

provisions. Section 437.8 expressly 

exempts from the Rule those business 

arrangements that are covered by the 

1" 73 FR at 16128. 

Amended Franc:hise Rule. Finally, two 

administrative sections--437.9 and 

437.10--address other laws, rules, and 

orders, and severability. The sections 

that follow discuss each of these rule 

provisions in turn. 

A. Section 437.1: Definitions 

The final Rule begins with a list of 

defined terms in alphabetical order. In 

several instances, the final Rule's 

definitions closely track those contained 

in the interim Business Opportunity 

Rule or the Commission's 

interpretations of the Original Franchise 

Rule. 126 These include the definitions 

for the terms "action," "affiliate," 

"disclose or state," "earnings claim," 

"person," and "written or in writing." 

In addition, the final Rule includes 

definitions for the terms "business 

opportunity," "designated person," 

"exclusive territory," "general media," 

"new business," "prior business," 

providing locations, outlets, accounts, 

or customers," "purchaser," 

quarterly," "required payment," and 

seller," each of which was proposed in 

he IPBOR and, in certain 

ircumstances, modified in the RPBOR 

nd the proposed Final Rule attached to 

he Staff Report. Finally, the final Rule 

ncludes two new definitions that were 

ecommended in the Staff Report: (1) 

Material" and (2) "signature or 

igned." 127 Each definition, including 

he record support for the definition and 

he Commission's analysis, is addressed 

elow. 

. Section 437.1(a): Action 

The term "action" appears in 

43 7.3(a)(3), which requires business 

pportunity sellers to disclose material 

nformation about the business 

pportunity seller's litigation history. 128 

pecifically, § 43 7.3(a)(3) of the final 

ule requires the disclosure of material 

nformation about certain civil or 

riminal actions within the previous ten 

ears involving the business 

pportunity seller, its directors, and 

ertain key employees,129 as well as its 

120 See 16 CFR 437.1; Final Interpretive Guides 

"Interpretive Guides") accompanying the Original 

ranchise Rule, 44 FR 49966 (Aug. 24, 1978). 

121 At the same time, the final Rule eliminates 

ine of the interim Business Opportunity Rule's 

rms and their definitions. which are no longer 

ecessary: "prospective business opportunity 

urchaser," "business day," "time for making of 

isclosures," "fractional business opportunity," 

business opportunity broker," "sale of a business 

pportunity," "cooperative association," "fiscal 

ear," and "personal meeting." 

120 Section 437.3(a)(3) requires rlisclosurn of "any 

vil or crimiiial aclion for misreprosenlalion, fraud, 

curities law viola.lions, or unfair or deceptive 

ractices, induding violations of any FTC Rule." 

120The final Rule covers "any sales managers, or 

ny individual who occupies a position or performs 

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affiliates or prior businesses. 

Information about litigation history 

based on allegations of 

misrepresentation, fraud, securities law 

violations, or unfair or deceptive 

practices is highly material to assessing 

investment risk. Discovering that a 

seller has a history of violating laws and 

regulations is perhaps the best 

indication that a particular business 

opportunity is a high-risk investment. 

The definition of "action" is intended 

to make clear that disclosures involving 

prior litigation include not only civil 

actions brought before a court but also 

matters before arbitrators. 130 It also is 

intended to make clear that an "action" 

includes all government actions, 

including criminal matters and actions 

brought to enforce FTC Rules, as well as 

administrative law enforcement actions, 

such as cease and desist orders or 

assurances of voluntary compliance.131 

During the Business Opportunity 

workshop, a panelist representing the 

DOJ suggested that bankruptcy is 

another type of legal action that should 

be disclosed to potential purchasers 

because a bankruptcy filing could be a 

red flag warning of potential risk 

associated with a business 

opportunity.132 A panelist from the 

Maryland Attorney General's Office 

disagreed, arguing that this additional 

disclosure would not benefit potential 

business opportunity purchasers 

because, in his experience, fraudulent 

business opportunities do not typically 

file for bankruptcy protection. 133 

nstead, in that panelist's experience, 

fraudulent business opportunity 

romoters shutter their premises and 

eopen as an entirely new fraudulent 

ntity. Another panelist posited that 

isclosure of the existence of a 

ankruptcy by the business opportunity 

r its key personnel was not likely to 

dentify fraudulent or problematic 

usiness opportunities that would not 

lready be identified through the 

xisting proposed categories of legal 

ctions.134 

The Commission has determined not 

o include bankruptcy as a type of legal 

ction that a business opportunity seller 

ust disclose. The Commission's law 

nforcement experience indicates that 

hen targeted by law enforcement, 

function similar to an officer, director, or sales 

anager of the seller." See §437.3(a)(3){i)(c). 

no71 FR at 19061. 

131Jd. 

132 fost, June 09 Tr at 32. A second panelist 

Taylor, June 09 Tr at 35), and a commenter 

Brooks-Workshop comment) agreed that existence 

f a bankruptcy might be relevant to a potential 

urchaser. 

133 Cantone, June 09 Tr at 37. 

134 MacLeod, June 09 Tr at 33. 

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 	 	 76830 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

rather than file for bankruptcy, 

fraudulent business opportunity sellers 

tend to vanish and then simply reopen 

under new company names. 1 :rn Thus, 

there is little meaningful correlation 

between filing for bankruptcy and 

promoting a fraudulent business 

opportunity. Yet, many legitimate 

businesses have been forced by 

circumstances to seek the protection of 

bankruptcy courts. Therefore, 

bankruptcy filing would not seem to be a reliable marker for potential fraud, and 

would not likely help business 

opportunity purchasers avoid being 

defrauded. Therefore, the final Rule's 

definition of action does not contain 

reference to bankruptcy.136 

Finally, the Staff Report noted that 

some state administrative proceedings 

result in parties entering into assurances 

of voluntary compliance, while other 

states refer to such orders as assurances 

of discontinuance. The staff 

recommended, therefore, adding 

"assurance of discontinuance" to the 

categories of legal actions enumerated in 

the proposed definition. The 

Commission agrees with the staffs 

recommendation and the final Rule's 

definition of "action" now includes that 

phrase. Accordingly, § 437. l(a) of the 

final Rule defines "action" as follows: 

"A criminal information, indictment, or 

proceeding; a civil complaint, cross 

claim, counterclaim, or third party 

complaint in a judicial action or 

proceeding; arbitration; or any 

governmental administrative 

proceeding, including, but not limited 

to, an action to obtain or issue a cease 

and desist order, an assurance of 

voluntary compliance, and an assurance 

of discontinuance." 

The definition of "action," as 

recommended in the Staff Report, 

received no comment, and the final Rule 

adopts this definition of "action" as 

recommended. 

2. Section 437.l(b): Affiliate 

The term "affiliate" appears in several 

sections of the final Rule, most notably 

in§ 437.3(a)(3), which requires a 

business opportunity seller to disclose 

not only litigation in which the seller 

was named as a party, but any litigation 

naming any of the seller's "affiliates" or 

prior businesses. Section 437.l(b) of the 

135 See, e.g., FTCv. Nat'] Vending Consultants, 

Inc., CV-S--05-0160--RCJ-PAL (D. Nev. 2005); FTC 

v. USA Beverages, Inc., CV--05-61682 (S.D. Fla. 

2004): FTC v. Allstate Bus. Distribution Ctr., Inc., 

CV--00--10335AHM (C.D. Cal. 2001); FTC v .. 

O'Rourke, No. 93-6511-Civ-Gonzalez (S.D. Fla. 

1993); FTC v. Inv. Dev., Inc., 1989 U.S. Dist. LEXIS 

6502 (E.D. La. June 7, 1989). 130 Similarly, the scope of 437.3(c)[3)(i) has 

remained unchanged and does not require the 

disclosure of bankruptcy filings. 

final Rule defines the term "affiliate" to 

mean: "An entity controlled by, · 

controlling, or under common control 

with a business opportunity seller." 

This definition also covers litigation 

involving a parent or subsidiary of the 

business opportunity seller. . 

The definition of "affiliate," as 

proposed in the INPR and RNPR, and 

recommended in the Staff Report, 

received no comment, and the final Rule

adopts this definition of" affiliate" as 

recommended. 

3. Section 437. l(c): Business 

Opportunity 

The definition of "business 

opportunity" delineates the scope of the

Rule's coverage. Under the final Rule, a 

"business opportunity'' is a commercial 

arrangement that possesses three 

required elements. First, a seller must 

solicit a prospective purchaser to enter 

into a new business.137 Second, the 

prospective purchaser of the business 

opportunity must make a "required 

payment." 136 And third, the seller must

represent that the seller or one or more 

designated persons will provide any of 

three types of business assistance: (1) 

Providing locations for the purchaser's 

use or operation of equipment, displays, 

vending machines, or similar devices; 

(2) providing outlets, accounts, or 

customers to the prospective purchaser; 

or (3) buying back any or all of the 

goods or services that the purchaser 

makes, including providing payment for 

such services as, for example, stuffing 

envelopes from the purchaser's home. 

Because this section triggers the 

strictures and requirements of the Rule, 

the definition of "business 

opportunity," and in particular, its 

specification of the types of "business 

assistance" that characterize a covered 

business, has generated substantial 

comment throughout this proceeding. 

After careful consideration of the 

amassed record, the Commission has 

crafted the final Rule's business 

opportunity definition lo ensure that it 

is broad enough to encompass many 

business opportunities that historically 

were not covered under the Original 

Franchise Rule or the interim Business 

Opportunity Rule, but which have 

routinely been shown to be associated 

with unfair or deceptive practices.139 At 

"' Section 437.l(j) defines "new business" as "a 

business in which the prospective purchaser is not 

currently ongagod. or a new line or type of 

business." 

na See§ 437.l(p) [defining "required payment"). 

139 As discussed suprn in Section l.C, the 

definition of business opportunity no longer 

excludes transactions falling below a minimum 

monetary payment threshold nor does ii require 

that the purchaser of the opportunity sell goods or 

the 11e.me time, the definition of 

"business opportunity" has been 

narrowly tailored to avoid inadvertently 

sweeping in other business 

arrangements, such as traditional 

product distribution. This has been 

accomplished primarily through 

narrowing the types of business 

assistance that will trigger the Rule's 

coverage from the five categories 

originally proposed in the IPBOR to the 

three categories described above. 

Consistent with the approach 

proposed in the RPBOR, the final Rule's 

definition of business opportunity 

eliminates two types of business 

assistance that under the IPBOR would 

have triggered the Rule's strictures and 

disclosure obligations: (1) Tracking or 

paying, or purporting to track or pay, 

commissions or other compensation; 

and (2) providing other advice or 

training assistance. The sections below 

describe the evolution of the business 

opportunity definition, including the 

rationale for eliminating these types of 

assistance from the definition of 

business opportunity. 

In the IPBOR, the proposed definition 

of "business opportunity" was designed 

to be broad enough to cover the sale of 

virtually any type of business 

opportunity, including two types in 

particular that historically had fallen 

outside the scope of the Original 

Franchise Rule-work-at-home and 

pyramid marketing opportunities.140 As 

explained more fully in the INPR, the 

Commission's law enforcement 

experience and consumer complaints 

demonstrate that these two types of 

opportunities are sources of prevalent 

and persistent problems,141 which the 

Commission has traditionally 

challenged under Section 5 of the FTC 

Act.142 

In order to reach these two types of 

opportunities, the INPR proposed a 

road definition of "business 

pportunity" comprised of three 

eivices directly to end-users other than the 

usiness opportunity seller. These changes extend 

he scope of coverage to many business 

pportunities that previously escaped coverage. 

1•0 71 FR at 19059. 

111 In 2010, pyramid schemes generated 

pproximately 2,000 consumer complaints, while 

ork-at-home schemes generated over 8,000 

omplaints. See Consumer Sentinel Network 

atabook (March 2011 J at 76, 79, available at http:// 

tc.gov/sentinel/reports/sentinel-annual-reportsl 

entinel-cy2010.pdf. 

,., Many of these schemes fell outside the ambit 

f the Original Franchise Rule because: (1) The 

urchase price was less than $500, the minimum 

ayment necessary to trigger coverage; (2) required 

ayments were primarily for inventory, which did 

ot count toward the $500 monetary threshold; (3) 

he scheme did not offer location or account 

ssistance; or (4) the scheme involved the sale of 

roducts to the business opportunity seller rather 

han to end-users. See 71 FR at 19055, 19059. 

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 	 	 	 Federal Register /Vol. 76, No. 236 /Thursday, December 8, 2011 / Rules and Regulations 76831 

element1: (1) A 1olicitation to enter into 

a new business; (2) payment of 

consideration, directly or indirectly 

through a third party; and (3) the 

making of either an "earnings claim" or 

an offer to provide "business 

assistance." 143 The IPBOR's definition 

of "business assistance" included 

assistance in the form of "tracking or 

paying, or purporting to track or pay, 

commissions or other compensation 

bused upon the purchaser's sale of 

goods or services or recruitment of other

persons to sell goods or services." 144 

The Commission noted that many 

pyramid schemes offer this type of 

assistance, purporting to compensate 

participants not only for their own 

product sales but also for sales made by 

their participants' downline recruits. 145 

Under the IPBOR, "business assistance" 

also included providing other advice or 

training assistance.14!\ 

In response to the INPR, many 

commeuters argued that the IPBOR 

would have unintentionally swept in 

numerous commercial arrangements 

where there is little or no evidence that 

fraud is occurring.147 Several 

commenters contended that the IPBOR 

would have regulated a wide range of 

legitimate and traditional product 

distribution arrangements that were not 

associated with the types of fraud that 

business opportunity laws are designed 

to remedy. For example, one commenter

suggested that the IPBOR could be read 

to cover product distribution through 

retail stores simply because the retailer 

pays for inventory and the manufacturer 

provides sales training to its retail 

accounts.146 The commenter suggested 

that its business operations would meet 

the IPBOR's definition of business 

opportunity because: (1) The "payment" 

prong of the definition did not exempt 

voluntary purchases of inventory; and 

(2) providing retail staff with sales 

training would have satisfied the 

"business assistance" prong of the 

definition.149 Other commenters noted 

that even if a company provided no 

"business assistance," il easily could 

have fallen under the "business 

opportunity" definition if the company 

made some representation about sales or 

profits sufficient to constitute an 

earnings claim. 150 

Other commenters in response to the 

INPR argued that the IPBOR would have 

14' See 71 FR at 19087. 

·•••Id. 

145 Id. at 19063 & n.106. 

146 Id. at 19087 (IPBOR § 437. l(cl(v)). 

1•• 

7 1• See 73 FR at 16113-14. 

Timberland-JNPR at 2. 

"" Id. ,so IBA-INPR at 4; see also PMI-INPR at 3. 

been broad enough to cover other typH 

of commercial arrangements, such as 

bona fide educational programs offered 

by colleges and universities, the sale of 

certain books by publishers or book 

stores, and even the relationship 

between newspapers and independent 

carriers who distribute the newspapers 

to homes and businesses. 151 

Recognizing the unintended 

overbreadth of the Rule to sweep in 

these types of commercial aITangements

as well as the unworkability of applying

the Rule to MLMs, the Commission 

proposed the RPBOR with a narrower 

definition of "business opportunity." 

The RPBOR "business opportunity" 

definition narrowed the types of 

"business assistance" that would trigger

Rule coverage by deleting from the Rule

text: (1) Tracking payments or 

commissions and (2) providing other 

advice or training assistance.152 The 

RPBOR definition also eliminated the 

"earnings claim" element from the 

definition. 153 But for this modification, 

any business or commercial 

arrangement that made an earnings 

claim could have been a "business 

opportunity," as defined by the Rule. To

avoid transforming common commercia

transactions into "business 

opportunities," some commenters 

suggested narrowing the definition of 

"earnings claim." 154 In the RNPR, 

however, the Commission determined 

that the better approach to address 

concerns about overbreadth was to tailor

the substantive scope of the Rule, in 

part, by unlinking the definition of 

"business opportunity" from the making

of an earnings claim. 155 The Staff Report

recommended that the Commission 

adopt this modification in the final 

Rule. No comments received in 

response to the Staff Report addressed 

this change. 

In the RNPR. the Commission 

solicited comment as to whether the 

narrowed Rule would adequately reach 

the field of business opportunity 

promoters who are likely to engage in 

unfair or deceptive practices, and 

conversely, queried whether the newlyproposed narrowing of the definition, 

and, hence, the scope of the RPBOR's 

coverage, was sufficient to exclude from 

the rule traditional distributor 

1 1 5 Venable-JNPR at 2-3; NAA-INPR at 1-3. 

51 2 In addition, the RPBOR clarified that a 

required payment" does not includo payments for 

he purchase of roasonable amounts of inventory at 

ona fide prices. The final Rule incorporates this 

larification. 

153 73 FR at 16124. 

1••Id. 

155 Id. 

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reh1tion•hip 1 "n that had been 

inadvertently swept into the IPBOR. 157 

The majority of comments in response 

to the RNPR focused on whether the 

revisions to the proposed Rule would 

capture MLMs. 156 The majority of 

commenters applauded the 

Commission's decision to narrow the 

scope ofthe rule, while others 

expressed concern that the MLM 

industry would continue to be subject to 

the RPBOR despite the more narrowed 

definition of "business opportunity." 159 

For example, some commenters 

expressed concern that the buy-back 

provision, set forth in §437.l(c)(3)(iii), 

would sweep in MLM companies that 

offer to buy back their distributors' 

unused inventory. 160 These commenters 

suggested amending this provision to 

strike the word "provides" from 

§ 437.l(c)(3)(iii), so that the definition of 

"business opportunity" would clearly 

not encompass a return of unused 

materials or merchandise. rn1 

The Commission is not persuaded 

that such a change is necessary. In the 

RNPR, the Commission made clear that 

§437.l(c)(3)(iii) was intended to capture 

work-at-home business opportunities in 

which the seller provides the purchaser 

with some supplies and the purchaser 

converts those supplies into a product 

156 For example, commenters to the INPR noted 

that the IPBOR would cover "manufacturers, 

suppliers and other traditional distribution firms 

that have relied on the bona fide wholesale price 

exclusion to avoid coverage" under the Rule. 

Sonnenschein-JNPR at 1-2. The Cosmetic, Toiletry 

and Fragrance Association posited that the lPBOR 

would cover the relationship between a 

manufacturer and an independent contractor who 

sells the product to beauty supply companies, 

salons, and others. CTFA-INPR; see also LHD&LINPR at 2 (noting that the IPBOR could cover the 

relationship between a manufacturer and a regional 

distributor of products). 7 '" 73 FR at 16133. 

1 "" DSA-RNPR. In addition, the Commission 

recei vod more than 40 comments from various 

MLMs thal oxpressed support and concurrence with 

DSA's comments. See, e.g., Big Ear-RNPR; Jafra 

Cosrnelics-RNPR; Lia Sophia-RNPR; LongabergerRNPR; Princess House-RNPR; Shaklee-RNPR. Some 

commenters expressed disappointment that the 

Commission proposed to exclude MLMs from 

coverage by the Rule. See. e.g., CAJ-RNPR; DurandRNPR; PSA-RNPR; Aird-RNPR (Rebuttal); 

Parrington-RNPR. As previously noted, the 

Commission decided to narrow the scope of tho 

Rule to avoid broadly sweeping in MLMs. 

15YSee, e.g., DSA-RNPR; Avon-RNPR; BatesRNPR; JBA-RNPR; MMS-RNPR; Mary Kay-RNPR; 

Melaleuca-RNPR; Primerica-RNPR; Pre-Paid LegalRNPR; IDS-RNPR; Tupperware-RNPR; VenableRNPR. 160 DSA requires that its members offer to buy 

ack, at 90% of the salesperson's cost, all resalable 

nventory and other sales materials. DSA-JNPR at 

35. 

rn1 DSA-RNPR at 6 n.14 (noting !hat "the buyack provision is the cornerstone of the DSA's self 

egulatory regime and a valuable protection for 

ndividual direct sellers"); Mary Kay-RNPR at 6; 

abener-RNPR; Melaleuca-RNPR. 

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 	 	 76832 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

or other "good" for repurchase by the 

seller or other pcrson. 162 As the Staff 

Report noted, it would require a labored

reading of this section to suggest that 

the word "provides" means "to return 

unused inventory the purchaser bought from the seller but was not able to 

sell." 163 Moreover, the Commission has

explicitly stated that this provision 

"would not include the offer to buy 

back inventory or equipment needed to 

start a business." 164 

In addition, some commenters argued 

that § 43 7 .1(c)(3)(i) would inadvertently 

cover entities that offer, at no cost to 

purchasers, the use of office space and 

equipment for the operation of the 

purchasers' business.165 These 

commenters were concerned that such 

offers could be construed under 

§ 437.1(c)(3)(i) to be providing 

"locations for the use or operation of 

equipment* * * on premises neither 

owned nor leased by the purchaser." In 

the RNPR, the Commission stated that 

this provision was intended to capture 

fraudulent vending machine and rack 

display schemes,166 as well as schemes 

where a purchaser is forced to lease 

office space, telephones and other 

equipment for operation of his or her 

business. 167 Noting that the Commission

did not intend to capture the incidental 

use of office space and equipment that 

the purchaser does not own, lease, or 

control, and for which the purchaser 

makes no payment, the Staff Report 

recommended a slight modification to 

§ 437.1(c)(3)(i), amending it to state: 

"provide locations for the use or 

operation of equipment, displays, 

vending machines, or similar devices, 

owned, leased, controlled, or paid for by the purchaser." rna 

2 '" See 73 FR at 16123. 

103 Staff Report at 34. 

!64 See 71 FR at 19062. 16• For example, Primerica, an MLM that sells 

insurance products and services, requires that its 

regional managers provide at no cost to "downlitie" 

sales agents the use of office space, supplies, and 

equipment (such as computers and printers) for the 

operation of his or her business. Primerica noted 

that, as a practical matter, it must require this 

assistance, as the regulatory structure in which 

Primerica operates necessitates that regional 

managers exercise compliance oversight functions 

with respect to the agents in their downlines. 

Primerica-RNPR; see also Avon-RNPR; TupperwarcRNPR. 

rnn 73 FR at 16123 (citing FTCv. Am. Entm't 

Distribs., No. 04-22431-CIV-Martinez (S.D. Fla. 

2004); FTC v. Advanced Pub. Commc'ns Corp., No. 

00-00515-CIV-Ungaro-Benages (S.D. Fla. 2000); 

FTCv. Ameritel Payphone Distribs., me., No. 00-

0514-CIV-Gold (S.D. Fla. 2000); FTCv. Mktg. and 

Vending Concepts, No. 00-1131 [S.D.N.Y. 2000)). 

rn, FTCv. Equinox, Int'/, No. CV-S-99--0969-

JAR-RLH (D. Nev: 1999). 

1os Tim Staff Report recommended that the 

Commission strike the final clause of this provision 

of the RPBOR-"on premises neither owned or 

leased by the purchaser"-noting that the clause is 

No comments responding to the Staff 

Report addressed this proposal. The 

Commission adopts the change 

recommended in the Staff Report. This 

change clarifies that the third prong of 

the "business opportunity" definition is

triggered only when the seller offers to 

provide the purchaser, directly or 

through an intermediary, with locations

in which to place equipment, displays, 

vending machines, or similar devices 

that the purchaser controls. This change

will not compromise the. long-standing 

coverage of the Rule, and will allow 

legitimate sellers to offer beneficial 

assistance to purchasers, at no cost to 

those purchasers.169 

4. Section 437.l(d): Designated Person 

The term "designated person" 

appears in the definition of "business 

opportunity" to ensure coverage over 

those transactions in which a seller 

refers a purchaser to a third party for the

provision of business locations, 

accounts, or assistance such as buy-back

services, as specified in§ 437.1(c)(3). 

That section makes clear that in order to 

fall within the scope of the business 

opportunity definition, the business 

assistance being offered need not be 

provided to the purchaser by the seller 

directly. Rather, a seller who represents 

that business assistance may or will be 

provided by a third party, such as a 

locator or a supplier, wi.11 still be 

covered by the Rule. Section 437.1(c)(3) 

uses the term "designated person" to 

refer to any third parties who would 

provide business assistance to a 

business opportunity purchaser and to 

close a potential loophole. For example, 

a fraudulent vending machine route 

seller would not be able to circumvent 

the final Rule by representing to a 

prospective purchaser that a specific 

locator will place machines for the 

purchaser.170 The referral to a third 

party would be sufficient to bring the 

transaction within the ambit of the 

Rule. 171 Section 43 7 .1 ( d) of the final 

superfluous, as a buyer would never need a seller's 

assistance in identifying locations that the buyer 

already owns or leases. The Commission agrees, 

and the final Rule does not include this language. 

'"" In the final Rule, a non-substantive change 

was made to the definition of "business 

opportunity" proposed in the Staff Report-the 

colon and number signaling the first element of the 

definition was moved. This change simply makes 

the sentence structure parallel. 

110The Commission's law enforcement 

experience demonstrates that closing this potential 

loophole is necessary. For example, in FTC v. 

Greeting Cards of Am .. Inc., No. 03-60746-CIVGold (S.D. Fla. 2003). thu FTC alleged that the 

business opportunity seller represented that a third 

party locator would secure locations for the 

prospective purchaser, and the locator failed to do 

so. 

1 71 See 71 FR al 19064. 

Rule defines the term "designated person" to mean "any person, other 

than the seller, whose goods or services 

the seller suggests, recommends, or requires that the purchaser use in 

establishing or operating a new business." 1 72 

One commenter argued that the 

proposed definition of "designated 

person" was overbroad and that its 

application would result in many multilevel marketing opportunities being 

swept into the Rule.173 For instance, if 

an MLM company requires its managers 

to provide the use of office space, 

equipment and supplies, and general 

business advice to new agents (and 

presumably to describe these types of 

assistance to prospective purchasers as 

part of a sales pitch),174 one could argue 

that the company would be covered by 

the Rule. 175 The commenter offered 

several suggested revisions to resolve 

this problem, one of which was to 

specify that "designated person" does 

not include entities that receive no 

payment from the purchaser in order to 

receive the services provided. 1 7 6 The 

Staff Report noted that alternate 

resolutions were more appropriatenamely the modification to the 

definitions of "business opportunity" 

and "providing locations, outlets, 

accounts, or customers," and 

recommended, therefore, that the 

definition of "designated person" be 

adopted in the form proposed in the 

RNPR. No comments in response to the 

Staff Report addressed this definition, 

and the final Rule adopts the definition 

as recommended. 

5. Section 437.l(e): Disclose or State 

Section 437.l(e) of the final Rule 

defines "disclose or state" to mean "to 

give information in writing that is clear 

and conspicuous, accurate, concise, and 

legible." 177 The purpose of this 

definition is to ensure that a prospective 

purchaser will receive complete 

information in a form that a prospective 

purchaser easily can read. For example, 

the furnishing of a disclosure document 

without punctuation or appropriate 

'" This approach is consistent with the Amended 

Franchise Rule's analogous defmitional elements, 

extending the scope of that rule's coverage to rearh 

transactions in which the franchisor provides to the 

franchisee the services of a person able to secure 

the retail outlets, accounts, sites, or locations. See 

16 CFR 436.l(j). 173 Primerica-RNPR at 11. 

4 11 The MLM company compensates managers for 

this service; there is no cost to down-line agents. 

Primerica-RNPR at 11. 

175 Id. 

5 11 Id. at 13. 

177 See FTC Policy Statement on Deception, 

appended to G1iffda]e Associates, Inc., 103 F.T.C. 

110, 174 (1984) (discussing the standard for clear 

and conspicuous disclosures). 

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 	 	 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 76833 

spacing between words would not be 

"clear." Similarly, required information

such as the number and percentage of 

prior purchasers who obtained a 

represented level of earnings would not

be "conspicuous" if set in small type, 

printed in a low-contrast ink, or buried 

amid extraneous information. 

The proposed definition of "disclose 

or state" received no comment. The 

final definition, therefore, is adopted as 

proposed. 

6. Section 437.1(0: Earnings Claim 

The final Rule's key feature is the 

disclosure document, which provides a 

potential purchaser of a business 

opportunity with five items of material 

information, including \.\Titten 

disclosure of all "earnings claims" mad

by the seller, before the purchaser pays 

any money or executes a contract. This 

will allow a potential purchaser to 

compare a seller's written 

representations with any oral 

representations made. The term 

"earnings claim" is defined in the final 

Rule as "any oral, written, or visual 

representation to a prospective 

purchaser that conveys, expressly or by 

implication, a specific level or range of 

actual or potential sales, or gross or net 

income or profits." 178 This 

intentionally broad definition will cover

all variations of earnings representations

that the Commission's law enforcement 

experience shows are associated with 

business opportunity fraud. 179 

For illustrative purposes, the 

definition includes two examples of 

communications that constitute 

earnings claims. The first of these 

examples describes common types of 

potentially fraudulent earnings claims: 

"A chart, table, or mathematical 

calculation that demonstrates possible 

results based upon a combination of 

variables." This example is intended to 

clarify that sales matrices that purport to

show income from an array of "vends" 

per day from a vending machine, for 

example, would constitute an "earnings 

claim" under the final Rule.180 

The second example incorporates the 

principle, as expressed in the 

Interpretive Guides to the Original 

Franchise Rule, that "any statements 

from which a prospective purchaser can 

reasonably infer that he or she will earn 

a minimum level of income" constitute 

an earnings claim. 181 Given the 

176 This definition is substantially similar to the 

Amended Franchise Rule's definition of "financial 

performance representation," which is the 

Amended Franchise Rule's equivalent of an 

earnings claim. See 16 CFR 436.l(e). 

110 71 FR at 19065. 

1RO Id. 

161 44 FR at 49982. 

e 

prevalence of earnings claims in 

business opportunity sales, the 

Commission believes that a broad 

earnings disclosure requirement is 

necessary to prevent fraud. Therefore, 

the final Rule is not limited to express 

earnings claims, but also includes 

implied claims, Indeed, such implied 

claims are at least as likely to mislead 

prospective purchasers as express 

claims. 1112 The final Rule's definition 

includes three specific examples 

illustrative of this type of earnings 

claim, as follows: "Earn enough to buy 

a Porsche," "earn a six-figure income," 

and "earn your investment back within 

one year." Each of these three 

illustrative examples implies a 

minimum value-the cost of the lowest 

priced Porsche in the first· example; at 

least $100,000 in the second; and an 

amount equal to the purchaser's initial 

investment in the third. Accordingly, 

this language makes clear that these 

types of representations are 

indistinguishable from direct, express 

earnings claims. 

Some commenters have argued that 

the definition of "earnings claim" is 

overly broad and that the Commission 

should narrow the definition. rn:i 

Earnings claims, however, lie at the 

heart of business opportunity fraud and 

typically entice consumers into 

investing their money. The Commission 

has determined that narrowing the 

definition of "earnings claim" could 

allow business opportunity sellers to 

avoid disclosing critical information to 

prospective purchasers. Accordingly, 

the definition of "earnings claim," as 

proposed in the RPBOR and 

recommended in the Staff Report, is 

adopted without change. 

7. Section 437. l(g): Exclusive Territory 

This term is defined because it is 

referenced in§ 437.6(n), which 

prohibits misrepresentations concerning 

territory exclusivity. Representations 

about exclusive territories are material 

because they purport to assure a 

potential purchaser that he or she will 

not face competition from other 

purchasers of the same business 

opportunity in his or her chosen 

location, or from the seller offering the 

same goods or services through 

alternative channels of distribution. 184 

Exclusive territory promises go to the 

viability of the business opportunity 

and to the level of risk en tailed in the 

purchase.185 Indeed, misrepresentations 

about territories have commonly been 

182 Jnlerprelive Guides, 44 FR 4996fl. 

18, 73 FR at 16124. 

18• See 71 FR at 19065. 

rns Id. 

made by business oppmtunity sellers to 

lure consumers Into believing that a 

purchase poses little financial risk. 186 

Section 437.l(g) of the final Rule 

defines the term "exclusive territory" as 

"a specified geographic or other actual 

or implied marketing area in which the 

seller promises not to locate additional 

purchasers or offer the same or similar 

goods or services as the purchaser 

through alternative channels of 

distribution." This definition reflects 

the common industry practice of 

establishing geographically delimited 

territories-such as a city, county, or 

state borders-as well as other 

marketing areas, such as those 

delineated by population. 187 The 

definition includes both representations 

that other business opportunity 

purchasers will not be allowed to 

compete with a new purchaser within 

the territory, as well as representations 

that the business opportunity seller 

itself or other purchasers will not 

compete with the new purchaser 

through alternative means of 

distribution, such as through Internet 

sales. 

The definition also covers implied 

marketing areas, such as representations 

that the seller or other operators will not 

compete with the purchaser, without 

delineating a specific territory, or stating 

a vague or undefined territory, such as 

"in the metropolitan area" or "in this 

region." If untrue, any of these kinds of 

representations can mislead a prospect 

about the likelihood of his or her 

success. 188 

The definition of "exclusive territory" 

received no comment. Accordingly, the 

definition of "exclusive territory," as 

proposed in the RNPR and 

recommended in the Staff Report, is 

adopted without change. 

8. Section 437.l(h): General Media 

The term "general media" appears in 

§ 437.4(b), which prohibits business 

opportunity sellers from making 

nsubstantiated earnings claims in the 

"general media." ·

189 Section 437.l(h) of 

10"E.g., FTCv. Vendors Fin. Serv., Inc., No. 98-

832 (D. Colo. 1998); FTC v. Int'} Computer 

oncepts, Inc., No. 1:94CV1678 (N.D. Ohio 1994); 

TCv. O'Rourke, No. 93--6511-CIV-Ferguson (S.D. 

la. 1993); FTC v. Am. Safe Mktg., No. 1:89--CV62-RLV (N.D. Ga. 1989). 

181 71 FR at 19065. 

188 Id. 

1 "" This provision is based on an analogous 

rovision in the Amended Franchise Rule. 16 CFR 

36.l(o). The Commission has challenged allegedly 

nsubstantiated earnings claims made through the 

eneral media in numerous cases, e.g., FTC v. 

eolth Sys., Inc., No. CV 05 0394 PHX )AT (D. Ariz. 

005); United States v. Am. Coin-Op Servs., Inc., 

o. 00-0125 (N.D.N.Y. 2000); United States v. Cigar 

actory Outlet, Inc., No. 00--6209-CIV-GrahamContinued 

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 	 	 76834 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 

the final Rule defines "general media" 

to mean: "Any Instrumentality through 

which a person may communicate with 

the public, including, but not limited to, 

television, radio, print, Internet, 

billboard, Web site, commercial bulk 

email, and mobile communications." 19n 

Due to the explosive growth of 

advertising through mobile devices, the 

Staff Report recommended adding the 

phrase "mobile communications" to the 

list of instrumentalities enumerated in 

the definition.191 

The definition of general media 

recommended in the Staff Report 

received no comment. The Commission 

has determined to adopt the staffs 

recommendation and has therefore 

modified the definition of general media 

to include mobile communications. 

Moreover, the definition of general 

media is not intended to contain an 

exhaustive list of instrumentalities, and 

other current (and future) types of mass 

communication could also fall within 

the general media definition. 

9. Section 437.l(i): Material 

The term "material" is used in several 

sections of the final Ruic. 192 Section 

437.3(a)(4) of the final Rule requires 

sellers that offer refunds and 

cancellations to "state all material terms 

and conditions of the refund or 

cancellation policy in an attachment to 

the disclosure document." The term 

"material" is also used in other 

provisions of the Rule. For example, 

under§ 43 7.2 (the obligation to furnish 

written documents), it is a violation of 

the Rule for the seller to fail to disclose 

the "material" information specified in 

§ 437.3. Section 437.3, in turn, specifies 

the items of "material" information that 

must be disclosed. The definition of 

"material" at §437.l(i) was added to the 

final Rule because some workshop 

participants expressed concern that 

§437.3(a)(4) as originally proposed 

would not provide sellers with 

sufficient guidance about the types of 

Turnoff (S.D. Fla. 2000); United State.~ v. Emily 

Water & Beverage Co., Inc., No. 4-00--00131 (W.D. 

Mo. 2000); and United States v. Greeting Card 

Depot, Inc., No. 00-6212--CIV-Gold (S.D. Fla. 2000). 

190 See Interpretive Guides, 44 FR at 49984-85 

(earnings claims made "for general dissemination" 

indude "daims made in advertising (radio, 

television. magazines, newspapers. billboards, etc.) 

as well as those contained in speeches or press 

releases"). The Commission notes that tho 

Interpretive Guides recognize several exemptions to 

the general media claim, such as claims made to the 

press in connection with bona fide news stories, as 

well as claims made directly to lending institutions. 

Id. The Commission has proposed that future 

Compliance Guides to the new Business 

Opportunity Rule retain these standard general 

media claims exemptions. See 71 FR at 19065. 101 Staff Report at 42-43. 192 See§§ 437.1, 437.2, 437.3, 437.4, 437.6, 437.7, 

and 437.B. 

information that should be disclosed. 19

In the Staff Report, the staff 

recommended that "material" be 

defined to mean as "likely to affect a 

person's choice of, or conduct regarding

goods or services." 194 This definition is

consistent with the definition of 

"material" used in the Telemarketing Sales Rule ("TSR"). 1 5 9

The definition of "material" 

recommended in the Staff Report 

received one comment.19n The 

commenter expressed concern that the 

definition could be used by sellers as a 

potential loophole. The commenter 

suggested that the definition effectively 

would permit a seller to avoid 

disclosing the information required by 

the Rule by arguing that such 

information is not likely to affect a 

buyer's decision.197 The commenter 

further stated that if the Commission 

retained the recommended definition, 

the Rule should contain the following 

language: "Even though this Rule 

imposes various requirements for 

specific disclosures, sellers are 

permitted to dispense with any 

disclosures which would not be likely 

to affect a buyer's choice of, or conduct 

regarding goods or services." nm 

The Commission disagrees with the 

commenter. The final Rule mandates th

disclosure of certain types of 

information, which the Commission has

determined are material to a purchaser's

investment decision.199 The language 

the commenter proposes does nothing to

close any perceived loophole. The 

Commission is not persuaded that the 

commenter's suggested change will 

improve clarity. In fact, it may obscure 

the definition. The Commission is 

persuaded by the Staff Report that a 

definition of "material" is necessary and

adopts the definition as recommended. 

10. Section 437.l(j): New Business 

The term "new business" appears in 

the first of three definitional elements of

rn, Morrissey, June 09 Tr at 41; Taylor, June 09 

Tr at 43; Cantone, June 09 Tr at 47. 

10• Under the TSR, the Commission requires 

sellers to disclose all material terms and conditions 

of the seller's refund policy if the seller makes a 

representation about the refund policy. See 16 CFR 

310.3(a)(l )(iii). 

'"' See 16 CFR 310.Z(q) (defining "material" to 

mean "likely to affect a person's choice of, or 

conduct regarding, goods or services or a charitable 

contribution"); .~ee also FTC Policy Statement on 

Deception, appended to Cliffdale Associates, Inc .. 

103 F.T.C. 110, 174 (1984) (defining "material" 

misrepresentation or practice to mean "one which 

is likely to affect a consumer's choice of or conduct 

regarding a product"). 

ma Dub-Staff Report. 

101 Id. at 2-3. 

ma Id. at 2. 

199 See supro Section I.C.2 discussing tho fivo 

substantive disc:losurn items and why they are 

material to consumers. 

a 

,

e 

the term "business opportunity." 200 

Section 437.l(j) of the final Rule defines 

"new business" as a "business in which 

the prospective purchaser is not 

currently engaged, or a new line or type 

of business." Because it is reasonable to 

assume that a veteran businessperson 

may need the final Rule's protections as 

much as a novice, 201 the latter language 

of the definition covers the sale of 

business opportunities to persons who 

may already be involved in some type 

of business other than that which is 

being offered by the seller. 202 

The proposed definition of "new 

business" received no comment. 

Accordingly, the Commission adopts 

the definition of "new business," as 

proposed in the RNPR and 

recommended in the Staff Report. 

11. Section 437.l(k): Person 

Section 437.l(k) of the final Rule 

defines the term "person," a term used 

in many of the final Rule's definitional 

or substantive provisions. 203 The Staff 

Report recommended that the term be 

defined as "an individual, group, 

association, limited or general 

partnership, corporation, or any other 

entity." 204 

The Commission received no 

comments related to the proposed 

definition of "person." The Commission 

adopts the definition of "person" as 

recommended in the Staff Report, with 

one slight modification. To clarify that 

the term encompasses entities that are 

businesses, the Commission added the 

word "business" to the last clause of the 

definition. Accordingly, the final Rule 

defines the term as "an individual, 

group, association, limited or general 

partnership, corporation, or any other 

business entity." 205 The term "person" 

is to be read broadly to refer to natural 

persons, businesses, associations, and 

other business entities. Where the Rule 

refers to a natural person only, it uses 

the term "individual." 206 

zoo The first of the three definitional elements of 

a "business opportunity" is a" solicitation to enter 

into a "new business." Section 437.l(c)(l). This 

element distinguishes the sale of a business 

opportunity from the ordinary sale or products and 

services. 71 FR at 19066. 

201 71 FR at 19066. 

2 20 For example, an existing tire business owner 

could purchase a vending machine route, or a 

beverage vending machine route owner could 

purchase an envelope stuffing opportunity. 

20:l E.g.,§§ 437.1; 437.6(q). 

204 This definition is consistent with the 

definition of tho term "person" in both the interim 

Business Opportunity Rule and the Amended 

Franchise Rulo. See 16 CFR 436.l(n); interim 

Business Opportunity Rule 437.Z(b). 

20• This definition is consistent with the 

definition of the term "person" in the TSR. See 

16 CFR 310.2(v). 

20s 71 FR at 1 !J066. 

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 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76835 

12. Section 437.1(1): Prior Business 

The final Rule requires sellers to 

disclose certain civil and criminal 

actions against them, including actions 

against a "prior business of the 

seller." 207 Section 437.1(1) of the final 

Rule defines "prior business" to mean: 

(1) A business from which the seller 

acquired, directly or indirectly, the 

major portion of the business' assets; or

(2) Any business previously owned o

operated by the seller, in whole or in 

part. 

This definition is intended to include

not only an entity from which a seller 

acquired the major portion ofthe seller'

assets, but also businesses that the selle

previously owned or operated.2°11 A 

broad definition of "prior business" is 

necessary to capture all of a seller's 

prior operations. 209 The Commission's 

law enforcement experience shows that 

sellers of fraudulent business 

opportunities frequently ply their trade 

through multiple companies 

simultaneously or sequentially, 

disappearing in order to avoid 

detection, and then reemerging in some 

new form or in a different part of the 

country under new names.210 The 

definition thus requires a more 

complete disclosure of the seller's 

business history. 

The final definition of "prior 

business" differs from the definition 

included in the RPBOR.211 The Staff 

Report recommended that the definition

eliminate a reference to the prior 

businesses of the seller's key personnel. 

Namely, the second prong of the 

original definition defined prior 

business to include businesses owned o

operated by both the seller and the 

seller's key personnel.212 The 

Commission agrees that this change is 

necessary for two reasons. First, 

207 §437.3(a)(3). 20• The definition of prior business is broader 

than the definition of "predecessor" found in the 

Amended Franchise Rule, which covers only an 

entity from which a seller acquired the major 

portion of the seller's assets. See 16 CFR 436.l(p). 200 71 FR at 19066. . 

210 E.g., FTCv. Nat'] Vending Consultants .. Inc., 

No. 05--0160 (D. Nov. 2005); FTCv. /osoph Hayes, 

No. 4:96CV06126 SNL (E.D. Mo. 1996); FJ'Cv. 

O'Rourk11, No.93-6511-CIV-Ferguson (S.D. Fla. 

1993); FTCv. Inv. Dev. Inc., No. 89--0642 [E.D. La. 

1989). 

211 Proposed §437. l(k) of the RPBOR would have 

defined "prior business" to mean: 

(1) A business from which the seller acquired, 

irect! y or indirectly, the major portion of the 

usiness' assets. or 

(2) Any business previously owned or operated 

y the seller, in whole or in part, by any or the 

eller's officers, directors, sales managers, or by any 

ther individual who occupies a position or 

erforms a function similar to that of an officer, 

irector, or sales manager of the seller. 

212 Jd. 

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§ 437.3(a)(3)(i)(B) requires disclosure of

legal actions pertaining to a prior 

business "of the seller," and so 

including the seller's key personnel in 

the definition of "prior business" is 

confusing. Second,§ 437.3(a)(3)(i)(C) 

separately requires disclosure oflegal 

actions pertaining to the seller's key 

personnel, namely; "the seller's officers

directors, sales managers, or by any 

other individual who occupies a 

position or performs a function similar 

to that of an officer, director, or sales 

manager of the seller." The change, 

therefore, does not affect the scope of 

the required disclosure of legal actions, 

but rather clarifies a term that is 

otherwise confusing and somewhat 

redundant. Accordingly, the 

Commission adopts the definition of 

"prior business" with the modification 

recommended by the staff. 

13. Section 437.l(m): Providing 

Locations, Outlets, Accounts, or 

Customers 

The definition of "providing 

locations, outlets, accounts, or 

customers" relates to the third prong of 

the "business opportunity" definition, 

which sets forth the types of assistance 

the seller represents it will provide to 

the purchasers of its business 

opportunity. 213 The Commission's law 

enforcement history shows that 

fraudulent business opportunity sellers 

often falsely promise to assist 

purchasers in obtaining key elements 

necessary for the success of the 

proposed-business: A source of 

customers, locations, outlets, or 

ccounts. For example, deceptive 

epresentations concerning location 

ssistance are the hallmark of fraudulent

ending machine and rack display 

pportunities,214 while deceptive 

epresentations concerning the 

rovision of accounts or customers are 

ypical of medical billing schemes.215 In 

uch schemes, the seller itself may 

urport to secure locations, outlets, 

ccounts, or customers, or may 

epresent that third parties will do so. 

herefore, the final Rule defines 

213 See§ 437.1(c](3). 

"•E.g., FTCv. Am. Entm't Distribs., No. 04-

2431-CIV-Martinez (S.D. Fla. 2004]; FTCv. 

dvanced Pub. Commc'ns Corp., No. 00--00515-

JV-Ungaro-Benages (S.D. Fla. 2000); FTCv. 

meritel Payphone Distribs., Inc., No, 00--0514-

IV-Cold (S.D. Fla. 2000); FTC:v. Mktg. and 

ending Concepts, No. 00-1131 (S.D.N.Y. 2000). 

21 s E.g., FTC v. Medi works, Tnc., No. 00-01079 

.D. Cal. 2000); FTC v. Hom(! Professions. Inc., No. 

0-111 (C.D. Cal. 2000); FTCv, Dato Med. Capital, 

nc., No. SACV-99-1266 (C.D. Cal. 1999); see also 

TC v. AMP Publ'ns, Inc., No. SACV--00-112-AHSNx (C.D. Cal. 2000). 

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"providing locations, outlets, accounts, or customers" as: 

furnishing the prospective purchaser with 

existing or potential locations, outlets, 

accounts, or customers; requiring, 

recommending, or suggesting one or more 

locators or lead generating companies; 

providing a list of locator or lead generating 

companies; collecting a fee on behalf of one 

or more locators or lead generating 

companies; offering to furnish a list of 

locations; or otherwise assisting the 

prospective purchaser in obtaining his or her 

own locations, outlets, accounts, or 

customers, provided, however, that 

advertising and general advice about 

business development and training shall not 

be considered as "providing locations, 

outlets, accounts, or customers." 216 

The proviso, underscored above, has 

been added to the definition put forth in 

the RNPR. As originally proposed in the 

INPR, the definition ended immediately 

after the clause "otherwise assisting the 

prospective purchaser in obtaining his 

or her own locations, outlets, accounts, 

or customers." In the RNPR, however, 

the Commission stated that in 

interpreting this unqualified clause, it 

would "continue to apply its 

longstanding analysis, which considers 

the kinds of assistance the seller offers 

and the significance of that assistance to 

the prospective purchaser (e.g., whether 

the assistance is likely to induce 

reliance on the part of the prospective 

purchaser)." 217 In the RNPR, the 

Commission solicited comment on three 

issues related to the "otherwise 

assisting" clause of the definition: (1) 

Whether the "otherwise assisting" 

clause adequately covered all of the 

business opportunity arrangements that 

should be within the scope of the rule; 

(2) whether inclusion of the "otherwise 

assisting" clause in the definition would 

cause traditional product distribution 

arrangements, educational institutions, 

or how-to books to be subject to the 

Rule; and (3) whether the clause would 

result in the inclusion of multi-level 

marketing relationships that otherwise 

would nol be covered by the Rule. 218 

The majority of commenters who 

addressed this definition in response to 

the RNPR focused on when the 

"otherwise assisting'.' clause of the 

definition would be triggered. 

Comrnenters from the MLM industry 

216 The proposed definition was intended to 

capture offers to provide locations that have already 

been found, as well as offers to furnish a list of 

potential locations; and includes not only directly 

furnishing locations, but also ·'recommending to 

prospective purchaser specific locators, providing 

lists or locators who will furnish the locations, and 

training or otherwise assisting prospects in finding 

their own locations." 71 FR at 19066. 217 73 FR at 16124. 2m Id. at 16133. 

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 	 	 ·76836 Federal Register/ Vol. 76, No. 236 /Thursday, December 8, 2011 I Rules and Regulations 

were concerned that various types of 

optional or no-cost assistance that MLM 

companies frequently offer their sales 

representatives could be considered to 

be "otherwise assisting." 219 These 

include such things as general advice 

and training about how to succeed in a 

new business venture,220 general 

advertising for the purpose of promoting 

the MLM's products or services,221 

occasional ad hoc referrals from 

consumers who contact the company 

directly,222 and optional business tools, 

such as web templates and links to 

corporate Web sites that some MLM 

companies offer for sale to its sales 

representatives. Additionally, one 

commenter expressed concern that 

because of this open-ended clause, 

sellers of general training services, such 

as training on how to start a new 

business and advice about how to obtain 

customers, would be covered by the 

Rule.223 

Commenters made a number of 

suggestions to cure what they perceived 

to be the overbreadth of this provision. 

Some commenters suggested omitting 

the word "customers" from the 

"otherwise assisting" provision and the 

corresponding provisions of the 

"business opportunity" definition.224 

Other commenters recommended that 

the definition distinguish customers 

from "near customers" so as to exclude 

the provision of potential customers or 

businesses that the seller obtains from 

publicly available records.225 Others 

suggested adding a statement that nocost general business advice is not 

"providing customers." 226 Another 

commenter suggested adding a new 

clause to the.definition of business 

opportunity that would create an 

exception when the assistance offered 

by the seller is limited to advice or 

210 E.g., DSA-RNPR at 5 (tools are intended to 

maintain brand uniformity and promote effective 

customer service). 220 E.g., Primeric:a-RNPR at 5 (provides advice and 

training about how to identify potential customers 

and how to make effective sales presentations); 

Tupperware-RNPR at 4 (provides training about 

how new representatives can develop own 

customer bases); Venable-RNPR. 

221 DSA-RNPR at 4 (5/27/2008); Primerica-RNPR 

at 6. 

222 E.g., Avon-RNPR at 3 (1wting that this practice 

is designed to help polenlial customers find a sales 

representative, not to help sales representatives find 

potential customers); Mary Kay-RNPR at 7 

(suggesting that merely providing the ability to 

search for a sales associate on the company's Web 

site should not trigger the "providing locations" 

factor of the "business opportunity" definition); 

DSA-RNPR at 5; Melaleuca-RNPR at 2. 23 2 Venable-RNPR at 2. 

22• DSA-RNPR al 5; Venable Rebuttal-RNPR at 3; 

Primerica-RNPR at 5. 2 " Venable-RNPR. 22" Primerica-RNPR at 8; Tupperware-RNPR at 6; 

Avon-RNPR; Mary Kay-RNPR. 

training. Some commenters suggeste

ollminating the concept of "potential 

customers" from the scope of the 

"otherwise assisting" language.2211 

Finally, one commenter suggested 

revising the definition of "business 

opportunity" to require that the seller's 

assistance in providing outlets, accounts

or customers be a "material 

inducement" to the purchaser.229 

The Staff Report noted a concern with

narrowing the definition in the ways the

commenters suggested, because it woul

allow promoters of fraudulent schemes 

to craft their sales pitches carefully to 

evade the Rule. The staff disagreed with 

commenters who recommended 

excising the word "customers" from the 

definition or diluting it in some fashion. 

Instead, the Staff Report recommended 

that the Commission continue its longstanding policy of analyzing the 

significance of assistance in the context 

of the of the specific business 

opportunity, focusing on whether the 

seller's offer is "reasonably likely to 

have the effect of inducing reliance on 

[the seller] to provide a prepackaged 

business." 230 

While urging that the word 

"customers" remain in tho definition, 

the Staff Report did recommend new 

qualifying language to address the 

concern that the definition could be 

read more broadly than intended. 

Specifically, the Staff Report 

recommended adding a short proviso to 

the "otherwise assisting" clause as 

follows: "provided, however, that 

advertising and general advice about 

business development and training shall

not be considered as 'providing 

locations, outlets, accounts, or customers.'" z:n 

The language recommended in the 

Staff Report received two comments. 

DOJ strongly agreed that "customers" 

should remain in the definition, noting 

that the allure of a business opportunity 

is the purported ready cash flow to the 

purchaser, which can come either from 

locations or customers, depending on 

the nature of the opportunity being 

22, Pre-Paid Legal-RNPR. 

22• Mary Kay-RNPR at 7 (as an alternative Mary 

Kay suggests that in tho commentary to the Final 

Rule, the Commission make clear that passing on 

ad hoc referrals of customers who contact the 

company directly would not trigger this provision). 

22• Melaleuca-RNPR. 

2,0 Staff Advisory Opinion 95-10, Busine.ss 

Franchise Guide (CCH) 'II 6475 (1995), 

za1 For example, this new proviso was designed 

to make clear that giving advice about how to 

demonstrate products, complete product order 

forms and how lo process relums (TupperwareRNPR); or providing product advertising in the 

general media and training in customer and 

business development (Primerica-RNPR), would nol 

be considered as "providing locations. outlets, 

accounts, and customers." 

227 d 

d 

offered.2:n DOJ also agreed with the 

stafrs recommendation to Include the 

proviso, but objected to further 

narrowing of coverage, arguing that any 

loophole would be vigorously exploited 

by fraudulont business opportunity 

sellers.233 Tupperware similarly 

encouraged the Commission to adopt 

the proviso as recommended, stating 

that the proviso will allow businesses to 

continue to provide general business 

advice and training without the risk of 

inadvertently falling under the aegis of 

the Rule.234 

The Commission is persuaded by the 

Staff Report's recommendation not to 

eliminate the word "customers" from 

the "otherwise assisting" clause of the 

definition, and to add qualifying 

language to the definition to tailor 

coverage more appropriately. Providing 

the prospective purchaser with 

assistance in obtaining customers is a 

feature common to many business 

opportunities and should be included in 

the definition. For instance, in the cases 

the Commission has brought against 

medical billing opportunities, it is 

typical for sellers to offer to provide 

assistance to the potential purchaser in 

finding customers for the medical 

billing service.235 Although the RNPR 

made clear that the "otherwise 

assisting" provision ofthe definition 

was not intended to apply to 

advertising, no-cost offers of general 

business advice, and training described 

by the various commenters,236 the 

qualifying language is necessary to 

prevent the definition from a broader 

reading than the Commission intends. 

The final Rule, therefore, contains the 

proviso recommended in the Staff 

Report. 

14. Section 437.l(n): Purchaser 

The final Rule defines the term 

"purchaser" to mean "a person who 

buys a business opportunity." By 

operation of the definition of 

"person," z:i7 a natural person, as well as 

any other entity, would qualify as a 

business opportunity purchaser. The 

definition of "purchaser" received no 

2n DOJ-Staff Report at 1-2. 

233 ld. at 2. 

4 23 Tupperware-Staff Report et 2. 

235 See, e.g., FTC v. Med. Billers Network, Inc., 

No, 05-CV-2014 (S.D.N.Y. 2005); FTCv, Med,• 

Billing.com, Inc., No. 3--02CV0702CP (N.D. Tex. 

2002); FTGv. Electronic Med. Billing, Inc., No. 

SACV02-368 AHS (C.D, Cal. 2002): see also FTC v. 

Steir Publ'g Group, Inc., No. 00cv--023D (D. Wyo. 

2000) (offering to everything necessary to uarn 

money processing HUD refunds); FTC v, AMP 

Publ'ns, Inc., SACV--00-112-AHS-Anx (C.D. (',al, 

2000) (offering to provide !isl of companies in need 

of consumer's home-based computer services). 

zsn 73 FR at 16123. 2" Section 43 7 .1 (k). 

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comment, and the final Rule includes 

tho doflnltlon as proposed. 

15. Section 437.l(o): Quarterly 

To ensure accuracy and reliability of 

disclosures, §437.3 (instructions for 

completing the disclosure document) 

requires sellers to revise their 

disclosures at least "quarterly." 2:

18 The 

definition of "quarterly" sets forth a 

bright line rule that is easy to follow and

that ensures uniformity of disclosures: 

"Quarterly" means "as of January 1, 

April 1, July 1, and October 1." Thus, 

the final Rule requires sellers to update 

their disclosure by those specific dates 

each year. The definition of "quarterly" 

received no comment, and the final Rule

includes the definition as proposed. 

16. Section 437.l(p): Required Payment 

Under the final Rule's definition of 

"business opportunity," the Rule 

reaches only those opportunities where 

the prospective purchaser of a business 

opportunity makes a "required 

payment" to the seller. Section 437. l(p) 

of the final Rule defines a "required 

payment" to mean: all consideration that the purchaser must pay 

to the seller or an affiliate, either by contract 

or by practical necessity, as a condition of 

obtaining or commencing operation of the 

business opportunity. Such payment may be 

made directly or indirectly through a third 

party. A required payment does not include 

payments for the purchase of reasonable 

amounts of inventory at bona fide wholesale 

prices for resale or lease. 

The final definition of "required 

payment" is the same as proposed in the 

RNPR and is substantially similar to that 

employed in the Amended Franchise 

Ruic. It differs in that it includes 

language that reaches situations where a 

payment is made directly to a seller or 

indirectly through a third party. The 

RPBOR included this definition because 

without such a modification, fraudulent 

business opportunity sellers could 

circumvent the Rule by requiring 

payment to a third party with which the 

seller has a formal or informal business 

relationship. 239 

The last sentence of the definition 

excludes payments for reasonable 

amounts of inventory at bona fide 

wholesale prices.240 This effectuates the 

Commission's determination articulated 

23• Section 437.3{b) requires that until a seller has 

at least 10 purchasers, the list of references must be 

updated monthly. 

"" 73 FR at 16122. 240 The inventory exemption was originally set 

forth by the Commission in its 1979 Final 

Interpretative Guide to the Franchise Rule. 44 FR 

at 49967. The rationale for excluding payments for 

inventory was to exc:lude "[aJgenc:y relationships in 

which independent agents, compensated by 

commission, sell goods or services" (e.g., insurance 

salespersons). Id at 49967-68. 

in the RNPR, that traditional product 

distribution nrrangomonts should not bo 

covered by the Business Opportunity 

Rule.241 Manufacturers, suppliers, and 

other traditional distribution firms 

"have relied solely on the bona fide 

wholesale price exclusion to avoid 

coverage as a franchise." 242 

The IPBOR had eliminated this 

inventory exemption in an attempt to 

bring pyramid schemes that engaged in 

"inventory loading" within the ambit of 

the Rulc. 243 Several commenters 

contended that the IPBOR would have 

regulated a wide range of legitimate and 

traditional product distribution 

arrangements that were not associated 

with the types of fraud that business 

opportunity laws are designed to 

remedy. For example, one commenter 

suggested that the IPBOR could be read 

to cover product distribution through 

retail stores simply because the retailer 

pays for inventory. 244 This commenter 

suggested that its business operations 

would meet the IPBOR's definition of 

business opportunity because, among 

other reasons, the "payment" prong of 

the definition did not exempt voluntary 

purchases of inventory. 245 

Because the application of the IPBOR 

to these types of arrangements was 

unintended, the RPBOR narrowed the 

definition of "business opportunity" by 

clarifying that a "required payment" 

does not include payments for the 

purchase of reasonable amounts of 

inventory at bona fide wholesale 

prices.246 Moreover, in the RNPR, the 

Commission determined that 

challenging deceptive pyramid schemes 

in targeted law enforcement actions 

brought under Section 5 of the FTC Act 

is a more cost-effective approach than 

attempting to address pyramid schemes 

through the elimination of the inventory 

exemption as proposed in the IPBOR.247 

In response to the RNPR, MLM 

industry commenters urged the 

Commission to expand the inventory 

exemption additionally to exempt sales 

of business materials, supplies, and 

equipment to purchasers on a not-forprofit basis. 24 H Commenters stated that 

241 73 FR at 16122. 

242 Id. 

4 2 :i 71 FR at 19055. Inventory loading occurs 

when a company's incentive program forces recruits 

to buy more products than they could ever sell, 

often at inflated prices. If this occurs throughout the 

company's distribution system, the people at the 

top of the pyramid reap substantial profits, even 

though little or no product moves to market. 

244 73 FR at 16113-14. 

245 Id. 

240 Td. at 16114. 

241 73 FR at 16122. 

24a Commenters suggested various ways to 

expand the exemption. See DSA-RNPR at 4 

(recommending that the exemption include 

the business model often requires 

that now sales reprosontativos purchase 

materials, supplies, or equipment to 

facilitate his or her sales to 

consumers.249 At least one commenter 

also noted that individuals sometimes 

pay to become sales consultants solely 

to obtain the products that are part of 

the company's sales kit for personal use at less than retail cost.250 These 

commenters argued that without 

expanding the exemption, MLMs would 

be swept within the scope of the 

Rule.251 

The Staff Report noted these 

concerns, but opined that they were 

misplaced and that the suggested 

changes to the definition of "required 

payment" were unnecessary. 252 The 

staff recognized, however, that without 

making the changes suggested by the 

commenters, some MLM companies 

could indeed meet the "required 

payment" prong of the business 

opportunity definition.25:< But, as noted 

previously, in order to be covered by the 

Rule, an entity must meet each of the 

three definitional components of the 

term "business opportunity." 254 

Meeting one prong is insufficient to 

come within the scope of the Rule. 

"business materials, supplies, and equipment sold 

on a not-for-profit basis"); Mary Kay-RNPR at 2 

(same); Avon-RNPR at 2 (exemption should extend 

to "sales aid or kits at cost"); Tupperware-RNPR at 

4 (required payment should not include payments 

for the purchase of reasonable amounts of inventory 

at bona fide wholesale prices, which may be used 

for resale, lease or display, or payments for 

products for personal use). Also, one commenter 

expressed concern that under the proposed 

definition, voluntary payments made to third 

parties unaffiliated with the seller for items or 

equipment to be used in a purchaser's business 

could be considered a "required payment." See 

IBA-RNPR at 4. The Commission disagrees. By its 

very words, the definition is not intended to 

capture payments of the type described by the 

commenter, as such payments are not made directly 

or indirectly to the seller. 

240 DSA-RNPR at 4: Tupperware-RNPR at 2 

(explaining that it requires purchase of a starter 

Business Kit that contains a selection of 

Tupperware products sold below retail value for 

demonstration at parties); Mary Kay-RNPR at 4 

(initial sales kit, sold to consultant at below cost, 

is used to demonstrate products to customers): 

Avon-RNPR at 2 (sales kits, which explain business 

fundamentals and provide necessary equipment 

such as sales brochures, sales receipts, a tote bag, 

and product samples, are sold to independent sales 

representatives without a profit). 5 2 0 Tupperware-RNPR at 2 (products in starter 

Business Kit sold to sales consultants for $79 or 

$129 have retail value of $350 and $550 

respectively). 

251 DSA-RNPR; Mary Kay-RNPR: TupperwareRNPR: Pre-Paid Legal-RNPR. 

2sz Staff Report at 58. 

25" Id. at 57. 254 Id. Those components are: (1] A solicitation to 

enter into a new business; (2) a required payment 

made to the seller; and (3) a representation that the 

seller will provide assistance in the form of 

securing locations, securing accounts, or buying 

back goods produced by the business. Id. at n.186. 

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 	 	 76838 Federal Register I Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

Furthermore, the other clarifications 

and changes to the definitions of 

"business opportunity" and "providing 

locations, outlets, accounts, or 

customers" under the final Rule tailor 

coverage appropriately, and make the 

additional suggested changes to the 

"required payment" definition 

unnecessary. Accordingly, the Staff 

Report recommended that the definition 

of "required payment" be adopted in 

the form proposed in the RNPR. 255 

Moreover, the Commission is 

concernedthatexpandingthe 

exemption as the commenters suggested 

would create enforcement problems. For 

example, when a "required payment" 

includes both an inventory and noninventory component, it would be 

difficult to determine whether noninventory products-such as sales kits 

or display-related materials-were, in 

fact, being sold to purchasers at less 

than the seller's cost. Finally, the 

suggested changes could have the 

unintended effect of allowing some 

fraudulent business operators to be 

excluded from the Rule's coverage. 2 sn 

In response to the Staff Report, the 

Commission received one comment 

addressing the "required payment" 

definition. The commenter set forth the 

same suggestion it had provided in 

response to the RNPR-that a "required 

payment" should not include situations 

where the seller agrees to buy back from 

the purchaser any unused inventory 

within 12 months of purchase for at 

least 90 percent of the purchaser's 

cost. 257 The commenter, a large MLM 

company, continued to argue that 

incorporating this change into the 

definition of "required payment" would 

assist in creating regulatory certainty 

that the Rule would not cover this 

situation. The commenter disagreed 

with one of the justifications given in 

the Staff Report for urging no 

modification of the definition-namely, 

that satisfying the "required payment" 

definition, by itself, is insufficient to 

bring an entity within the scope of the 

Rule. The commenter argued that 

legitimate companies that might satisfy 

the "required payment" prong have too 

much at stake to rely on one of the other 

two prongs of the "business 

255 Id. 

2sa For example, in United States v. Universal 

Adver .. , Inc., No. l:06--cv-152-DAK (D. Utah 2006), 

the fraudulent business opportunity seller told 

purchasers they could earn significant money by 

signing up business owners to pay monthly fries to 

display their business cards in rack display "profit 

centers." In that case, the entire purchase cost went 

towards the rack display profit centers, which could 

be characterized as "display-related materials." 

257 Tupperware-Staff Report at 3. 

opportunity" definition to avoid 

covorogo under the Rulo.~58 

This argument is not persuasive. The 

definition of "required payment" 

already excludes payments for the 

purchase of inventory at bona fide 

wholesale prices. To the extent that the 

business opportunity seller offers 

inventory at prices above wholesale, 

such a payment would generate profit to 

the seller. If the Rule were modified to 

exempt payments for inventory not just 

at wholesale but also retail prices, such 

a change would give sellers an incentive

to structure their payment schemes to 

require only payment for inventory, in 

order to avoid coverage by the Rule. 

Moreover, granting an exemption to 

sellers that offer to buy back some 

percentage of unused inventory within 

12 months is problematic in light of the 

Commission's experience that 

fraudulent business opportunity sellers 

could go out of business, change names, 

or disappear d1,1ring that time. 2 1 M

Accordingly, the final Rule incorporates 

the definition of "required payment" as 

recommended in the Staff Report. 

17. Section 437.l(q): Seller 

The final Rule defines the term 

"seller" to mean: "A person who offers 

for sale or sells a business opportunity." 

Like the "purchaser" definition, it 

contemplates that both natural persons 

and entities may be business 

opportunity sellers. 260 The definition of 

"seller" is unchanged from the INPR, 

received no comment, either in response

to the RNPR or the Staff Report, and the 

final Rule adopts the definition as 

recommended in the Staff Report. 

18. Section 437.l(r): Signature or Signed 

Under § 437 .3(a)(6) of the final Rule, 

business opportunity sellers are 

required to attach a duplicate copy of 

the disclosure document, which is to be 

signed and dated by the purchaser. A 

designation for the signature and date is 

included at the bottom of the disclosure 

document. The Staff Report 

recommended adding a definition of 

"signature" to the Rule to clarify that a 

signature may include any electronic or 

digital form of signature to the extent 

that such signatures are valid under 

applicable law. 261 The recommended 

definition of "signature" received no 

comment. 

As recommended in the Staff Report, 

§437.l(r) of the final Rule stales: 

"Signature or signed" means "a person's 

25e Id. 

250 See DOJ-Staff Report al 2 (noting that many 

business opportunities begin and end within a short 

period of tin1e). 

2no 71 FR at 19067. 

zn, Staff Report at 59. 

affirmative steps to authenticate his or her identity." It includes a person's 

handwritten signature, as well as an 

electronic or digital form of signature to 

the extent that such signature is 

recognized as a valid signature under 

applicable federal law or state contract 

law." 112 2 This definition effectively 

permits business opportunity sellers to 

comply with the Rule electronically, 

consistent with the Electronic 

Signatures in Global and National 

Commerce Act, 15 U.S.C. 7001,263 and 

is consistent with other rules enforced 

by the FTC. 204 For example, a seller 

could obtain the digital signature of a 

purchaser by providing the disclosure 

document to the purchaser as a word 

processing document and require the 

purchaser to type his or her name into 

the form in the space provided for the 

signature. Alternatively, the seller could 

direct the purchaser to a web page that 

contains an electronic version of the 

disclosure document and require the 

purchaser to input his or her name 

before submitting the web-based form 

electronically. 

19. Section 437.l(s): Written or In 

Writing 

The final Rule, like the version 

proposed in the INPR, defines the terms 

"written" or "in writing," which are 

used throughout the Rule 265 as "any 

document or information in printed 

form or in any form capable of being 

downloaded, printed, or otherwise 

preserved in tangible form and read. It 

includes: type-set, word processed, or 

handwritten documents; information on 

computer disk or CD-ROM; information 

sent via email; or information posted on 

the Internet. It does not include mere 

oral statements." This definition is 

designed to capture information stored 

on computer disks, CD-ROMs, or 

through new or emerging technologies, 

as well as information sent via email or 

posted on the Internet. Nevertheless, the 

definition seeks a balance, attempting to 

minimize compliance costs while at the 

same time preventing fraud. To that 

end, the definition would make clear 

that all electronic media must be in a 

form "capable of being downloaded, 

printed, or otherwise preserved in 

tangible form and read," thus ensuring 

that a prospective purchaser who 

receives disclosures electronically can 

262 This definition is consistent with the 

definition of signature in the TSR. See 16 CFR 

310.3(a)(3). 

""" See 71 FR at 19067 n.142. 

20• Se" TSR, 16 CFR 310.3(a](3](i); Amended 

Franchise Rule, 16 CFR 436.3(u) (containing similar 

definitions). 

'"'E.g.,§§ 437.2, 437.3(a), 437.4(a). 

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 	 	 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 76839 

read them, share them with an advisor 

and retain them for future use.266 ' 

In response to the Staff Report, one 

commenter expressed concern that the 

Rule would be overly burdensome if 

electronic compliance were not 

permitted.267 As discussed above, 

however, the definition of "written" or 

"in writing" and the definition of 

"signature" or "signed" each makes 

clear that sellers can comply with the 

Rule electronically.268 Thus, the 

Commission adopts the definition as 

recommended in the Staff Report. 

B. Section 437.2: The Obligation To 

Furnish Written Documents 

. The next section of the Rule,§ 437.2, 

imposes a core requirement of the 

Rule-the obligation of sellers to furnish

prospective purchasers with a singlepage disclosure document before 

purchasers execute a contract or pay any

~oney. As noted previously, the 

disclosure document required under the

.Original Franchise Rule and interim 

Business Opportunity Rule was often 

extremely lengthy, cumbersome, and in 

some ways ill-suited to business 

opportunity transactions. Through the 

INPR and the RNPR, the Commission 

sought to simplify and streamline this 

document in order to make the 

disclosures more meaningful to 

consumers. 

The disclosure document mandated 

by §437.2 must be furnished at least 

seven calendar days before one of two 

events: Either (1) the execution of any 

contract in connection with the business

opportunity sale; or (2) the payment of 

any consideration to the seller.269 This 

provision is intended to ensure a 

uniform standard for determining when 

sellers must furnish disclosures before 

potential purchasers must put their 

money at risk. Section 437.2 clarifies 

that "payment to the seller" refers to 

payments made either directly to the 

seller, or indirectly through a third 

party, such as a broker, lead generator, 

or locator. 

The seven calendar-day period was 

modeled on the Original Franchise 

Rule's requirement that sellers furnish 

prospective purchasers with a 

completed copy of the disclosure 

document at least ten business days 

266 71 FR at 19067. 207 NG Franchise-Staff Report. 

w• See also supra note 261. 2 0 • Section 437.l{s) allows the disclosure 

document to be provided to purchasers 

electronically, such as by posting in on the Internet 

sending it via email, etc. Providing the disclosure ' 

document through one of these alternative methods 

does nol, however, relieve the seller of the 

obligation t~ obtain and maintain copies of signed 

and dated disclosure documents provided to 

purchasers. 

before a potential purchaser pays any fee or executes any agreement in 

connection with the sale.270 In the 

INPR, the Commission proposed 

shortening the period of time business 

opp~rtunity s~llers would be required t

provide the disclosures to potential 

purchasers. 271 The Commission 

det~n~.1ine~ that seven calendar days is 

sufficient time to enable a prospective 

purchaser to review the information 

contained on the simplified and 

streamlined basic disclosure document 

and any earnings claims statements, as 

we~l as to conduct a due diligence 

review ?f the offering, including 

c_ontactn;1g references.272 The seven day 

lime perwd was proposed in the 

RNPR.z73 

Only one comment received in 

response to the RNPR addressed this 

provision. The commenter argued, 

~ithout providing any evidence, that 

imposing a "waiting period" of any 

length before a prospective purchaser 

signs a binding agreement or makes a 

payment to a seller would chill the sale 

of legitimate business opportunities.274 

T~e Comrr_iission is not persuaded by · 

this ass_ert10n, as both the Original 

Franchise Rule and interim Business 

~pportunity Rule have waiting periods 

m excess of seven days. 275 Furthermore,

a waiting period is particularly 

necessary in the sale of business 

opportunities, where consumers are 

often rushed into making investment 

decisions. 270 No Staff Report comments 

addressed this provision. The 

Commission concludes that seven 

calendar days is sufficient time for 

purchasers to review the disclosure 

information and to conduct due 

diligence, and adopts §437.2 as 

recommended in the Staff Report. 

C. Section 437.3: Disclosure Document 

Section 437.3(a) of the final Rule 

instructs business opportunity sellers 

how to prepare the basic disclosure 

document, identifies the categories of 

required disclosure, and specifies what 

information must be included in each of

210 _ sr;e 71 Fl{ at 19067. When tho Original 

Franchise Rulo was amended, the time poriod was 

extendod to 14 calendar days. The interim Business 

Opportunity Rule maintained the 10 business-day 

period. See 72 FR al 15468, 15570. 271 See 71 FR al 19067. 

212Jd. 

2 1 " See 73 FR at 16134. 274 Planet Antares-RNPR at 13-14. 

275 See 16 CFR 436.2(a) (fourteen calendar days); 

§437.2(g) of the interim Business Opportunity l{ule 

(ten business days). 276 See, e.g., FTC v. Bus. Carel Experts, Inc., No. 

06-CV-4671 (PJS/RLE) (D. Mi1m. 2006) 

(n_apr_esentatives told consumers they must invest 

w1thm one or two weeks in order to take advantage 

of special "promotional" rate). 

o 

these categories. Section 437.3(a) 

requires that sellers provide prospective 

purchasers with information about the 

seller, th~ seller's litigation history, any 

canc~llatwn_ and refund policy, any 

earmngs claims, and references "in the 

form and using the language set forth in 

Appendix A" to the Rule. In addition 

the final 1

Rule adds a clause to§ 437.3(a) 

requiring that if the offer for sale, sale, 

?r promotion _of a business opportunity 

is conducted m Spanish, the seller must 

provide the Spanish version of the 

disclosure document (Appendix B to the 

Rule) and provide any required 

disclosures in Spanish. For sales 

conducted in a language other than 

English or Spanish, the seller must use 

the form and an accurate translation of 

the lan_guage set forth in Appendix A 

All disclosures, regardless of the · 

language they are in, must be presented 

in a "single written document." The 

Co~mission concludes that the single 

written document requirement is 

necessary to ensure that disclosures are 

not furnished in piecemeal fashion that 

easily could be overlooked or lost.277 In 

addition, requiring that the disclosure 

information be presented in the 

specified format will prevent sellers 

from circumventing the Rule by 

presenting damaging information in a 

format that is not sufficiently prominent 

to be noticed or understood, or that is 

not readily accessible. 278 Failure to 

follow the form and language of the 

appropriate disclosure document would 

constitute a violation of Section 5 of the 

FTC Act.279 

Section 437.3(a)(6) requires that a 

seller provide the potential purchaser 

with two copies of the disclosure 

document, one of which is for the 

prospective purchaser to sign, date, and 

return to the seller to maintain in 

accordance with § 43 7. 7. Section 

437.3(b) specifies that it is an unfair or 

deceptive practice and a violation of 

Section 5 of the FTC Act for a seller to 

fail to update the required disclosures at 

least quarterly to reflect changes in the 

five required categories of information, 

provided, however, that the list of 

refe_rences must be updated monthly, 

unt~l the seller has 10 purchasers, after 

which quarterly updates are required. The sections that follow discuss the 

evolution of the disclosure document's 

formal and substance, the commentary 

received about the disclosure document, 

further revisions to the document 

recommended in Staff Report, and the 

Commission's analysis of the comments 

and recommendations. 

277 71 FR at 19067. 27RSee id. 270 See§ 437.3(a). 

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 	 	 76840 Federal Register I Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

1. The Format of the Disclosure 

Document 

a. Background 

As noted above, a major goal of this 

rulemaking has been to streamline the 

lengthy disclosure document that was 

appropriate in the sale of business 

format franchises, but ill-suited to the 

sale of traditional business 

opportunities. The interim Business 

Opportunity Ruic, modeled on the 

Original Franchise Rule, required sellers

to make more than 20 separate 

disclosures to potential purchasers.2so 

Requiring sellers to make these 

extensive disclosures imposes 

significant compliance costs on covered 

businesses, and many of the disclosures,

which are m,aterial in the context of 

franchise sales are not well-suited to 

business opportunity sales. The final 

Rule aims to strike the proper balance 

between prospective purchasers' need 

for pre-sale disclosure and the burden 

imposed on those selling business 

opportunitics.201 

Thus, the Commission proposed a 

single-page disclosure document both in

the INPR and the RNPR. The 

Commission invited public comment 

about the form, including whether the 

overall presentation of information 

could be improved to make it more 

useful and understandable, and whether

the substantive disclosure sections 

would capture the information that 

would most benefit potential 

purchasers.282 The Commission 

received no comments in response to 

this request. 

The Commission engaged a consultant

with expertise in document design and 

c~mprehcnsion to evaluate the proposed

disclosure document to ensure that it 

adequately conveyed lo consumers 

information material to the prospective 

business opportunity, and to determine 

whether the overall presentation of the 

information in the proposed document 

could be improved to make it more 

useful and understandable.203 

Following publication of the initial 

proposed disclosure document, the 

consultant conducted extensive 

280 These include but are not li.miled to 

information aboul the seller; the business 

background of its principals and their litigation and 

bankruptcy histories; the terms and conditions of 

the offer; statistical analyses of existing franchised 

and company-owned outlets; prior purchasers. 

including the names and addresses of at least 1 O 

purchasers nearest the prospective buyer; and 

audited financial statements. Additional disclosure 

and substantiation provisions apply if the seller 

chooses to make any financial performance 

representations. 

2 1 • 73 FR at 16130-32. 

2112 Jd, al 16132-33, 

'"' See generally Macro Report. 

consumer testing that resulted in the 

revised proposed disclosure document 

that the Commission concluded 

substantially improved both the layout 

and the wording of the form. 284 

Some of the changes suggested by the 

consultant included: Changing the title 

of the form from "Business Opportunity Disclosures" to "Disclosure of Importan

Information about Business 

Opportunity"; revising the preamble of 

the disclosure to make it more readable; 

adding a description of the Federal 

Trade Commission for consumers who 

may not be familiar with the agency; 

clarifying that the information on the 

form relates specifically to the business 

opportunity the reader is being offered; 

reformatting the sections that address 

earnings, legal actions, and cancellation 

or refund policies, to make those 

sections easier to understand; and 

adding a note below the signature line 

stating that the FTC requires that the 

business opportunity seller give 

potential buyers at least seven calendar 

days before asking him or her to sign a 

purchase contract.285 A copy of the 

revised proposed disclosure document, 

which incorporated the consultant's 

suggested revisions, was included in the

Workshop Notice announcing that the 

FTC would hold a public workshop on 

June 1, 2009.211H 

b. Public Workshop 

On June 1, 2009, the staff held a oneday public workshop in Washington, DC

to get public input about the revised 

proposed disclosure document.287 The 

Workshop Notice invited interested 

parties to submit a request to participate

as a panclist.288 Ultimately, the 

workshop featured five panelists who 

represented a range of interests in the 

proposed Rule, including a federal law 

enforcer,289 a state law enforcer,290 a 

consumer advocate,291 the general 

counsel of a national multilevelmarketing company,292 and a former 

284 74 FR at 18714-15. 

285 See generally Macro Report. 286 74 FR at 18714. 

287 Id, In response to the RNPR. three commenters 

(ORA, Planet Antares, and Johnson) had originally 

requested a hearing as permitted in tho RNPR (see 

73 FR at 16110], but later agreed tl1al a public 

workshop would address their issues and concerns 

more efficiently. 288 The staff ~eceived requests to serve as 

panelists from eight persons. It extended offers Lo 

serve as panelists to each of these individuals, three 

of whom declined, 

2•°Kcnnclh Jost ("Jost"), DOJ, Office of Consumer 

Litigation. 

290 Dale C'..anlone ("Cantone"), Maryland Allomey 

eneral's Office. · 

'"' Jon Taylor ("Taylor"), Consumer Awareness 

Inslitule. 2 '" Maureen Morrissey ("Morrissey"), 

upperware, 

t 

G

T

director of the FTC's Bureau of 

Consumer Protection.2A3 

Workshop panelists uniformly 

approved the revised proposed 

disclosure document, and applauded 

the Commission's goal of streamlining 

and simplifying Lhe form. 294 All 

workshop panelists believed that the 

disclosure document generally 

accomplished the Commission's stated 

purposes of streamlining and 

simplifying the form to make it more 

useful to prospective business 

opportunity purchasers, although they 

did have some minor suggestions 

related both to the proposed disclosure 

document and some of the substantive 

disclosure requirements, which are 

discussed below. 

2. Section 437.3(a): Disclosure 

Requirements 

Section 437.3 requires that business 

opportunity sellers give prospective 

purchasers five items of material 

information, in a basic disclosure 

document. 295 Each required disclosure 

is intended to help prospective 

purchasers make informed investment 

decisions. First, sellers must state their 

name, business address, and telephone 

number, the name of the salesperson 

offering the opportunity, and the date 

when the disclosure document is 

furnished to the prospective purchaser. 

Second, sellers must disclose whether 

or not they make earnings claims and, 

if so, must state the claim or claims in 

a separate earnings claims statement 

attached to the basic disclosure 

'"' William MacLeod ("MacLeod"). Ahhough at 

the workshop Mr. MacLeod represented only his 

own views, he had previously filed comment to the 

INPR and RNPR on behalf of Planet Antares, which 

markets vending machine businesses. 

20• See, e.g., Jost, June 09 Tr at 12-15 (noting that 

tho simplicity of the form is the key to it being 

successful. "Having a one page document that 

focuses on the key issues such as legal actions, 

earnings claims, and references will put the most 

importanl informal ion in the hands of the 

prospective purchaser."); MacLeod, June 09 Tr at 18 

(same. and commending the staff for engaging a 

consumer research expert to copy test the 

disclosure document); Cantone, June 09 Tr at 20 

(stating that the disclosure document captures the 

major components of business opporttmity fraud, 

including fraudulent earnings claims and folso 

refund offers); Taylor, June 09 Tr at 23 (noting that 

the disclosure document is "easy to understand and 

short and accomplishes its purposes."). 

2 5 " Like the Franchise Rule and the interim 

Business Opportunity Rule. the final Rule specifies 

that only sellers of business opportunities have an 

obligation to prepare and furnish a basic disclosure 

document. Other persons involved in the sale of a 

business opportunity-such as brokers. locators, or 

suppliers-have no obligation Lo prepare basic 

disclosure documents or to furnish such 

documents. The ultimate responsibility Lo ensure 

that disclosures are accurately prepared and 

disseminated rests with the seller. See 71 FR al 

19067. 

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 	 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76841 

document. 21m Third, sellers must 

disclose prior civil or criminal litigation

involving claims of misrepresentation, 

fraud, securities law violations, or 

unfair or deceptive business practices 

that involve the business opportunity or

its key personnel. 297 Fourth, sellers 

must disclose any cancellation or refund

policy. 298 Finally, sellers must provide 

contact information for at least 10 of 

their purchasers nearest to the 

prospective purchaser's location. 299 A 

discussion of the record pertaining to 

each of the required substantive 

disclosures follows, along with changes 

made in the final Rule and consistent 

amendments made to the disclosure 

document. 300 The final disclosure 

document is Appendix A to this Notice. 

The Spanish translation of the 

disclosure document is Appendix B to 

this Notice. 

a. Section 437.3(a)(1): Identifying 

Information 

The first required disclosure under 

the final Rule is the seller's identifying 

information. Specifically, §437.3(a)(1) 

requires that the seller disclose the 

name, business address, and telephone 

number of the seller, the name of the 

salesperson offering the opportunity, 

and the date when the disclosure 

document is furnished to the 

prospective purchaser. 301 The 

Commission has long recognized the 

materiality of a business opportunity 

seller's identifying information. For 

example, when the Original Franchise 

5 29 Section 43 7 .3(a)(2). 97 2 Section 437.3(a)(3). Key personnel include any

of the business opportunity seller's principals, 

officers, directors. and sales managers, as well as 

any individual who occupies "a position or 

performs a function similar to an officer, director, 

or sales manager of the seller." 208 Section 437.3(a)(4). The IPBOR would have 

required disclosure of the business opportunity 

seller's cancellation or refund request history. Some 

commenters argued that requiring disclosure of the 

seller's refund history would have had the wayward 

effect of discouraging legitimale businesses from 

offering refunds. Because companies with liberal 

refund policies were more likely to have refund 

requests than those offering no refunds, disclosure 

of refund requests could mislead consumers into 

thinking that a company offering liberal refunds is 

less reputable than tho company offering no 

refunds. The Commission was persuaded by these 

c:ommenters and omitted this required disc:Iosure 

from the RPBOR. See 73 FR at 16126. 

2•• Section 437.3(a)(5). 300 In response to the Staff Report, one commenter

suggested a myriad of additional changes to the 

disclosure document such as fields for the buyer's 

contact information and additional fields for 

information related to the salesperson. NG 

Franchise-Staff Report at 4-5. The Commission 

finds the suggested changes unnecessary. 301 Other Commission trade regulation rules 

similarly require dLsclosure of identifying 

information. E.g., Wool Products Labeling Rule, 16 

CFR 300.14; Fur Products Labeling Rule, 16 CFR 

301.43. 

Rule was promulgated, the Commission 

concluded that: 

The failure to disclose such material 

information • • • may mislead the 

[prospect) as to the business experience of 

tho parties with whom ho or she is dealing 

and • • • could easily result in economic 

injury to the [prospect) because of the • • • 

dependence upon the business experience 

and expertise of tho [business opportunity 

seller]. so2 

This identifying information is 

material because it enables a 

prospective purchaser to contact the 

seller and any salesperson for additional

information. This information also 

enables a prospective purchaser to 

perform additional, independent 

research on the seller and salesperson. 

At the same time, for law enforcement 

purposes, this disclosure provides a 

written record of who provided the 

required disclosures and when they did 

so.JoJ 

b. Section 437.3(a)(2): Earnings Claims 

The final Rule permits sellers to make 

an earnings claim, provided there is a 

reasonable basis for the claim and that 

the seller can substantiate the claim at 

the time it is made. 304 If the seller 

makes no earnings claim,§ 437.3(a)(2) 

directs the seller simply to check the 

"no" box on the disclosure 

document. 305 Moreover, §437.3(1)(4) 

specifies items of information necessary 

to substantiate an earnings claim. If the 

seller does make an earnings claim, the 

Rule requires the seller to check the 

"yes" box and attach to the basic 

disclosure document a second 

document, the earnings claim statement. 

The disclosure document advises the 

prospective purchaser of this 

requirement: "If the statement is yes, 

[the seller] must attach an Earnings 

Claim Statement to this form." aoB 

At the June 1, 2009 workshop, the 

DOJ representative spoke approvingly of 

the form and language of this disclosure, 

,02 43 FR at 59642. 303 The Workshop panelists did not discuss this 

required disclosure. 3 4 0 This is consistent with analogous provisions 

in the Amended Franchise Rule, 16 CFR 436. 9, and 

the interim Business Opportunity Rule, 437.l(c). 3115 One workshop panelist commented that an 

earnings claim is the most important selling feature 

of any business opportunity, and for that rP.ason, 

sellers should not be permitted to state they make 

no earnings claim. Taylor, June 09 Tr al 68. The 

Commission agrees that the earnings claim is 

important to purchasers' investment decisions. but 

recognizes that there is an important distinction 

between forcing sellers to make an earnings daims 

and requiring them to substantiate any claims they 

choose to make. 0 • • Business opportunity sellers must also make 

the following prescribed cautionary statement in 

close proximity to the "yes" or "no" check boxes: 

"Read this statement carefully. You may wish to 

show this information to an advisor or accountant." 

noting that if a seller had checked the 

"no" box, but had, in fact, made an 

earnings claim, the misrepresentation 

would be in violation of Section 5 of the 

FTC Act, and the seller would be subject

to civil penalties.307 A couple of 

workshop panelists, however, found the 

language confusing and believed that a 

potential purchaser reading this 

disclosure might not know who should 

be completing this section of the formthe purchaser, or the seller. 308 Two of 

the panelists had some suggestions for 

improving the language of the 

disclosure. 309 

The Staff Report concluded that 

revisions to the language of the earnings 

disclosure were unnecessary. The 

Commission agrees. The initial 

proposed disclosure document, 

including the earnings disclosure, 

underwent substantial revision based 

upon consumer testing. Testing of the 

format and language of the earnings 

disclosure revealed that, contrary to the 

panelists' concerns, consumers did 

understand the meaning of the earnings 

disclosure, and realized that "a check in 

the 'No' box would contradict any 

previous earnings claim that a 

salesperson had made." :mi Indeed, the 

ultimate test for the effectiveness of the 

disclosure document is whether, in 

practice, the written form helps 

consumers detect a contradictory oral 

statement made by the seller. On that 

point, the revised proposed disclosure 

document proved effective-9 out of 10 

participants in the FTC study who heard 

a hypothetical oral sales presentation 

understood that it had included an 

earnings claim, and when they 

subsequently reviewed the disclosure 

document, correctly identified a written 

contradiction of the oral presentation. :n 1 

Based on the results of the consumer 

testing, the Commission is not 

persuaded that the workshop panelists' 

suggestions would improve the 

comprehension of the earnings claim 

disclosure, and therefore has not 

adopted any changes to it. 

c. Section 437.3(a)(3): Legal Actions 

Section 437.3(a)(3) addresses 

deceptive practices in the sale of 

business opportunities by requiring 

sellers to disclose material information 

about certain prior legal actions. 

Specifically, § 43 7 .3(a)(3)(i) requires 

business opportunity sellers to provide 

prospective purchasers with 

307 Jost, June 09 Tr at 56. 30• Cantone, June 09 Tr at 55; Taylor, June 09 Tr 

at 56. 

309 E.g., Taylor, June 09 Tr at 57; Cantone, June 

09 Tr at 57. 310 Macro Report at 15. 

311 Jd. 

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 	 	 76842 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

information about legal actions of or 

against the seller, the seller's affiliates or 

prior businesses, and certain key 

personnel that involve 

"misrepresentation, fraud, securities 

law violations, or unfair or deceptive 

practices, including violations of any 

FTC rule." Key personnel include "any 

of the seller's officers, directors, sales 

managers, or any individual who 

occupies a position or performs a 

function similar to an officer, director, 

or sales manager of the seller." :i 1 2 If the 

seller has such information to disclose, 

it must check the "yes" box on the 

disclosure document. If there are no 

actions to disclose, the seller must 

check the "no" box. 

Comments on this section centered on 

two main issues. 313 First, some 

expressed concern that the legal action 

disclosure might unfairly tarnish the 

image of a seller who had meritless 

lawsuits filed against it. Second, the 

DOJ- focused on enhancing the 

government's ability to prosecute 

violations of the Rule, and to that end, 

made recommendations to revise the 

form of the disclosure. 314 In addition, 

DOJ submitted a comment in response 

to the INPR advising the Commission to 

add to the title of the disclosure 

document a citation to the legal 

authority requiring the seller to provide 

the basic disclosure document. 315 The 

final Rule incorporates this suggestion. 

(1) Legal Action Disclosure Permits a 

Brief Description 

Section 437.3(a)(3)(ii) requires that if 

the seller has litigation to disclose 

pursuant to§ 437.3(a)(3)(i), it must 

provide an attachment to the disclosure 

document with the full caption of each 

legal matter (names of the principal 

parties, case number, full name of court, 

and filing date). The RPBOR would have 

prohibited a seller from including any 

additional information about the legal 

312 In the RNPR, the Cnmmission solicilP.d 

comment on whether this provision adequately 

captures the types of individuals whose litigation 

history should be disclosed. It received no 

comments responsive to that request. In addition, 

in the RNPR, the Commission determined that it 

would not be appropriate to require the disclosure 

of legal actions involving the seller's sales 

amployees, which would have been required under 

the IPBOR. The Conm1ission reasoned that the 

burden of collecting the litigation histories for every 

sales person was not outweighed by the 

corresponding benefit to prospective purchasers. 73 

FR at 16126. 313 In addition. discussion at the workshop 

focused on whether a seller's bankruptcy history 

should he considered a legal action and requirod to 

be disclosed. As noted in Section III.A.1, discussing 

the definition of "action," the Commission has 

determined not to require the disclosure of 

bankruptcy actions. 4 " See 73 FR at 16125. 

31s Id. 

action including truthful statements 

about the nature of the litigation or its 

ultimate outcome.316 One commenter 

stated that in some instances, litigation 

may be meritless and disposed of by 

means of short of formal adjudicationfor example through dismissal or 

settlement of nuisance lawsuits-and 

sellers should have the opportunity to 

provide an explanation of any disclosed

legal actions. 317 A panelist at the 

workshop agreed and also noted that th

FTC's expert report on the consumer 

testing of the disclosure document 

revealed that consumers had very 

negative reactions to the existence of 

legal actions against the seller.318 The 

DOJ panelist, on the other hand, 

expressed concern that, if allowed to 

provide a description of disclosed legal 

actions, sellers might craft misleading 

descriptions.am He stated that he has 

seen such abuse in the context of the 

Franchise Rule, 320 although he did 

acknowledge that it might be unfair to 

prohibit sellers from providing an 

explanation when they have been 

sued.n1 

The Commission's initial decision not

to allow inclusions of details regarding 

the nature of each legal action, as is 

provided in the Amended Franchise 

Rule, was prompted by an attempt to 

minimize compliance costs to sellers.:izz 

Furthern1ore, the Commission reasoned 

that if "armed with the full caption, a 

prospective purchaser can seek 

additional information if he or she so 

chooses," as "the public's ability to 

review complaints in legal proceedings 

has become significantly easier since the

316 73 FR al lfil 2a-26. 

317 Gary Hailey ("Hailey"). Venable LLP, June 09 

Tr at 122. 

ens MacLeod, June 09 Tr at 124. The panelist also 

argued that lawsuits are often overpled and that 

there may be instances where some claims (such as 

constitutional claims) are not really of particular 

materiality to a prospective purchaser. 310 Jost, June 09 Tr at 125. 320 The Amendfld Franchise Rule requires that 

legal actions against franchise sellers he disclosed 

to potential purchasers. 16 CFR 436.5(r.)(3) requires 

that franchisors summarize, "the legal and factual 

nature of each claim in the action, the relief sought 

or obtained, and any conclusion of law and fact," 

and provide information about damages or 

settlement terms, terms of injunctive orders, dates 

of any convictions or pleas, and the sentence or 

penalty imposed. The interim Business Opportunity

Rule requires that sellers disclose only, the identity 

and location of the court or agency; the date of 

conviction, judgment, or decision; the penalty 

imposed; the damages assessed; the terms of the 

settlement or the terms of the order; and the date, 

nature, and issuer of each such mling. A seller may 

also include a summary opinion of counsel as to 

any pending litigation, but only if counsel's consent 

to the use of such opinion is included in the 

disclosure statement. Interim Business Opportunity 

Rule§ 437.l(a)(4](ii). 

321 Jost, June O!J Tr at 125. 

322 71 FR at 19069. 

e 

advent of the Internet * * * [because] 

[m]any legal documents are now 

routinely posted on court or related Web 

sites." 323 The Commission noted that 

since the disclosure document itself 

instructs potential purchasers that the 

legal actions disclosed pertain to 

misrepresentation, fraud, securities law 

violation, or unfair or deceptive 

practices, potential purchasers would 

have a basic understanding of the 

subject matter of the action.3 4 2

The existence of legal actions against 

the seller is not necessarily proof of 

fraud and that some legal actions may 

be without merit. The Commission 

concludes, however, that the existence 

of legal actions of the type 

enumerated-misrepresentation, fraud, 

securities law violations, or unfair or 

deceptive practices-against the 

business opportunity seller or its key 

personnel is critical to assessing the 

financial risk of the proposed 

investment.:iz5 This is highly material 

information. Indeed, discovering that a 

seller has a history of violating laws and 

regulations is perhaps the best 

indication that a particular business 

opportunity is a high-risk investment. In 

fact, in the Commission's law 

enforcement experience, business 

opportunity promoters routinely have 

hidden such material information from 

prospective purchasers, to the detriment 

of those purchasers. 326 

The Staff Report cautioned that if the 

Rule allowed sellers to provide a 

description of the legal action, it would 

provide an opportunity for dishonest 

sellers to misrepresent or 

mischaracterize such actions, including 

their ultimate outcomes. 327 

Nevertheless, the Staff Report 

acknowledged that legitimate sellers 

potentially could be harmed if not 

afforded the opportunity to address in 

writing the legal action they are 

323 Id. al n.1.65. 

n• Id. al l!l068. 

'" See supm Section 111.A.1. 32" E.g., FTC v. Nat'/ Vending Consultants., Inc., 

No. CV-~5-0160-RC)-PAL (D. Nev. 2005) 

(failure to disclose guilty plea for mail fraud of de 

facto corporate officer): FTC v. Netfran Dev. Corp., 

No. 1:05-cv-22223-UU (S.D. Fla. 2005) (failure to 

disclose FTC injunction against principal]: FTC v. 

Am. Entm't Distdbs., 111,:., No. 04-22431-CivMartinez (S.D. Fla. 2004) (failure to disclose prior 

FTC injunction); United States v. We The People 

Form.sand Serv. Ctrs. USA, Inc., No. CV 04 10075 

GHK FMOx (C.D. Cal. 2004) (failure to disclose 

prior lawsuits); FTC v. Hayes, No. Civ. 

4:96CV02162SNL (E.D. Mo 1996) (failuro to disclose 

prior state fines and injunctive actions); FTC v. 

WhiteHead, Ltd. Bus. Franchise Guide (CCH) 

'll 10062 (D. Conn. 1992) (failure to disclose fraud 

action); FTC v. Tnv. Dev. Tnc., Bus. Franchise Guide 

(CCH) 'lJ 9326 (E.D. La. l!J89) (failure to disclose 

insurance fraud convictions). 

3z7 Staff Report at 75. 

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 	 	 Federal Register/ Vol. 76, No. 236 /Thursday, December 8, 2011 I Rules and Regulations 76843 

required to disclose. 32R The staff 

recommended, therefore, that 

§ 437.3(a)(3)(ii) be revised to add the 

following sentence: "For each action, 

the seller may also provide a brief 

accurate statement not to exceed 100 

words that describes the action." No 

comments to the Staff Report addressed 

this revision. 

Upon consideration of the record, the 

staffs recommendation, and the 

rationale for that recommendation, the 

Commission adopts§ 437.3(a)(3)(ii) as 

recommended in the Staff Report. Noncompliance with the restriction of this 

provision (i.e., statements that exceed 

the word limitation or that 

mischaracterize the action or its 

outcome) is a violation of the Rule. 

(2) Amendment to the Disclosure 

Document 

The DOJ panelist advocated for a 

small amendment to the "Legal 

Actions" section of the proposed 

disclosure document published prior to 

the Workshop. Specifically, the DOJ 

panelist recommended adding the 

phrase "including violation of an FTC 

Rule" after the phrase "or unfair or 

deceptive act or practice * * *,"to 

make clear to business opportunity 

sellers that a violation of an FTC Rule 

is an unfair or deceptiveJractice.:i29 

The Staff Report agree that this 

recommended addition to the "Legal 

Actions" section of the disclosure 

document would assist enforcement 

efforts by eliminating any significant 

question as to whether the defendant 

had actual or implied knowledge that 

violation of an FTC rule is an unfair and 

deceptive practice, and recommended 

that the disclosure document include 

this language.330 No comments to the 

Staff Report addressed this addition. 

Upon consideration of the record and 

the rationale for the recommendation, 

the Commission adopts the staffs 

recommendation. Accordingly, 

§ 437.3(a)(3)(i) of the final Rule requires 

disclosure of any civil or criminal action 

for misrepresentation, fraud, securities 

law violations, or unfair or deceptive 

practices, "including violations of any 

FTC Rule." The disclosure documents 

ns As lhe Commission previously noted in the 

RNPR, however, nothing in the Rule would prevent 

the seller from speaking with the consumer to 

explain the nature or outcome of any legal action 

disclosed on the form. 73 FR at 16125. 

""Jost.June 09 Tr at 36. 

33o The DOJ, upon roquost of the FTC, has the 

authority to seek ci vii penalties for violations of 

trade regulation mies issued pursuant lo the FTC 

Act, but lo obtain such penalties, the government 

must prove "actual knowledge or knowledge fairly 

implied on the basis of objective circumstances that 

such act is unfair or deceptive and is prohibited by 

such mle." See 15 U.S.C. 56(a)(1); 45(m)(1)(A). 

provided as Appendix A and Appendix 

B have also been revised to include this 

language. 

d. Section 437.3(a)(4): Cancellation or 

Refund Policy 

Section 437.3(a)(4) pertains to a 

common practice among fraudulent 

business opportunity sellers: offering 

prospective purchasers an illusory right 

to cancel or to seek a whole or partial 

refund.:n1 The Rule does not require 

any seller to offer cancellation or a 

refund; however, if the seller does offer 

a refund or the right to cancel the 

purchase, it must "state the material 

terms of the refund or cancellation 

policy in an attachment to the 

disclosure document." 32 :1 The 

disclosure requirement is 

complemented by a prohibition, al 

§ 437.6(1), against failing "to provide a 

refund or cancellation when the 

purchaser has satisfied the tenns and 

conditions pursuant to §437.3(a)(4)." 

The disclosure requirement is also 

complemented by prohibitions on other 

misrepresentations. 3:n As discussed below, the Commission 

adopts the staff's recommendation that 

sellers be required to state the 

"material" terms of the refund or 

cancellation policy, and the term 

"material" is now included in the final 

Rule provision. Under the final Rule, a 

seller that offers a cancellation or refund 

policy must check the "yes" box on the 

disclosure document and also must 

attach to the disclosure document a 

written description of its policy. To 

minimize compliance costs, the seller 

may comply with this requirement by 

attaching to the disclosure document a 

copy of a pre-existing document that 

details the seller's cancellation or 

refund policy. For example, a seller may 

detail its refund policy in a company 

brochure. If it does, the seller need only 

attach to the disclosure document the 

particular page setting forth the refund 

policy. As in the other examples, if no 

cancellation or refund is offered, then 

the seller need only check the "no" box. 

1 33 Seo, e.g., FfCv. AMI' Publ'n .. Inc .. No. SACV00-112-AHS-ANx (C.D. Cal. 2001); FTCv. Home 

Professions, Inc., No. SACV 00-111 AHS (Eex) (C.D. 

Cal. 2001): FTC v. Innovative Prods., No. 3:00-CV0312-D (N.D. Tex. 2000); FTC v. Encore Networking 

Servs., No. 00-1083 WJR (AIJx) (C.D. Cal. 2000); 

FTC v. Medi works, Inc., No. 00-01079 (C.D. Cal. 

2000). Indeed, allegations that business opportunity 

sellers misrepresented their refund policies rank 

among the top 10 complaint allegations in 

Commission business opportunity cases brought 

under Section 5. See 71 FR 19069. 

'" The Commission adopted a similar approach 

in the TSR. 16 CFR 310.J(a)(l)(iii) (if a seller makes 

a represenlalion aboul a refurul policy, it must 

disclose "a statement of all material tem1s and 

conditions of such policy"). 

""'See§ 437.6. 

Workshop panelists raised two issues 

related to the disclosure of refund and 

cancellation policies. First, panelists 

questioned whether information about 

the percentage of purchasers requesting 

and obtaining refunds should be part of 

the disclosure, and second, whether 

§ 437 .3(a)( 4) should specify particular 

terms of a refund policy that must be 

disclosed to potential purchasers. The 

sections that follow address each of 

these concerns. 

(1) Percentage of Purchasers Requesting 

and Obtaining Refunds 

One panelist stated that information 

concerning the percentage of purchasers 

requesting and obtaining refunds would 

be relevant information to potential 

purchasers.334 Another panelist 

disagreed, arguing that requiring 

disclosure of this information might 

have the unintended consequence of 

harming purchasers by discouraging 

sellers from offering refunds. 5 H The 

Commission previously considered this 

issue. The IPBOR would have required 

a seller that had a cancellation or refund 

policy to disclose the number of 

purchasers who had asked to cancel or 

who had sought a refund in the two 

previous years. 3 :m In the INPR, the 

Commission specifically sought 

comment on the proposed disclosure of 

the seller's refund history, particularly 

on the likely effect this disclosure might 

have on the willingness of sellers Lo 

offer refunds. 3 :i 7 Based upon arguments 

articulated in the comments to the 

INPR, the Commission ~oncluded that 

this disclosure would not be useful to 

consumers, and that disclosure of 

refund history could be unduly 

prejudicial to business opportunities 

that offer and liberally provide refunds 

to prior purchasers. 33R Indeed, a 

prospective pmchaser might compare 

the refund requests of a fraudulent seller 

with no refund policy against a 

legitimate seller with a liberal refund 

policy and inaccurately conclude that 

the legitimate seller offers a riskier 

business venture. The requirement, 

therefore, could create a perverse 

incentive to discontinue refund 

policies.:mi The Commission concluded 

that disclosure of refund history would 

not reliably remedy deception on this 

issue, and it was eliminated in the 

RPBOR.a40 

334 Taylor, June 09 Tr at 48. One commenter 

agreed. Brooks-Workshop comment. 33• MacLeod, June 09 Tr al 50. 6 "" 71 FR al 19088 (IPBOR ~ 437 .3(a)(5)). 337 Id. al 19070. 

330 73 FR al 16126. 

a:rn Id. at 16115. 

:«o Id. at 16126. 

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Panelists in favor of requiring the 

disclosure of seller's refund histories 

presented no arguments other than 

those previously considered by the 

Commission. Accordingly, the final 

Rule does not require this disclosure. 

(2) Information To Be Disclosed About 

Refund and Cancellation Policies 

Although workshop participants 

agreed that information abo~t_a s?ller's 

cancellation and refund policies 1s an 

important component of a potential 

purchaser's evaluation of a business 

opportunity, they were universally 

concerned that§ 437.3(a)(4) did not 

contain enough specificity about what 

information must be disclosed to 

potential purchasers and suggested that 

additional guidance from the 

Commission was necessary.341 The 

panelist from the Maryland Attorney 

General's Office thought the Rule 

should specify that all material terms of 

a refund policy must be disclosed, 

because in the context of business 

opportunity sales, it has been his 

experience that the requirements to 

obtain a refund are often so onerous that 

as a practical matter, no one is ever 

eligible.342 Some panelists felt the Rule 

should identify specific information to 

be disclosed. For example, one 

commenter noted that the period of time 

a seller has Lo exercise a right to 

cancellation or refund, or any 

conditions on return of unsold goods are 

material and should be required to be 

disclosed to potential purchasers.343 

One panelist suggested that the DSA 

Code of Ethics' refund requirements 

might serve as a model to identify types 

of information that should be disclosed 

to potential purchasers.:i44 

After considering these comments, the 

Staff Report recommended modifying 

§ 437.3(a)(4) to track closely a similar 

disclosure requirement in the TSR.345 

341 See June 09 Tr at 39-53. 

3 2 4 Cantone, June 09 Tr al 47 (providing as an 

example a company offering a 100% buy-back for 

vending machines and noting the company's failure 

to disclose that the cost of sending back the vending 

machine would be borne by the purchaser, and 

would often exceed any refund due, thereby 

rendering any potential refund worthless). 

343 Taylor, June 09 Tr at 43. 

344 Morrissey, June 09 Tr al 45. The Commission 

has reviewed applicable provisions of the DSA 

Code of Ethics, but does not find them applicable. 

DSA dictates the specific terms of its members' 

refund policies. The RPBOR, by contrast, did not 

specify the requirements of a seller's refund or 

cancellation policy, or even whether the seller must 

have such policies. Instead, it attempted to ensure 

that if such policies existed, potential purchasers 

were aware of how they can exercise their rights 

under those policies. 

345 Specifically, in describing its approach 

regarding refund and cancellation policy 

disclosures, the Commission noted that ii "adopted 

the same approach in the TSR." 71 FR at 19069 

The TSR requires that if the seller or 

telemarketer makes a representation 

about a refund, cancellation, exchange, 

or repurchase policy, it must provide 

the purchaser with a statement of all 

material terms and conditions of its 

policy.346 Requiring the disclosure of all 

material terms of a refund or 

cancellation policy most effectively 

accomplishes the Commission's stated 

purpose of ensuring that potential 

purchasers are provided with 

information that would assist them in 

assessing the financial risk associated 

with the offer. Indeed, the commentary 

to the IPBOR indicates that the 

Commission, in fact, intended to require

sellers to disclose all material terms of 

refund and repayment policies to 

prospective purchasers. 347 

Tlierefore, upon consideration of the 

record, the Commission adopts the 

staffs recommendation. Accordingly, 

the penultimate sentence of§ 437.3(a)(4) 

of the final Rule has been clarified to 

read: "If so, state all material terms and 

conditions of the refund or cancellation 

policy in an attachment to the 

disclosure document." As discussed in 

Section III.A.9., the final Rule includes 

a definition of "material" similar to the 

definition used in the TSR. Specifically, 

§ 437. l(i) defines, in relevant part, 

"material" to mean "likely to affect a 

person's choice of, or conduct regarding,

goods or services." Examples of material

tern1s and conditions may include, for 

example, the period of time the 

purchaser has to cancel a purchase or 

request a refund; the specific sleps 

necessary to cancel a purchase or 

request a refund; any fees or penalties 

incurred for cancellation; and where 

unused inventory must be returned to 

and bv what method. The Commission 

decliries to enumerate in the final Rule 

what terms are material, as materiality 

may vary depending on the 

circumstances of the opportunity and 

the refund or cancellation policy. 

e. Section 437.3(a)(5): References 

(1) Background 

The interim Business Opportunity 

Rule required the disclosure of prior 

purchasers' name, street address, city, 

state, and telephone number.348 In the 

INPR, the Commission concluded that 

prospects could readily contact a prior 

purchaser if provided with the prior 

purchaser's name, city, state, and 

n.166 (citing 16 CFR 310.3(a)(1)(iii) (ifa seller 

makes a representation about a refund policy, it 

must disclose "a slaleme11t of all material terms a11CI 

c:onilitio11s of such policy")]. 

34616 CFR 310.3(a)(l)(iii). 

7 :i4 See 71 FR 19069-70. 

"" 72 FR 15565. 

telephone number, and that this 

approach enables prospects to contact 

references while minimizing the 

intrusion into prior purchasers' 

privacy,349 Accordingly, neither the 

IPBOR, nor the RPBOR would have 

required sellers of business 

opportunities to disclose prior 

purchasers' street address to potential 

purchasers.350 As discussed below, the 

final Rule requires that sellers disclose 

only prior purchasers' name, state, and 

telephone number. Like the IPBOR and 

the RPBOR, the final Rule limits the 

disclosure of references to those who 

purchased the business opportunity 

within the three years prior to the date 

of the disclosure document. Moreover, 

the final Rule requires the seller to 

disclose this information by listing each 

prior purchaser (if fewer than 10), or 

listing at least the 10 prior purchasers 

nearest to the prospective purchaser's 

location. In order to minimize 

compliance costs, the final Rule also 

provides sellers with an alternative 

disclosure option-in l.ieu of a list of the 

10 prior purchasers nearest the 

prospect, a seller may furnish a prospect 

with a national list of all purchasers.351 

In the INPR, the Commission noted that 

this option would allow the seller lo 

maintain a master list of purchasers that 

could be updated periodically, which 

would allow the seller to avoid having 

to tailor the disclosure to each 

prospective purchaser.352 A seller that 

chooses this option must insert into the 

reference section of the disclosure 

document the words "See Attached 

List," and attach a list of the references 

to the disclosure document,:i5:i 

Notwithstanding the fact that most of 

Lhe information required by Lhe 

reference disclosure is often available in 

the public domain, in crafting this 

section of Lhe Rule, as discussed infra, 

the Commission considered potential 

privacy concerns raised by the use of 

prior purchaser information.354 To .. 

address these concerns, §437.3(a)(5)(n) 

requires that Lhe disclosure document 

stale the following language clearly and 

in immediate conjunction with the list 

ofreferences: "If you buy a business 

opportunity from the seller, your 

349 7f FR at 19071 n.180. 5 :i u 71 FR at 19088; 73 FR at 16135. 

351 See§ 437 .3(5)(i). 

352 71 FR at 19071. In the RNPR, the Commission 

solicited comment on whether giving sellers the 

ability to provide prospective purchasers with n 

national list was a viable option. It received no 

comments responsive lo that request. 

353 Sellers that proviclA the disclosure document 

electronically would be perrnitled to attach the 

national list of references in electronic form as well. 

'"' 71 FR al 19071. 

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 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76845 

contact information can be disclosed in 

the future to other buyers." 

(2} Privacy Concerns Raised in the 

Record 

In response to the INPR, a number of 

commenters, primarily from the MLM 

industry, expressed concern that the 

reference disclosure requirement raised 

privacy and security conccrns.:rn 5 The 

Commission, however, was and is not 

persuaded that privacy concerns 

outweigh the benefits of this disclosure. 

The Commission finds that disclosure of

prior purchasers is important to prevent 

fraud because it enables prospects to 

evaluate the seller's claims based on 

information from an independent source

with relevant expcrience.356 

Furthermore, the required reference 

disclosures include no sensitive 

personal information whatsoever-no 

social security numbers, birth dates, 

financial account information, or even 

street addresses.: 5 7 

Following publication of the RNPR, 

one commenter continued to argue that 

the disclosures enumerated in 

§ 437.3(a}(5} would raise privacy and 

data security concerns.:rnH The 

commenter articulated three main 

concerns: (1} That requiring the seller to 

"store purchasers' personal information 

in a single location or document creates 

a target ripe for theft and improper 

disclosure;" (2} that requiring disclosure 

of information of prior purchasers 

conflicts with the FTC's Privacy of 

Consumer Information Rule ("Privacy 

Rule" or "GLB Privacy Rule"}? 59 

promulgated under the Gramm-LeachBliley Act ("GLB"} 360 because it does 

not allow those prior purchasers of the 

business opportunity the right to opt out 

of having their contact information 

disclosed to potential purchasers;a61 

and (3} that the mandatory disclosure of 

references violates privacy obligations 

under the California Constitution.362 

355 See 73 FR at 16126. 

"" See id. 

'" See id. 

"" Planet Antares-RNPR at 18-21. 

359 16 CFR Part 313. 

3•0 15 U.S.C. 6801 et seq. 

361 The Commission received a few comments in 

response lo the INPR in support of allowing 

individual business opportunity purchasers to opt 

out of having their contact information disclosed. 

The comment submitted by the DOJ however, urged 

the Commission to reject any opt-out believing it 

would be an easy matter for sellers to talk 

purchasers into opting out, describing to them what 

a hassle it becomes for those who do not opt out 

because of all the demand that arises for their time 

and attention. The Commission agreed with DOJ 

and al\er analyzing all of the commentary to 

§ 437.3[a)[5], declined to make any changes to that 

section. See 73 FR at 16126-27. 

'"' Planet Antares-RNPR at 20. 

The Commission is not persuaded by 

any of these contentions. :ma 

First, the Commission rejects the 

argument that the disclosure of 

references creates an unnecessary risk o

theft or improper disclosure. As an 

initial matter, the Commission notes 

that a similar reference disclosure has 

been required for business opportunities

and business format franchises covered 

by the Original Franchise Rule for more 

than 25 years, and it is required under 

the interim Business Opportunity Rule 

as well.364 Moreover, the information to

be collected and stored is not sensitive 

(e.g., no financial information, social 

security numbers, dates of birth, or 

street addresses). The commenter has 

not explained, nor docs the Commission

understand, why the information would

be particularly attractive to thieves. 

Second, the Commission is not 

persuaded that§ 437.3(a}(5} creates 

potential conflicts with the GLB Privacy

Rule, because the protections afforded 

by the Privacy Rule likely do not extend

to the contact information of business 

opportunity purchasers. Congress 

enacted GLB to protect personal 

financial information of individual 

consumers, but excluded from the ambit

of the law the protection of information 

pertaining to businesses. The Privacy 

Rule requires that a "financial 

institution" provide, under specified 

circumstances, notice to its consumers 

and customers of its privacy policies 

and practices?65 including the 

consumers' right to opt out of having 

their personal information shared with 

third parties.:rn5 For purposes of the 

Privacy Rule, a consumer is an 

individual who obtains financial 

products or services for personal, family 

or household purposes.367 The 

Commission need not consider the 

limited circumstances where a business 

opportunity seller might be considered 

a financial institution, because the 

Privacy Rule is aimed at protecting the 

non-public personal financial 

information of consumers, not 

businesses. 368 

363 This same commenter argues that the required 

reference information constitutes trade secrets that 

should be afforded special protections, but offers no 

support for this contention. Id. at 14. 

30• 16 C.FR 437.1[a)(16)[iii). 

305 73 FR at 16127. 

'"" 16 CFR 313.1(a)(3). 

36716 CFR 313.3[e). Similarly. a customer is a 

onsumer with a continuing relationship with the 

inancial institution. See 16 CFR 313.3(h). 

368 See 16 CFR 313.l(b) (expressly stating that the 

rivacy Rulo "does nol apply lo information about 

ompanies or about individuals who obtain 

inancial products or services for business, 

ommercial, or agricultural purposes"). Indeed, 

ederal law often focuses on privacy concerns 

ffecting individuals, not businesses. See, e.g., the 

f 

c

f

P

c

f

c

f

a

The commenter argues that business 

opportunity operators should be 

considered consumers for purposes of 

the Privacy Rule, and thus should have 

the right to opt out of having their 

contact information disclosed to 

potential purchasers.am, The 

commenter's interpretation is contrary 

to both prior Commission policy, and 

the plain meaning of the language of the 

Privacy Rule. As the Commission has 

previously stated, by investing in a 

business opportunity, purchasers are 

entering the world of commerce and 

embarking upon the establishment of a 

business. :no Financing a business 

venture is not "primarily for personal, 

family, or household purposes." 371 This 

interpretation is consistent with 

previous Commission guidance in an 

analogous situation,372 and with the 

Commission's interpretation of 

"consumer" in the context of other mies 

it enforces.373 

Similarly, the reference disclosure is 

not in conflict with the California 

Constitution. A cause of action for 

invasion of privacy under the California 

Constitution exists only when a person 

has a reasonable expectation of privacy, 

which cannot exist if the person has 

been expressly informed that his or her 

contact information will be shared with 

prospective purchasers.:i74 

Fe.ir Credit Reporting Act ("FCRA") 15 U.S.C. 

1681(a)(4) (requiring various protections for 

consumer information, including provisions 

addressing identity theft). There is no comparable 

statute that protects business information. 3"" The commenter arguos that the purchase of a 

business opportunity might be intended to "provide 

a revenue stream" to a purchaser and "not 

necessarily a source of employment." Planet 

Antares-RNPR at 18-21. The Commission finds this 

distinction immaterial lo the analysis. 70 3 73 FR at 16127 & n.210. 

"' The Commission has not issued guidance 

about the meaning of "personal, family, or 

housohold purposes" because the plain moaning of 

the language seems abundantly clear. Courts' 

interpretations of this phrase when used in other 

consumer protection laws are instructive. See, e.g., 

Tn re Runski, 102 F.3d 744, 747 (4th Cir. 1996) 

(noting in the bankruptcy context that courts have 

uniformly concluded that debt incurred for a 

business venture or v.ith a profit motive does not 

fall into the category of debt incurred for "personal, 

family, or household purposes"). 

'" See "Frequently Asked Questions for the 

Privacy Regulation," Question B-2 (Dec. 2001), 

http://www.ftc.gov/privocy/glboct/glb-foq.htm 

(Privacy Rule does nol apply when a financial 

institution makes a business loan to a sole 

proprietor; although an individual, a sole proprietor 

is not a "consumer" for purposes ofthe Privacy 

Rule where the financing is not for personal, family, 

or household purposes). 

"' See, e.g., Preservation of Consumer's Claims 

and Defenses, 16 CFR 433. l(b); Credit Practices, 16 

CFR 444.l(d). 

:,74 When personal information has been released 

witlwut consent, a cause of action for invasion or 

privacy exists under the California Constitution 

only if: (1) the individual had a reasonable 

Continued 

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Privacy concerns relating to the 

reference disclosure were also 

articulated at the June 1, 2009 

workshop. A panelist representing a 

large MLM company stated that at least some of its representatives expressed 

concern that under the proposed Rule, 

their addresses and home telephone 

numbers could be provided to persons 

they did not know. The panelist noted 

that representatives often use their 

home telephone number as their 

business number, and that the same 

telephone number is also used by other 

family members, including children. 

The panelist wondered if additional 

safeguards to protect purchasers' 

privacy could be taken and suggested 

requiring potential purchasers to contac

a seller's references through a 

centralized telephone number to be 

administered by the seller.:m The DOJ 

panelist opposed this suggestion, 

arguing that communications with prior

purchasers could be subject to 

manipulation by the seller.376 

The Commission does not believe that

requiring sellers to provide and 

administer a centralized phone number 

to screen references is necessary or 

advisable. The Commission agrees with 

DOJ's comment that such a system may 

invite manipulation. It would also 

create an unjustified financial and 

administrative burden for sellers. As 

noted above, the Commission does not 

view the disclosure of a purchaser's 

name, state, and telephone number as 

creating privacy or security concerns, as 

this information is often available in the

public domain. The required disclosure 

does not include street address 

information, and therefore, does not 

provide a "road map" to a purchaser's 

residence, as the commenter suggests. 

Moreover, potential purchasers are 

notified in writing, prior to the time of 

purchase that their reference 

information will be available to 

expec~ation that the information would be kept 

private, and (2) disclosure of the infonnation is 

serious in nature, scope, and or potential impact Lo 

cause an "egregious breach of social norms." See 

Pioneer Elecs., Inc. v. Olmstead, 40 Cal. 4th 360, 

370-71 (2007). Even when these criteria are met, 

the individual's privacy interest must be weighed 

against legitimate and important competing 

interests. Id. When measured against this standard, 

disclosure of purchaser information pursuant lo 

proposed§ 437.3(a)(5) would not give rise to a 

privacy action. First, the disclosure document 

plainly notifies potential purchasers that their 

reference information will be provided Lo 

subsequent purchasers, thus they have no 

reasonable expectation that their information will 

be kepi private. Second, the reference disclosure 

includes no sensitive personal information 

whatsoever, and the value to potential purchasers 

of information about prior purchasers outweighs 

any potential detriment to those prior purchasers. 

'" Morrissey, June 09 Tr at 87. 

"" Jost, June 09 Tr al 88. 

t 

subsequent purchasers. Purchasers who 

have privacy concerns, therefore, can 

take steps to minimize personal 

exposure, such as, for example, 

designating a separate phone number for 

business purposes. 

Nonetheless, the Staff Report noted 

that the disclosure of information some 

may consider private must be weighed 

against the benefits of providing that 

information to potential purchasers. 

After considering the purpose of 

providing reference information, the 

Staff Report concluded that the 

disclosure of the city where the 

reference is located is not necessary. 

The staff recommended, therefore, that 

the city where previous purchasers 

reside be eliminated from 

§ 437.3(a)(5)(i), and correspondingly, 

from the "References" section of the 

disclosure document. 

No comments in response to the Staff 

Report addressed this recommended 

modification. The Commission agrees 

with the staffs recommendation. 

Accordingly, both§ 43 7.3(a)(5)(i) of the 

final Rule and the related section of the 

disclosure document have been revised 

to eliminate references to the city where 

prior purchasers reside. The 

Commission reiterates, however, that 

this amendment is intended to alleviate 

privacy concerns, and it does not relieve 

a seller of its obligation to provide a list 

of the ten purchasers within the past 

three years that are nearest lo the 

potential purchaser as an alternative to 

providing the full list of all prior 

purchasers. 

f. Section 437.3(a)(6): Receipt 

Section 437.3(a)(6) sets forth a receipt 

requirement for the disclosure 

document. This requirement is designed 

to document proper disclosure by the 

seller. Specifically, the seller must 

attach a duplicate copy of the disclosure 

document, which is to be signed and 

dated by the purchaser. A designation 

for the signature and date is included at 

the bottom of the disclosure 

document. 377 The Commission believes 

that the receipt requirement is 

especially important to prove proper 

disclosure with respect to electronic 

377 As noted previously, the Commission engaged 

a consultant with expertise in document design and 

comprehension Lo evaluate the initial proposed 

disclosure document. One of the changes suggested 

by the consultant included adding a note below the 

signature line of the disclosure document staling 

that the FTC roquiros that all business opportunity 

sellers give the prospective purchaser at least seven 

calendar clays before asking him or her lo sign a 

purchase conlrac:l. A copy of the revised proposed 

disclosurn document, which incorporated this 

change, was allached as Appendix A to the Federal 

Register Notice announcing the June 1, 2009 

workshop. See 74 FR at 18715. 

documents. A seller furnishing 

disclosures online, either through email 

or access to a Web site, has the burden 

of establishing that the prospect was actually able to access the electronic 

document.378 Completion and 

submission of the receipt serves that 

purpose. The final Rule does not impose 

any particular method of transmitting 

the receipt. In order to minimize 

compliance costs, sellers should have 

flexibility to determine the best method 

to comply with this provision of the 

Rule.:m Accordingly, §437.3(a)(6) 

would permit the seller to inform the 

prospective purchaser how to return the 

signed receipts, for example, by sending 

the receipt to a street address, to an 

email address, or by facsimile. 

As noted above, the Staff Report 

recommended adding a new definition 

of "signature" or "signed" to make clear 

that the term "signature" or "signed" 

includes not only a person's 

handwritten signature, but also an 

electronic or digital form of signature to 

the extent that such signature is 

recognized as a valid signature under 

applicable federal law or state contract 

law.:~110 The receipt requirement 

received one comment. The commenter 

noted that the requirement that a 

purchaser be provided with a second 

copy of the disclosure document 

appears inconsistent with the Rule's 

recognition that the disclosure 

document can be provided to potential 

purchasers through electronic media. 381 

The Commission disagrees with the 

commenter. Some sellers may post their 

disclosure document on their Web sites, 

and update it as needed. The 

requirement to provide a copy of the 

electronic disclosure ensures that the 

prospective purchaser will retain the 

document in a static format. This can be 

accomplished as easily through 

electronic means as it can through 

paper. In fact, allowing electronic 

distribution should greatly reduce 

sellers' compliance costs over the long 

run, especially costs associated with 

printing and distributing disclosure 

documents. Nevertheless, the final Rule 

enables sellers to determine for 

themselves whether it is most efficient 

and cost-effective to provide the 

disclosure document to prospective 

purchasers electronically or in printed 

form. Accordingly, the Commission 

adopts the receipt provision as 

recommended in the Staff Report, with 

one non-substantive modification: the 

reference to a "disclosure page" has 

7 3 0 71 FR al 19072. 

"" Id. sao See§ 437.l[r). 

3a1 Quixtar-INPR at 27. 

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been changed to "disclosure document

to conform it to the title of§ 437.3. 

3. Section 437.3(b): Updating the 

Disclosure Document 

To ensure that a seller's disclosures 

are current,§ 437.3(b) requires sellers t

update their disclosures at least 

quarterly. Modeled on the Original 

Franchise Ruic and interim Business 

Opportunity Rule, 382 the provision 

states that it would be a violation of the

Rule and Section 5 of the FTC Act for 

a seller to fail to update the disclosures

to reflect any material changes in the 

information presented in the basic 

disclosure document on at least a 

quarterly basis. The Commission has 

concluded that quarterly updating 

strikes the right balance between the 

need for accurate disclosure and the 

costs and burdens more frequent 

updating would entail. 383 

Section 437.3(b) includes a proviso 

that would require more frequent 

updating in one respect: the list of 

references. Specifically, a seller is 

required to update the list of references

monthly until such time that it is able 

to include the full list of 10 references. 

This is particularly necessary for startup opportunities that may have few or 

no prior references when they 

commence business opportunity sales. 

The Commission has concluded that 

prospective purchasers' ability to 

contact at least 10 references in their 

due diligence investigations of busines

opportunity offers outweighs any costs 

of more frequent updating until the list

of 10 is compiled.aa4 

No comments were directed to the 

requirement of updating the disclosure

and the final Rule contains §437.3(b) a

recommended in the Staff Report. 

D. Section 437.4: Earnings Claims 

Section 437.4 of the final Rule 

addresses earnings claims, and is 

similar to the parallel sections of the 

Amended Franchise Rule and the 

interim Business Opportunity Rule. 385 

Like both of those rules, the final Rule 

requires disclosure of earnings 

information only if a business 

opportunity seller chooses to make a 

claim about potential earnings to 

prospective purchasers. 

Like the analogous provisions of the 

Amended Franchise Rule and the 

interim Business Opportunity Rule, 

§ 437.4(a) requires a seller making an 

earnings claim to: (1) Have a reasonable

382 16 CFR 436.7(b) and interim Business 

Opportunity Rule§ 437. l(a)(22). 

383 71 FR at 19072. 

384 Id. 

'"' See 16 CFR 436.9 and interim Business 

Opportunity Rule§§ 437.l(b), (c) and (e). 

" 

o 

s 

s, 

s 

basis for the claim at the time the claim 

is made; (2) have in its possession 

written materials that substantiate the 

claim at the time the claim is made; (3) 

make the written material available to 

the prospect and the Commission upon 

request; and (4) furnish the prospect 

with an earnings claim statement. 

Section 437.4(b) sets forth disclosure 

and other requirements for sellers 

making earnings claims in the general 

media. In §437.4(c), the final Rule 

addresses the use of industry financial 

statistics or data to suggest or imply a 

likely level of earnings. Finally, 

§ 437.4(d) requires that sellers notify 

prospects in vvriting of any changes in 

earnings information before the prospect 

enters into a contract or provides any 

consideration to the seller, directly or 

indirectly through a third party. 386 Each 

of these requirements is discussed in the 

following sections. 

1. Section 437.4(a)(1)-(3): 

Substantiation for Earnings Claims 

As noted throughout this proceeding, 

the making of false or unsubstantiated 

earnings claims is the most prevalent 

problem in the offering of business 

opportunities. To address this problem, 

§ 437.4(a)(l) of the final Rule permits 

sellers to make an earnings claim 

provided there is a reasonable basis for 

the claim at the time the claim is 

made.:i117 Further, § 437.4(a)(2) requires 

sellers that make earnings claims to 

have in their possession written 

substantiation for their earnings claims, 

and §437.4(a)(3) requires sellers to 

make that written substantiation 

available to the prospective purchaser, 

or to the Commission, upon request. 

Requiring that a prospective purchaser 

can obtain and review, or have his or 

her own advisor review, substantiation 

for earnings claims increases the 

likelihood that sellers will make claims 

only for which they have a reasonable 

basis. 

2. Section 437.4(a)(4): Earnings Claim 

Statement 

Section 437.4(a)(4) prescribes the 

content of the earnings claim statement, 

which must be provided to a prospect 

if a seller elects to make a representation 

about potential earnings. To ensure case 

of review, each earnings claim statement 

'"" The Amended Franchise Rule contains similar 

requirements. See 16 CFR 436. l(d)(Z) and 

436.1(0)(6) (each prospective franchisee to whom 

the representation is made shall be notified of any 

material change in the information contained in the 

earnings claims document). 367 As discussed in the INPR, the Commission did 

not propose a "geographic relevance" requirement 

because that prerequisite is subsumed in the 

"reasonable basis" requirement. See 71 FR at 19072 

n.185. 

must be a single written document. The 

document must be titled "EARNINGS 

CLAIM STATEMENT REQUIRED BY 

LAW" in capital, bold type letters. This 

ensures that the prospective purchaser 

can readily determine from the face of 

the document the importance of its text. 

The title is followed by the name of the 

person making the claim, and the date 

of the claim. After the title and 

identifying information, the Rule 

requires the seller to state the specific 

earnings claim or claims. The final Rule 

does not specify any particular format or 

formula for an earnings claim. This is 

intended to allow flexibility in 

presenting earnings information in the 

manner that is appropriate for each 

opportunity, provided that any such 

claim has a reasonable basis and that 

there is written substantiation for the 

claim at the time it is made. 31111 

The final Rule also requires a seller 

making an earnings claim to disclose the 

beginning and ending dates when the 

represented earnings were achieved. 389 

This information is material because a 

prospective purchaser cannot begin to 

evaluate an earnings representation 

without knowing how recently the 

supporting data was collected. For 

example, a seller may have conducted a 

survey of purchasers of its business 

opportunity in 2009. The Rule would 

not necessarily prohibit the use of that 

survey information in 2010, but the 

prospect should be made aware of the 

applicable time period in order to assess 

the relevance of the claim to current 

market conditions. Similarly, a prospect 

may reasonably give greater weight to a 

survey of purchasers over an extended 

period of time (for example, over a 

three-year period), than a more limited 

survey (for example, over a three-month 

period).ago 

Further, this section of the Rule 

requires the disclosure of the number 

and percentage of all purchasers who 

purchased the business opportunity 

prior to the end of the represented time 

period who have achieved at least the 

claimed earnings during that period. 

This information is material because it 

enables the prospect to determine 

whether the claimed earnings of prior 

purchasers arc typica1.:rn1 For example, 

a seller may claim that purchasers have 

average earnings of $50,000 a year. Even 

if true, this statement may not reflect the 

experience of the typical purchaser 

because a few purchasers with 

unusually high earnings could skew the 

average. Thus, the number and 

388 71 FR at 1.9072. 

380 Section 437.4(a)(4)(iv). 

,oo 71 FR at 19072. 

'"' Id. 

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 	 	 76848 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

percentage of purchasers earning 

$50,000 a year might actually be very 

low.:rnz 

In addition, this section of the final 

Rule requires a seller making an 

earnings claim to disclose any 

characteristics that distinguish 

purchasers who achieved at least the 

represented level of earnings from those

characteristics ofthe prospective 

purchasers.393 For example, a survey of 

ice cream vending route purchasers 

operating only in the South may not be 

readily applicable to other regions, such

as the North. Similarly, a survey limited

to large urban areas may not be 

applicable to smaller, rural areas. 

Distinguishing characteristics of 

purchasers who achieved a represented 

level of earnings is material information

because it enables a prospect to assess 

the relevance of an earnings claim to his

or her particular market,:rn4 

Finally, the Rule requires a seller 

making an earnings claim to disclose to 

the prospective purchaser that written 

substantiation for the claim will be 

made available upon request.a95 As 

noted above, requiring that a 

prospective purchaser can obtain and 

review, or have his or her own advisor 

review, substantiation for earnings 

claims increases the likelihood that 

sellers will make claims only for which 

they have a reasonable basis.:rn5 This 

requirement balances the prospective 

purchaser's need for material 

information with the necessity of 

minimizing the seller's compliance 

costs. Thus, a seller need only provide 

such substantiation upon request. 

In the RNPR, the Commission 

solicited comment on various aspects of

the earnings claim statement including: 

(1) Whether the requirement that sellers 

disclose the number and percentage of 

prior purchasers that achieved at least 

the stated level of earnings would create

difficulties for sellers, or whether there 

were alternative approaches that could 

limit any such difficulties; and (2) 

whether the requirement that sellers 

disclose any materially different 

characteristics of prior purchasers that 

attained at least the stated level of 

earnings adequately covered the 

relevant earnings information that 

should be disclosed.:rn 7 

No comments were received in 

response to the Commission's specific 

questions, nor were any comments 

directed to this provision. The Staff 

:rn, Id. 

''"" Section 437.4(a)(4)(vi). 394 71 FR at 17073. 

39s Section 437.4(a)(4)(vii). 

''"" See, e.g., 16 CFR 436.l(b){2); 436.l(c)(2). 7 "" 73 FR at 16133. 

Report recommended that§ 4:37,4(11) be

adopted in the form proposed in the 

RPBOR, but sought additional commen

on §§437.4(a)(4)(iv) and (v), which 

require any business opportunity seller

that makes an earnings claim to identif

the beginning and ending dates of the 

time period when those earnings were 

achieved (§ 437.4(a)(4)(iv)) and the 

number and percentage of all purchase

who purchased the opportunity before 

the ending date and who achieved thos

earnings in that time period 

(§ 437.4(a)(4)(v)). 398 Section 

437.4(a)(4)(v) specifies that in 

calculating the number and percentage 

of purchasers who attained at least the 

represented level of earnings, the 

business opportunity seller must 

include all purchasers who purchased 

the opportunity prior to the ending dat

of the time period on which the 

representation is based. The Staff Repo

solicited comment on whether the 

results of such a calculation, which 

would include the experience of those 

who purchased the business 

opportunity toward the end of the state

time period, present consumers with a 

realistic picture of their likely earnings 

with the business opportunity. In 

addition, the Staff Report sought 

comment on whether this calculation 

would present prospective purchasers 

with information that would be useful 

in making an informed purchasing 

decision, and questioned whether there

were alternative approaches that might 

be more useful. 

Only one comment received in 

response to the Staff Report addressed 

these provisions. Specifically, DOJ 

agreed that any substantiation for 

earnings must be calculated using the 

number of all purchasers of the 

opportunity prior to the ending date of 

the time period for which the earnings 

representation is based, noting that: 

In reality, many business opportunities 

begin and end in a short period of time, 

constantly reinventing themselves to avoid 

association with previous failures. Requiring

inclusion of all purchasers who purchased 

before the ending date in any statistics in an 

earning claims document is necessary to 

force the seller to have the document be at 

all representative of the business as a whole. 

Any wiggle room in this regard will be 

exploited to create a document based on non

representative sellers.ao9 

The Commission agrees and the final 

Rule includes§ 437.4(a)(4) as 

recommended in the Staff Report. 

96 • Section 437.4(b){3) requires similar 

disclosures, calculated in the same way, in 

conjunction with any earnings claim made in the 

general media. 

'"" OOJ-Staff Report at 2. 

t 

y 

rs 

e 

e 

rt 

d 

­

3. Section 4:37,4(b): Earnings Claims in 

the General Media 

Section 437.4(b) addresses the making 

of earnings claims in the general media, 

such as on television, radio, the 

Internet, in newspapers, etc. 

Specifically, a seller can make an 

earnings claim in the general media 

provided the seller: (1) Has a reasonable 

basis for the claim at the time the claim 

is made; (2) has written material that 

substantiates the claim at the time the 

claim is made; and (3) states in 

immediate conjunction with the claim 

the beginning and ending date when the 

represented earnings were achieved and 

the number and percentage of those who 

have achieved the represented earnings 

in the given time period. These 

requirements are necessary to prevent 

deceptive and misleading earnings 

representations in advertisements, as 

well as to enable a prospect to assess the 

typicality of any advertised earnings 

claim.4oo 

The Commission received no 

comments about this provision. Based 

on the record as a whole and its 

enforcement experience, the 

Commission concludes that the 

requirements of§ 437 .4(b) are necessary 

to prevent misleading earnings 

representations, and the final Rule 

includes this provision as recommended 

in the Staff Report. 

4. Section 437.4(c): Dissemination of 

Industry, Financial, Earnings, or 

Performance Information 

Section 437.4(c) is intended to 

address a prevalent practice among 

business opportunity sellers-the use of 

real or purported industry statistics in 

the marketing of business opportunity 

ventures. The Commission's law 

enforcement experience reveals that it is 

common for vending machine business 

opportunity promoters, for example, to 

tout what are purported to be industrywide vending sales statistics. A matrix 

of potential earnings based upon an 

industry-average sliding scale of "vends 

per day" is typical.401 The use of such 

industry statistics in the promotion of a 

business opportunity creates the 

impression that the level of sales or 

earnings is typical in the industry, and 

4 00 E.g., FTC v. Inspired Ventures, Inc., No. 02-

21760-CIV-Jordan (S.D. Fla. 2002); FTC v. 

MegaKing. Inc., No. 00-00513-CIV-Lenard (S.D. 

Fla. 2000). 

401 E.g., FTC v. Tashman, 318 F.3d 1275 (11th Cir. 

2003); FTC v. Nat'/ Vending Consultants, Inc., No. 

CV-S-05-0160-RC)-PAL (D. Nev. 2005); FTC v. 

Inspired Ventures, Inc., No. 02-21760-CIV-Jordan 

(S.D. Fla. 2002); FTCv. Inv. Dev. Inc., No. 89--0642 

(E.D. La. 1989). 

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 	 	 Federal Register/ Vol. 76, No. 236 /Thursday, December 8, 2011 I Rules and Regulations 76849 

implies that the prospective purchaser 

will achieve similar results:•0 a 

To prevent deceptive use of such 

earnings claims,§ 437.4(c), as proposed 

in the RNPR, prohibited the use of 

industry financial, earnings, or 

performance information "unless the 

seller has written substantiation 

demonstrating that the information 

reflects the typical or ordinary financial, 

earnings, or performance experience of 

purchasers of the business opportunity 

being offered for sale." 4 o:J 

In response to the RNPR, one 

commenter noted that this provision 

would prohibit sellers from using 

industry statistics in ways that could 

assist potential purchasers in making 

informed decisions.404 For example, 

hypothetically, the performance 

experience of prior purchasers of a 

business opportunity might contrast 

favorably against the industry average 

and, if so, that information might help 

a prospective purchaser assess the value 

of the investment against other 

proposed businesses. 

The Staff Report noted that there may 

be a limited number of situations in 

which providing industry statistics may 

be beneficial to potential purchasers, 

but expressed concern that industry 

statistics can be, and have been, used to 

imply to potential purchasers that their 

likely earnings with the promoted 

business opportunity will match the 

industry averages.405 

The Staff Report recommended a 

small change to Section 437.4(c) to state 

that it is an unfair or deceptive practice 

to "disseminate industry financial, 

earnings, or performance information 

unless the seller has written 

substantiation demonstrating that such 

information reflects, or does not exceed, 

the typical or ordinary financial, 

earnings, or performance experience of 

purchasers of the business opportunity 

being offered for sale." The Commission 

received no comments on this 

provision. 

The Commission concludes that the 

recommended change is warranted. 

Section 437.4(c) of the final Rule thus 

includes the staffs recommended 

language. Accordingly, under the final 

Rule, a seller can use industry 

information only if it is able to measure 

the performance of existing purchasers 

of that seller's offered business 

opportunity and document that those 

existing purchasers' typical performance 

equals or exceeds the average 

performance of purchasers of other 

402 71 FR at 19073. 

4o> 73 FR at 16135. 

404 Planet Antares-RNPR at 25. 

•os Staff Report at 99. 

business opportunities available in the 

industry. A start-up business 

opportunity with no or very limited 

prior sales, therefore, probably would 

not be able to use industry statistics 

because it would lack a sufficient basis 

to demonstrate that the industry 

statistics reflect the typical or ordinary 

experience of the start-up's prior 

purchasers. 

5. Section 437.4(d): Material Changes in 

Earnings Claim Statement 

Section 437.4(d) addresses postdisclosure changes in earnings 

information. It prohibits any seller 

making an earnings claim from failing to 

notify the prospective purchaser, before 

the prospect enters into a contract or 

pays any consideration, of any material 

change that has occurred and that calls 

into question the relevance or reliability 

of the information contained in its 

earnings claim statement. For example, 

"[s]uch material changes include the 

issuance of a new survey or other facts 

that would lead the seller to conclude 

that a prior survey is no longer 

valid." 406 In crafting§ 437.4(d), the 

Commission was cognizant of the high 

degree of materiality of earnings 

information for prospective purchasers, 

but attempted to minimize compliance 

costs during the time before the 

prospective purchaser enters into a 

contract or pays any consideration. 407 In

the RNPR, the Commission explained 

that "[t]he proposal would not require a 

seller, for example, to prepare a revised 

earnings claim statement immediately, 

but would simply require written 

notification of the change." 408 No 

comments in response to the RNPR or 

the Staff Report were directed at this 

provision. The Commission finds that 

§ 437.4(d) strikes the right balance 

between accurate disclosure to prevent 

deception and the compliance costs that 

would result from a more frequent than 

quarterly updating requirement of the 

full earnings claim document. The final 

Rule includes this provision as 

recommended in the Staff Report. 

E. Section 437.5: Sales Conducted in 

Spanish or Other Languages Besides 

English 

On its own initiative, the staff 

recommended in the Staff Report adding

a provision that would require sellers to 

provide the disclosure document and 

the disclosures required by the Rule to 

potential purchasers in the same 

language that the seller uses to market 

the business opportunity. This 

406 Id. at 100. 

401 Id. 

40B 71 FR at 19073. 

recommendation was based, in part, on a long-standing Commission 

enforcement policy, which advises that 

where a Commission order, rule, or 

guide requires the clear and 

conspicuous disclosure of certain 

information in an advertisement or sales 

material appearing in a non-English 

language publication, the disclosures 

should be made in the predominant 

language of the publication in which the 

advertisement or sales material 

appears. 4 09 This policy is the result of 

the Commission's recognition that "with 

increasing intensity, advertisers are 

making special efforts to reach foreign 

language-speaking consumers." 410 

Under the policy, failure to provide the 

required disclosures either in the 

predominant language of the 

publication or of the target audience 

could result in a civil penalty or other 

law enforcement proceeding for 

violating the terms of any applicable 

Commission order or rule. 411 

The staffs recommendation to 

address foreign-language sales also is 

based on its belief that when a business 

opportunity seller purposefully reaches 

out to a particular population by 

marketing in the foreign language 

spoken by members of that community, 

all of the disclosures required by the 

Rule should be accessible and 

comprehensible to each of those 

potential purchasers. 412 Accordingly, 

the Staff Report recommended that 

business opportunity sellers be required 

to provide the disclosure document to 

potential purchasers in the language the 

seller uses to conduct the offer for sale, 

sale, or promotion of the business 

opportunity. 

The Staff Report sought public 

comment about whether this 

requirement adequately promotes the 

Commission's goal of ensuring that 

potential purchasers be provided with 

information necessary to make an 

informed purchasing decision. It also 

solicited comment on what alternatives, 

if anv, the Commission should consider, 

and the costs and benefits of each 

alternative. 

In response to the Staff Report, the 

Commission received one comment 

addressing the disclosure requirements 

for foreign-language sales. Specifically, 

DOJ agreed with the staff's 

4011 FTC Enforcement Policy Statement 

Concerning Clear and Conspicuous Disclosures in 

Foreign Language Advertising and Sales Materials, 

16 CFR 14.9(a). In the case of any other 

advertisement or sales material, the Commission 

policy states that the disclosures should appear in 

the language or the target audience. 

410Id. 

411 Id. 

<12 Staff Report at 101. 

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 	 	 76850 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

recommendation that the required 

disclosures should be made in the same 

language as the sale, noting that the 

disclosures should be "as 

comprehensible to would-be buyers as 

is the [seller's] sales pitch." 413 

After consideration of the record, the 

Commission's long-standing policy, and

the rationale behind the stafPs 

recommendation, the Commission 

agrees that an English disclosure 

document for business opportunities 

marketed in Spanish and other foreign 

languages may have little utility for the 

targeted prospects. Accordingly, the 

final Rule contains disclosure 

requirements for sales conducted in 

Spanish or other languages besides 

English. 

Because the Commission's law 

enforcement history demonstrates that 

fraudulent business opportunities have 

specifically targeted Spanish-speaking 

communities,414 the Staff Report 

recommended that the Rule contain a 

Spanish translation of the basic 

disclosure document as Appendix B. In 

the Staff Report, the staff solicited 

comment on whether the Spanish 

translation of the disclosure document 

was adequate to convey to Spanishspeaking potential purchasers the 

meaning of the required disclosures, or 

whether different word choices would 

make the disclosures more meaningful. 

No comments addressed these issues. 

Based on its law enforcement 

experience with business opportunity 

sellers specifically targeting Spanishspeaking consumers, the Commission 

agrees that a Spanish translation of the 

disclosure document is appropriate. 

Accordingly, a Spanish version of the 

disclosure document is included as 

Appendix B to the final Rule. 

Although business opportunities may 

be marketed in dozens of languages 

besides English and Spanish, the 

Commission's law enforcement 

experience does not suggest that there 

are other particular languages in which 

business opportunity sales are 

conducted. Moreover, the record is 

silent as to whether translations into 

other languages are necessary. 

Therefore, the Commission has 

determined not to provide translations 

of the disclosure document into other 

languages. Under§ 437.5(b), should a 

business opportunity seller use a 

language other than English or Spanish, 

the seller would be responsible for 

4 "" DOJ-Staff Report at 2. 414 See supm note 99 and accompanying text. DOJ 

also commented that in its experience, business 

opportunities have been pitched to the Spanish 

community. See DOJ-Staff Report at 2. 

obtaining an accurate translation of the 

disclosure document. 

The Commission adopts the language 

proposed in the Staff Report, with one 

slight modification. Namely, §437.5 of 

the final Rule makes clear that all 

earnings disclosures required by 

§ 437.4-rather than those identified 

only in § 437.4(a)-must be made in the

language in which the business 

opportunity sales are conducted. 

Section 437.5 of the final Rule, entitled 

"Sales conducted in Spanish and other 

languages besides English" requires: 

(a) If the seller conducts the offer for 

sale, sale, or promotion of a business 

opportunity in Spanish, the seller must 

provide the disclosure document 

required by §437.3(a) in the form and 

language set forth in Appendix B to this

part, and the disclosures required by 

§§437.3(a) and 437.4 must be made in 

Spanish; and 

(b) If the seller conducts the offer for 

sale, sale, or promotion of a business 

opportunity in a language other than 

English or Spanish, the seller must 

provide the disclosure document 

required by§ 437.3(a) using the form 

and an accurate translation of the 

language set forth in Appendix A to this

part, and the disclosures required by 

§§ 437.3(a) and 437.4 must be made in 

that language. 

Section 437.3(a) has been revised to 

conform with this requirement. 415 

F. Section 437.6: Other Prohibited 

Practices 

Section 437.6 of the final Rule 

prohibits sellers from engaging in a 

number of deceptive practices, whether 

directly or through a third party, that are

common in the sale of fraudulent 

business opportunity ventures. 

Violation of any provision of this 

section would be a violation of the Rule 

and an unfair or deceptive act or 

practice in violation of Section 5 of the 

FTC Act. Each of these prohibitions is 

discussed below. 

1. Section 437.6(a): Disclaiming Any 

Required Disclosure 

Section 437.6(a) prohibits a business 

opportunity seller from disclaiming, or 

415 Section 437.3 or the final Rule makes it an 

unfair or deceptive act or practice for any seller to 

fail to disclose to a prospective purchaser material 

information required by§§ 437.3 and 437.4 in a 

single written document in the form and using the 

language set forth in Appendix A to the Rule; or if 

the offer for sale, sale, or promotion of a business 

opportunity is conducted in Spanish, in tho form 

and using the language set forth in Appendix B to 

the Rule; or if the offer for sale, sale, or promotion 

of a business nppo1t1mily is conducted in a 

language other than English or Spanish, using the 

form and an accurate translation of the language set 

forth in Appendix A to the Rule. 

requiring "a prospective purchaser to 

waive reliance on, any statement made 

in any document or attachment that is 

required or permitted to be disclosed 

under this Rule." 416 The purpose of this 

provision is to preserve the reliability 

and integrity of pre-sale disclosures. 

Otherwise, the Rule's very purpose 

would be undermined by signaling to 

prospects that they cannot trust or rely 

on the Rule's mandated disclosures.417 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule includes§ 437.6(a) as 

recommended in the Staff Report. 

2. Section 437.6(b): Making Inconsistent 

or Contradictory Claims 

Section 437.6(b) prohibits sellers from 

making any representation, whether 

orally, visually, or in writing, that is 

inconsistent with or that contradicts any 

statement made in the basic disclosure 

document or in any earnings claim 

disclosures required by the Rule. 4111 

Without this prohibition, a seller, for 

example, would be free to show a 

prospect a graph with earnings 

information, even though the seller's 

disclosure document states that it does 

not make an earnings claim.419 The 

Commission's law enforcement 

experience shows that this is a prevalent 

problem. 420 This provision, like the 

anti-disclaimer provision, is necessary 

to preserve the reliability and integrity 

of the required disclosures. 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule includes§ 437.6(b) as 

recommended in the Staff Report. 

3. Section 437.6(c): Including 

Extraneous Materials in Disclosure 

Document 

Section 437.6(c) prohibits the 

inclusion of any additional information 

in the disclosure document that is not 

explicitly required or permitted by the 

Rule. This prohibition is intended to 

preserve the clarity, coherence, 

readability, and utility of the disclosures 

by ensuring that the seller does not 

416 This provision is parallel to the antidisclaimer prohibition in the Amended Franchise 

Rulo. See 16 CFR 436.9(h). 

417 71 FR at 19073. 

41 • This provision is similar to the Amended 

Franchise Rule's prohibition against making 

statements that contradict any required disclosure. 

See 16 CFR 436.9(a). 

<10 71 FR at 19074. 

42o E.g., FTC v. Am. Entm't Distribs., lllc., No. 04-

22431-CIV-Martinez (S.D. Fla. 2004); FI'Cv. 

Inspired Ventures, Inc., No. 02-21760-CIV-Jordan 

(S.D. Fla. 2002); FTCv. Mo1tgage Serv. Assocs., Inc., 

No. 395-CV-1362 (AVC) (D. Conn. 1995); FTCv. 

Tower Cleaning Sys., Inc., No. 965844 (E.D. Pa. 

1996). 

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 	 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76851 

clutter the disclosure document with 

extraneous materials that may 

overwhelm purchasers, distracting them 

from the required disclosures.421 To 

facilitate a prospective purchaser's 

ability to maneuver through an electronic version of the disclosure 

document, this provision expressly 

permits the use of common navigational 

tools, such as scroll bars and internal 

links that facilitate review of an 

electronic document. The provision 

prohibits, however, other electronic 

features-such as audio, video, 

animation, or pop-up screens-that may 

distract attention from the core 

disclosures. 422 

The prohibition on including 

extraneous materials extends to 

information required or permitted by 

state law. One important goal of revising 

and tailoring the disclosure 

requirements for business opportunity 

sellers is to simplify and streamline the 

disclosures into a single-page document. 

Accordingly, the Commission has 

concluded that allowing business 

opportunity sellers to mix federal and 

state disclosures into one document 

would be an invitation to sellers to 

present lengthy and confusing 

information to prospective 

purchasers.4 2:l Such a result would be 

contrary to the Commission's goal of 

providing a simple, clear, and concise 

disclosure document. State laws offering 

equal or greater protections are not 

preempted by the final Rule. The final 

Rule only prohibits any sellers from 

providing any disclosures required 

under state law together with the 

disclosures required under the final 

Rule. No comments received in 

response to the RNPR or the Staff Report 

were directed to this provision, and the 

final Rule includes §437.6(c) as 

recommended in the Staff Report. 

4. Section 437.6(d): Making False 

Earnings Claims 

As previously noted, the making of 

deceptive earnings claims is the most 

prevalent problem in the offer and sale 

of business opportunities. Accordingly, 

§ 437 .6(d) prohibits sellers from 

misrepresenting the amount of sales, or 

gross or net income or profits a 

prospective purchaser may earn or that 

421 Indeed, in response to the INPR, DOJ urged the 

Commission to exclude state disclosures from the 

proposed form. In DOJ's experience, "[p]urveyors of 

fraudulent business opportunities will seek every 

opportunity to water down this document with 

extraneous information to hide any negative 

information it may contain." 73 FR at 16128. The 

Commission's experience supports OO['s 

condusions. 

422 This is the same approach used in the 

Amended Franchise Rule. See 16 CFR 436.6(d). 423 See 73 FR at 16128. 

prior purchasers have earned, This 

prohibition complements the final 

Rule's earnings substantiation 

requirements in §437.4. Thus, both 

unsubstantiated and false earnings 

claims are prohibited by the Rule. 

No comments received in response to 

the RNPR or the Staff Report addressed 

this provision, and the final Rule 

includes §437.6(d) as recommended in 

the Staff Report. 

5. Section 437.6(e): Misrepresentations 

Regarding the Law as to Earnings Claims 

and the Identity of Other Business 

Opportunity Purchasers 

Section 437.6(e) prohibits sellers from 

stating that any law or regulation 

prohibits seller from furnishing earnings 

information. This provision is intended 

to address a recurring problem 

identified in the rulemaking recordthat sellers often misrepresent that 

federal law or the FTC prohibits the 

making of earnings claims. 424 In effect, 

prohibiting these types of 

misrepresentations ensures that 

prospective purchasers are not misled 

into believing that earnings information 

is unavailable to them as a matter of 

law.425 In addition, the RPBOR added a 

second proposed prohibition to 

§ 437.6(e) that would prevent sellers 

from misrepresenting that any law or 

regulation prohibits a seller from 

disclosing to prospective purchasers the 

identity of other purchasers of the 

business opportunity. The Commission 

proposed this change in response to a 

request from DOJ, which noted that ~n 

its experience, fraudulent business 

opportunity sellers frequently deflect 

potentia I purchasers' requests for the 

contact information of current 

distributors by falsely claiming_ that the 

law forbids disclosing those 

identities. 4 2n The Commission is 

convinced that the prohibition is 

appropriate because it will help 

424 ln the Amended Franchise Rule, the 

Commission addressed this problem in the context 

of sales of business format franchises through a new 

requirement that franchise sellers include a specific 

preamble in the financial performance section of 

their disclosures. Among other things, the preamble 

makes clear that franchisors can make financial 

performance information available, assuming they 

have a reasonable basis for their claims. See 16 CFR 

436.5(s](l). Although the same problem exists in the 

sale of business opportunities, the Commission, in 

an effort to streamline the business opportunity 

disclosure document and reduce compliance costs, 

proposed this different approach for the Business 

Opportunity Rule, believing it sufficient to address 

deceptive business opportunity sales. The 

Commission noted that "whereas the Franchise 

Rule seeks to encourage franchisors to make 

earnings claims, 110 such encouragement is needed 

in the business opportunity lleld, where such 

claims are all too common." 71 FR at 19075 n.211. 425 71 FR at 19075. 4w 73 FR at 16127. 

consumers understand that if the seller 

supplies no references, it is because 

none exist, or because the seller chooses 

not to make such information available 

in contravention of the Rule.427 

No comments received in response to 

the RNPR or the Staff Report addressed 

this provision, and the final Rule 

contains §437.6(e) as recommended in 

the Staff Report. 

6. Section 437.6(f): Failing To Provide 

Written Substantiation for Earnings 

Claims 

Section 437.6(f) prohibits a seller who 

makes an earnings claim from failing to 

provide written substantiation to 

prospective purchasers, and to the 

Commission, upon request. 42a Rather 

than mandating that business 

opportunity sellers routinely include 

documentation for earnings claimswhich could be voluminous-in the 

earnings claim statement itself, the final 

Rule's requirement is intended to 

reduce compliance costs by requiring 

only that such materials be provided 

when requested. Purchasers could then 

review the documentation if they so 

choose. Therefore, although 

substantiation for earnings claims must 

exist, in writing, at the time any such 

claims are made, that substantiation 

need be provided to potential 

purchasers (or to the Commission) only 

upon request. 

No comments received in response to 

the RNPR or the Staff Report addressed 

this provision, and the final Rule 

contains § 43 7 .6(f) as recommended in 

the Staff Report. 

7. Section 437.6(g): Misrepresenting 

Commissions or Other Payments From 

the Seller 

Section 437.6(g) prohibits sellers from 

misrepresenting how or when 

commissions, bonuses, incentives, 

premiums, or other payments from the 

seller to the purchaser will be calculated 

or distributed. The Commission's law 

enforcement experience shows that 

these kinds of misrepresentations 

underlie deceptive work-al-home 

opportunities, where prospective 

purchasers rely on the seller as the 

source of income, or where the seller 

manages the system's cash flow. 429 The 

421 Td. 

4 2• The Amended Franchise Rule and the interim 

Business Opportunity Rule have similar 

requirements. See 16 CFR 436.5{r)(3J(v); 437.l(b)(2); 

and 437.l(c](2). 

429 E.g., FJ'C v. Indep. Mktg. Exch .. Inc .. No. 10-

CV--00568-NLH-KMW (D.N.J. 2010); FTC v. 

Prefe1wd Plati1111m Servs. Netwol'k, Tnc., No.10-CV00538-MI,C'~LHG (D.N.f. 2010); FTC v. Sun Ray 

Traders, Inc., No. 05-20402-CIV-Seitz/Bandstra 

(S.D. Fla. 2005); FTC v. Castle Publ'g, No. A03CA 

Continued 

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 	 	 76852 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

Commission concluded that absent this 

prohibition, the Rule would not address 

false promises about the compensation 

sellers will provide post-sale.430 

No comments received in response to 

the RNPR or the Staff Report addressed 

this provision, and the final Rule 

contains §437.6(g) as recommended in 

the Staff Report. 

8. Section 437.6(h): Misrepresenting 

Costs, Performance, Efficacy or Material 

Characteristics of Business Opportunity 

A common complaint of victims of 

business opportunity fraud arises from 

misrepresentations about the costs or 

the performance, efficacy, nature, or 

central characteristics of a business 

opportunity offered to a prospective 

purchaser, or the goods or services 

needed to operate the business 

opportunity. For example, a seller may 

misrepresent the total costs involved in 

purchasing or operating a business 

opportunity.431 In olher instances, a 

seller may misrepresent the quality of 

goods offered by the business 

opportunity seller, either for use in 

operating the business (e.g., vending 

machines) or for ultimate resale to 

consumers (e.g., novelty items).432 

Section 437.6(h) makes such deception 

actionable as a violation of the final 

Rule. 

No comments received in response to 

the RNPR or the Staff Report addressed 

this provision, and the final Rule 

contains §437.6(h) as recommended in 

the Staff Report. 

9. Section 437.6(i): Misrepresenting 

Post-Sale Assistance 

Section 437.6(0 prohibits business 

opportunity sellers from 

905 SS (W.D. Tex. 2003); FTCv. Trek Alliance, Inc ... 

No. 02-9270 SJL (AJWx) (G.D. Cal. 2002); FTC v. 

Termnce Maurice Howard, No. SA02CA0344 (W.D. 

Tux. 2002); FTCv. Am.'s Shopping Network, Inc., 

No. 02-80540-CIV-Hurley [S.D. Fla. 2002). 

""' 71 FR at 19075. 431 E.g., FTCv. World Traders Ass'n, Inc., No. 

CV05 0591 AHM (CTx) [G.D. Cal. 2005); FTCv. 

Castle Publ'g, No. A03CA 905 SS [W.D. Tex. 2003); 

FTCv. End70 Corp., No. 3 03CV--0940N (N.D. Tex. 

2003); FTCv. Darrell Richmond, No. 3:02-3972-22 

(D.S.C. 2003); FTC v. Carousel of Toys USA, Inc., 

No. 97-8587 CIV-Ungaro-Bcnagcs (S.D. Fla. 1997); 

FTCv. Pamde of Toys, Inc., No. 97-2367--GTV (D. 

Kan. 1997); FTCv. Te/ecomm. of Am., Inc., No. 95-

693-ClV-ORlr22 (M.D. Fla. 1995). Pre-sale 

disclosure of cost information is a remedial 

approach taken in many Commission trade 

regulation rules. E.g., 900 Number Rule, 16 CFR 

308.3(b]; TSR, 16 CFR 310.3; Funeral Rule, 16 CFR 

453.2.· 

432 E.g., FTC v. Kitco of Nev .. 612 F. Supp. 1282 

(D. Minn. 1985); FTC v. Associated Record Distribs., 

Inc., No. 02-21754-(;IV--Graham/Garber (S.D. Fla. 

2002); FTCv. Home Professions, Inc., No. 00-111 

[C.D. Cal. 2000); FTCv. WorldwideMktg. fr Distrib. 

Co., No. 95-f\422--CIV-Roettger (S.D. Fla. 1995); see 

also FTC v. Med. Bi//ers Network, No. 05 CV 2014 

(RJH) (S.D.N.Y. 2005). 

misrepresenting any material aspect of 

assistance it represents it will provide to 

purchasers.433 The Commission's 

enforcement experience shows that 

misrepresentation of post-sale assistance 

offered to a prospective purchaser is an 

element common to many business 

opportunity frauds targeted in 

Commission cascs.434 Also, consumer 

complaints about misrepresentations 

concerning the type and amount of 

assistance promised but not received are 

among the top categories of reported 

deceptive business opportunity 

practices.435 The Commission has 

concluded that the best way to address 

this deceptive practice is through a 

direct prohibition. 436 

No comments received in response to 

the RNPR or the Staff Report addressed 

this provision, and the final Rule 

contains §437.6(i) as recommended in 

the Staff Report. 

10. Section 437.6(j): Misrepresenting 

Locations, Outlets, Accounts, or 

Customers 

Section 437.6(j) prohibits sellers from 

misrepresenting "the likelihood that a 

seller, locator, or lead generator will 

find locations, outlets, accounts, or 

customers for the purchaser." 

Fraudulent business opportunity sellers 

often promise that the seller or some 

other third party will find locations or 

outlets for purchasers' equipment, or 

accounts or customers for the 

purchasers' services.437 Such 

representations include claims that a 

particular locator is successful in 

433 71 FR at 19075 n.216. 

434 The Commission has recognized that promises 

of assistance made to induce prospects to purchase 

a franchise are material, especially to those 

prospects with "little or no experience al running 

a business." 43 FR at 59676-77; see, e.g .. FTC v. 

Am. Entm't Distribs., Inc., No. 04-22431--CIVMartinez (S.D. Fla. 2004); FTC v. USS Elder Enter., 

Inc., No. SA CV--04-1039 AHS (ANx) [C.D. Cal. 

2004); FTCv. Kitco of Nev., 612 F. Supp. 1282 [D. 

Minn. 1985); FTC v. Leading Edge Pmcessing, Inc., 

No. 6:02--CV--681-0RL-19 DAB (M.D. Fla. 2003); 

FTCv. Darrell Richmond, No. 3:02-3972-22 (D.S.C. 

2003); FTCv. Elec. Med. Billing, Inc., No. SA02-368 

AHS (ANX) (G.D. Cal. 2003); FTCv. Transworld 

Enters., Inc ... No. 00 8126--CIV--Graham (S.D. Fla. 

2000); FTCv. Advanced Pub. Commc'ns Corp., No. 

00-00515--CIV-Ungaro-Benages (S.D. Fla. 2000); 

FTCv. Hi Tech Mint Sys .. Inc .. No. 98 LlV 5881 

[JES) (S.D.N.Y. 1998); United States v. QXJnt'I, Inc., 

No. 398--CV--0453-D (N.D. Tox. 1998). 

435 71 FR at 19075 n.218. 

430 71 FR at 19075. 

"" E.g., FTC v. Am. Entm't Distribs., Inc., No. 04-

22431--CIV-Martinez (S.D. Fla. 2004); FTCv. Int'l 

Trader, No. CV--02--02701 AHM (ffLx) (G.D. Cal. 

2002); FTC v. Elec. Processing Servs., Inc., No. CVS-02--0500-L.H.-R.S. (D. Nev. 2002); FTC v. Home 

Professions, Inc., No. SACV 00-111 AHS (Eex) (G.D. 

Cal. 2001 ]; FTC v. Encore Networking Servs., No. 

00-1083 WJR (A!Jx) [C.D. Cal. 2000); FTCv. AMP 

Publ'n, Inc., No. SACV-00-112-AHS-ANx (G.D. 

Cal. 2001); FTCv. Infinity Multimedia, Inc., No. 96-

6671--CIV--Gonzalez (S.D. Fla. 1996). 

finding locations, as well as representations that the seller or other 

third party has already found and 

entered into contracts with location 

owners or customers.438 The 

Commission has found that these types 

of representations are material to a 

prospective purchaser, because they 

foster the expectation that a profitable 

market exists for the goods or services 

the purchaser will sclJ. 4 :rn 

No comments received in response to 

the RNPR or the Staff Report addressed 

this provision, and the final Rule 

contains §437.6(j) as recommended in 

the Staff Report. 

11. Section 437.6(k): Misrepresenting 

Cancellation or Refund Policy 

Section 437.6(k) prohibits a seller 

from misrepresenting, directly or 

through a third party, the terms and 

conditions of any cancellation or refund 

policy. This prohibition docs not 

compel any seller to offer a cancellation 

or a refund, nor does it dictate the terms 

and conditions under which a seller 

may offer such relief. Rather, it simply 

ensures that any cancellation or refund 

offer a seller makes before the sale is 

truthful and accurate. The 

Commission's law enforcement 

experience demonstrates that, in many 

instances, business opportunity sellers 

falsely claim that they permit a 

purchaser to cancel the purchase, 

guarantee a 100% refund, or promise to 

buy back some or all of the products 

sold to a purchascr.440 These 

representations have lured prospective 

purchasers into believing that the 

investment is either low-risk or even 

risk-free.441 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains § 43 7 .6(k) as 

recommended in the Staff Report. 

12. Section 437.6(1): Failing To Provide 

a Refund or Cancellation 

Section 437.6(1) prohibits a seller from 

failing to cancel a purchase or make a 

refund when the purchaser has qualified 

for such relief under the seller's 

4 8 3 E.g., FTCv. Hart Mktg. Enters. Ltd., No. 98-

222--CIV-T-23 E (MD. Fla. 1998); FTCv. Vendors 

Fin. Servs., Inc., No. 98-1832 (D. Colo. 1998); FTC 

v. Hi Tech Mint Sys., Inc., No. 98 CIV 5881 

[S.D.N.Y. 1998); FTC v. Infinity Multimedia, Inc., 

No. 9fi--6671--CIV--Gonzalez [S.D. Fla. 1996). 

rn, 71 FR at 19076. 

440 E.g., FTC v. Med. Billers Network, No. 05 CV 

2014 [RJH) (S.D.N.Y. 2005); FTCv. Castle Publ'g, 

No. A03CA 905 SS (W.D. Tex. 2003); FTCv. Am. 's 

Shopping Network, Inc., No. 02-80540-CIV-Hurley 

[S.D. Fla. 2002); FTC v. Home Professions, Inc., No. 

SACV 00-111 AHS (Eex) (C.D. Cal. 2001); FTCv. 

Encore Networking Servs., No. 00-1083 WJR (A!Jx) 

(G.D. Cal. 2000). 

441 71 FR at 19076. 

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 	 	 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011 /Rules and Regulations 76853 

cancellation or refund policy.442 As 

noted above, §437.6(k) prohibits a seller

from misrepresenting, pre-sale, the 

seller's cancellation or refund policy. 

Section 437.6(1) complements that 

section and is intended to address 

sellers' post-sale conduct, prohibiting 

the seller from failing to honor 

cancellation or refund requests when 

purchasers have satisfied all the terms 

and conditions disclosed in the seller's 

disclosure document for obtaining such 

relief.443 In the Commission's 

experience, the failure of business 

opportunity sellers to make promised 

refunds or to honor cancellation policies

ranks high among issues raised by 

business opportunity purchasers.444 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains § 43 7.6(1) as 

recommended in the Staff Report. 

13. Section 437.6(m): Misrepresenting 

Business Opportunity as an 

Employment Opportunity 

Section 437.6(m) prohibits business 

opportunity sellers from . 

misrepresenting a business opportunity 

as an employment opportunity. The 

Commission's law enforcement 

experience demonstrates that some 

business opportunity sellers lure 

unsuspecting consumers by falsely 

representing that they are offering 

employment when, in fact, they are 

offering vending, work-at-home, or other 

business opportunities. For example, in 

some instances consumers have 

responded to advertisements seeking 

sales executives, only to discover that 

the "position" requires them to 

purchase equipment or products from 

the seller and, in turn, to sell those 

products. 445 The Commission concludes 

that this prohibition is necessary to 

protect consumers against false 

representations of employment 

opportunities. 

442 This is consistenl with the interim Business 

Opportunity Rule approach. See 16 CFR 437.l(h). 4 " E.g., FTC v. AMP Publ'ns, Inc., No. SACV--00-

112-AHS-ANx (C.D. Cal. 2001) (failure to honor 90-

day money back guarantee); FTC v. Star Publ'g 

Group, Inc., No. 00--023 (D. Wyo. 2000) (failure ta 

honor 90-day rel'und policy). 

444 73 FR at 19076. 4 45 See, e.g., FTC v. Trek Alliance, Inc., No. 02-

9270 SJL (AJWx) (C.D. Cal. 2002) (defendants 

placed ads in "Help Wanted" sections of newspaper 

offering salaried position); FTC v. Leading Edge 

Processing, Inc .. , No. 6:02-CV-681-0Rlr-19 DAB 

(M.D. Fla. 2003) (defendants sent emails to job 

seekers who posted their resumes on job Web sites, 

falsely representing tlrn availability of jobs and 

guaranteeing a steady stream of work); FTC v. David 

Mortinelli, Jr., No. 3:99 CV 1272 (D. Conn. 2000) 

(defendants sent unsolicited emails falsely offering 

a $13.50 per hour position processing applications 

for credit, loans. or employment). 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains§ 437.6(m) as 

recommended in the Staff Report. 

14. Section 437.6(n): Misrepresenting 

the Exclusivity of Territories 

Section 437.6(n) prohibits 

misrepresentations about the terms of 

any territorial exclusivity or limited 

territorial protection offered to a 

prospective purchaser.446 In the 

Commission's experience, false or 

misleading promises about territories 

are a common deceptive practice 

reported by business opportunity 

purchasers. 447 The Commission has 

stated that representations about 

territorial exclusivity or more limited 

territorial protections are material 

because they often induce a prospective 

purchaser into believing that he or she 

will not be competing for customers 

with the seller or other purchasers, 

thereby increasing the purchaser's 

likelihood of success.4411 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains §437.6(n) as 

recommended in the Staff Report. 

15. Section 437.6(0): Assigning a 

Purported Exclusive Territory to 

Another Purchaser 

Section 437.6(0) prohibits a seller 

from assigning a single "exclusive" 

territory to more than one purchaser. 

This prohibition complements 

§ 43 7 .6(n), which prohibit sellers from 

misrepresenting territories. It is 

intended to address sellers' post-sale 

conduct, and prohibits the seller from 

failing to honor its promises regarding 

exclusive or protected territories. 

Consumer complaints indicate, and the 

Commission's law enforcement 

experience confirms, that fraudulent 

business opportunity sellers often sell 

the same purportedly exclusive territory 

to several unsuspecting purchasers. 449 

In these circumstances, purchasers who 

have been 1 ured to invest in an 

opportunity on the basis of promises of 

446 71 FR at 19076. In some instances, a business 

opportunity seller may offer a prospect an exclusive 

territory. in which no other person has the right to 

compete within the territory. In other instances, a 

seller may offer a more limited protection. For 

example, the seller may prohibit other purchasers 

from operating in the territory, hut reserve to itself 

the ability to conduct telemarking or Internet sales 

in the territory. Regardless of the scope of the 

territorial protection. § 437.6(11) prohibits business 

opportunity sellers from misrepresenting the nature 

of the territory. 447 Id. at 19065. 

448 Id. at 19075. 

449 E.g., FTC v. Am. Safe Mktg., No. 1:89-CV462-RLV (N.D. Ga. 1989). 

an exclusive territorial lock on their 

market find that their chances of success 

are materially reduced by competition 

from the other purchasers. 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains§ 437.6(0) as 

recommended in the Staff Report. 

16. Section 437.6(p): Misrepresenting 

Third Party Endorsements or Other 

Affiliation 

Section 437.6(p) prohibits business 

opportunity sellers from 

misrepresenting that "any person, 

trademark or service mark holder, or 

governmental entity, directly or 

indirectly benefits from, sponsors, 

participates in, endorses, approves, 

authorizes, or is otherwise associated 

with the sale of the business 

opportunity or the goods or services 

sold through the business 

opportunity." 450 The Commission's 

enforcement experience indicates that 

business opportunity frauds often lure 

consumers by misrepresenting that their 

opportunities have been approved or 

endorsed by a government agency or 

well-known third party. 451 In other 

instances, business opportunity sellers 

falsely claim that their opportunities are 

sponsored by or associated with a 

charily, or that a charity will benefit 

from a percentage of sales. 452 The 

Commission has concluded that such 

claims are material to a purchaser 

because an alleged endorsement or 

shared-profit arrangement may create 

the impression that the opportunity is 

legitimate or that the affiliation will 

enhance sales and profits. 45:J 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains §437.6(p) as 

recommended in the Staff Report. 

17. Section 437.6(q): Misrepresenting 

References (the Use of "Shills") 

Section 437.6(q) addresses one of the 

most pernicious practices common in 

fraudulent business opportunity sales15 • ° Cf. TSR, 16 CFR 310.3(a)(vii) (prohibiting 

misrepresentations concerning "affiliation with. or 

endorsement or sponsorship by, any person or 

government entity"). 

451 - E.g., FTC v. Stremnlfae Int'/, No. 01-6885-

CIV-Ferguson (S.D. Fla. 2001) [misrepresented FDA 

approval); FTC v. Star Publ'g Group, Inc., No. 00-

023 (D. Wyo. 2000) (misrepresented HUD approval); 

FTC v. Bus. Opportunity Ctr., Inc., No. 95 8429-

CIV-Zloch (S.D. Fla. 1995) (misrepresented FDA 

approval); se" C1lso FTC v. Hawthorne Commc'ns, 

No. 93-7002 AAH (JGX) (C.D. Cal. 1993) (order 

restricting use of testimonials and endorsements in 

the sale of business opportunities). 452 E.g., FTC v. Global Assistance Netwo1-k for 

Charities, No. 96-2494 PHX RCB (D. Ariz. 1996). 

453 71 FR at 19077. 

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 	 	 76854 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 

the use of "shill" references to lure 

unsuspecting consumers to invest in a 

business opportunity.454 The 

Commission has brought many actions 

against business opportunity sellers 

who provided prospects with the names 

of individuals they falsely claimed were

independent prior purchasers or 

independent third parties, but who, in 

fact, were paid by the seller to give 

favorable false reports confirming the 

seller's claims, especially their earnings 

claims.455 The use of paid shills to give 

false reports induces prospective 

purchasers into believing that the 

opportunity is a safe and lucrative 

investment. 

To address this deceptive practice, 

§ 437.6(q) contains two related 

prohibitions. First, it prohibits any 

seller from misrepresenting that any 

person "has purchased a business 

opportunity from the seller." This 

prevents a seller, for example, from 

claiming that a company employee, 

locator, or other third party is a prior 

purchaser of the opportunity, when that 

is not the case. Second, the provision 

prohibits a seller from misrepresenting 

that any person-such as a locator, 

broker, or organization that purports to 

be an independent trade association­

"can provide an independent or reliable 

report about the business opportunity or

the experiences of any current or former 

purchaser." Providing a prospect with a 

list of brokers who are paid to give 

favorable reports, for example, would 

violate this provision because any 

statement a person on such a list makes 

would not be independent and 

reliable. 456 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains §437.6(q) as 

recommended in the Staff Report. 

18. Section 437.6(r): Failing To Disclose 

Consideration Paid to or Prior 

Relationship With Prior Purchaser 

Section 437.6(r) is intended to 

complement the prohibition in 

§ 437.6(q) regarding the use of "shills." 

454 See id. at n.236 ("After earnings claims, false 

testimonials and shill references are the most 

common Section 5 allegations in Commission 

business opportunities cases.") 4 55 E.g., FTCv. Am. Entm't Distribs., Inc., No. 04-

22431--CIV-Martinez (S.D. Fla. 2004); United States 

v. Vaughn, No. 01-20077-01-KHV (D. Kan. 2001); 

FTCv. Hart Mktg. Enters. Ltd., No. 98-222--GV-T23 E (M.D. Fla. 1998); FTCv. Jnetintl.com, No. 98-

2140 (C.D. Cal. 1998); FTC v. Infinity Multimedia, 

Inc., No. 96-6671--GV-Gonzalez (S.D. Fla. 1996); 

FTC v. Al/stat" Bus. Consultants Group, Inc., No. 

95-6634--CIV-Ryskamp (S.D. Fla. 1995). 

4 so E.g., FTC v. Aj]iliated Vendors Ass'n, Inc., No. 

02--CV-0679--D (N.D. Tex. 2002); FTC v. Raymond 

Urso, No. 97-2680--CIV-Ungaro-Benages (S.D. Fla. 

1997); see also 71 FR at 19077 n. 238. 

Section 437.6(r) prohibits a seller from 

failing to disclose payments to 

individuals identified as references, as 

well as any personal relationships the 

seller has with such individuals. Such 

prohibitions are necessary because an 

individual with a personal relationship 

with the seller, or who has been paid for 

his or her assessment of an opportunity, 

is likely to be biased, and any story of 

success or high earnings from any such 

person is suspect. 457 The final Rule 

clarifies that the term "consideration" is

to be interpreted broadly to include not 

only direct cash payments, but indirect 

financial benefits, such as forgiveness of

debt, as well as other tangible benefits 

such as equipment, services, and 

discounts. 458 

The RPBOR modified slightly the 

language of this provision to make clear 

that the information that must be 

disclosed to a potential purchaser is not 

only the payment of any consideration 

to the reference by the seller, but also 

the existence of any relationship 

between the seller and the reference. 459 

Therefore, the RPBOR added clarifying 

language to the opening clause of 

§ 437.6(r) so that it prohibits a failure to 

disclose any consideration paid, any 

personal relationship, or other past or 

current business relationship other than 

as the purchaser of the business 

opportunity being offered. 

No comments, either in response to 

the RNPR or the Staff Report, addressed 

this provision. Because the Commission 

finds that the small clarification to 

§ 437.6(r) more accurately identifies the 

information that must be disclosed to a 

potential purchaser, the Commission 

adopts§ 437.6(r) in the final Rule in the 

form recommended in the Staff Report. 

G. Section 437.7: Record Retention 

Section 437.7 establishes the minimal 

record retention requirements necessary 

to document compliance and permit 

effective Rule enforcement. This section 

applies to both the business opportunity

seller and its principals, to ensure that 

records required by the Rule are not 

destroyed if the seller goes out of 

business or otherwise ceases 

operations.460 As detailed below, sellers 

and their principals must keep, and 

make available to the Commission, the 

4 " Indeed, the Commission has long held that the 

failure to disclose compensation paid to an 

endorser is a deceptive practice in violation of 

Section 5. See 71 FR at 19077; see also Guides 

Concerning the Use of Endorsements and 

Testimonials in Advertising, 16 CFR 255 (Oct. 15, 

2009). 

4ss 71 FR at 19078. 

4 ,073 FR at 16128, 16136. 

4 "" 71 FR at 19078. 

following five types of records for a 

period of three years: 

(1) Section 437.7(a): Each materially 

different version of all documents 

required by the Rule; 

(2) Section 437.7(b): Each purchaser's 

disclosure receipt; 

(3) Section 437.7(c): Each executed 

written contract with a purchaser; 

(4) Section 437.7(d): Each oral or 

written cancellation or refund request 

received from a purchaser; and 

(5) Section 437.7(e): All substantiation 

upon which the seller relies from the 

time an earnings claim is made. 

The Commission finds that these 

limited recordkeeping requirements 

strike the right balance, requiring no 

more than necessary for effective law 

enforcement, while minimizing 

compliance costs. 401 Moreover, records 

can be retained electronically, helping 

lo further minimize compliance costs. 

No comments received in response to 

the RNPR or the Staff Report were 

directed to this provision, and the final 

Rule contains§ 437.7 as recommended 

in the Staff Report. 

H. Section 437.8: Franchise Exemption 

Section 437.8 is designed to eliminate 

potential overlap between the final 

Rule's scope of coverage and that of the 

Amended Franchise Rule, so that no 

business would face duplicative 

compliance burdens. 462 Accordingly, 

§ 437.8 exempts from the final Rule's 

coverage those business opportunities 

that: (1) Satisfy the definitional 

elements of the term "franchise" under 

the Amended Franchise Rule; (2) entail 

a written contract between the seller 

and the business opportunity buyer; and 

(3) require the buyer to make a payment 

that meets the Amended Franchise 

Rule's minimum payment requirement. 

These criteria were designed to 

accomplish two ends: to ensure that 

certain categories of businesses "carved 

out" from the Amended Franchise Rule 

are not inappropriately subjected to 

coverage by the Business Opportunity 

Rule; 463 and, simultaneously, to obviate 

'"' Id. 0• 2 /d.; see also 15 U.S.C. 57a(g) (authorizing the 

Commission to exempt persons or classes from all 

or part of rule coverage). 

463 For example, businesses exempt from 

Amended Franchise Rule coverage pursuant to the 

exemption for fractional franchises would not be 

subject to coverage by the Business Opportunity 

Rule because such businesses would meet the 

criteria of§ 43 7 .8. This is an appropriate result 

because the same rationale underlying exemption of 

these types of businesses from the Amended 

Franchise Rule would also dictate that they not be 

covered by the Business Opportunity Rule-i.o., the 

franchisor is not likely to deceive the prospective 

franchisee or Lo subject the prospective franchisee 

to significant investment risk. Therefore, imposing 

the requirements of either the Amended Franchise 

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any l?ophole that could be exploited by 

certam other types of business 

opportunities that are exempt from the 

Amended Franchise Rule but that 

should be regulated by the Business 

Opportunity Rule. 

On the other hand, certain businesses 

carved out of Amended Franchise Rule 

coverag~ should not escape regulation 

by the fmal Rule-specifically, those 

exempt from the Amended Franchise 

Rule's coverage due to the minimum 

payment exemption 464 or the oral 

agreement exemption. 465 The 

Commission has concluded that while 

these two exemptions are warranted in 

the franchise context to ensure that the 

significant disclosure costs imposed by 

the Amended Franchise Rule are costjustified, they do not apply to the final 

Rule, with its significantly lighter 

disclosure burden.466 

fn the RNPR, the Commission 

solicited comment on whether the 

exemption was overly broad or overly 

narrow.467 fn response to the RNPR, 

some commenters, primarily from the 

MLM industry, suggested limitations on 

the Rule by granting a safe harbor to 

exempt firms that require very low 

registration fees; 4n11 firms that offer · 

r~nmds on inventory purchases; 4011 

firms that are publicly-traded; 47 0 firms 

that have a high net worth; 471 or firms 

that arc members of a self-regulatory 

body, such as the DSA.472 These are not 

novel suggestions; each also was made 

in response to the INPR.4n fn the RNPR 

the Commission concluded that none of' 

these factors is determinative of whether

a company is, in fact, a pyramid scheme 

or otherwise engaged in deceptive 

conduct. Furthermore, the Commission 

noted that the effort to craft a workable 

rule using these criteria could 

undermine law enforcement efforts, as it

would, at least in the case of minimum 

payment thresholds, provide scam 

operators with a means to circumvent 

the Rule.474 The Staff Report 

recommended that the Commission not 

Rule or the Business Opportunity Rule would not 

be justified. See 71 FR at 19078. 1"' 16 CFR 436.2(a)(3)(iii). 165 16 CFR 436.2(a)(3)(iv). 

166 71 FR at 19078. 167 73 FR at 16133. 468 See, e.g .. Babener-RNPR; Pre-Paid LegalRNPR. 

400 See, e.g., Pre-Paid Legal-RNPR; TupperwareRNPR; IBA-RNPR. 

470 Id. 

47 1 

· See, e.g., IBA-RNPR. 

472 S1,e, e.g., DSA-RNPR. 47" 73 FR at 16119-20. Moreover, none of the 

comm enters offered any new rationale for 

expanding the proposed categories of exemption 

that had not previously been considered by the 

Commission. 474 Id. at 16120. 

expand the exemptions beyond those 

identified in the RPBOR. The 

Commission adopts § 43 7 .8 as 

recommended in the Staff Report. 

I. Section 437.9: Outstanding Orders; 

Preemption 

1. Section 437.9(a): Effect on Prior 

Commission Orders 

Section 437.9(a) addresses the effect 

the Ru~e '?ay have on outstanding 

Comm1ss10n orders. The Commission 

recognizes that the final Rule 

significantly changes the disclosure 

obligations for those sellers who are 

now under order in prior Commission 

actions. To enable business opportunity 

sellers to take advantage of the final 

Rule's reduced disclosure obligations, as 

well as to reduce any potential conflicts 

between existing orders and the final 

Rule,§ 437.9(a) permits persons under 

order to petition the Commission for 

relief consistent with the provisions of 

the new Rule. Under the RPBOR 

business opportunities required by FTC 

or court order to follow the Franchise 

Rule, 16 CFR Part 436, would have been 

permitted to petition the Commission to 

amend the order so that the business 

opportunity could follow the provisions 

of the Business Opportunity Rule 

instead. 47s 

Although no comments received in 

response to the RNPR addressed this 

provision, the Staff Report noted that 

while the_ C?mm_ission could modify an 

FTC admm1stral1ve order, iL would nol 

have the authority to modify any order 

entered by a court. 476 In the case of a 

court order, the Commission could 

however, stipulate to an amendme~t of 

the order by the court to allow the 

business opportunity to follow the 

provisions of the 8 usiness Opportunity 

Rule. The Staff Report recommended, 

therefore, that § 437 .9(a) be revised to 

add the phrase "or to stipulate to an 

amendment of the court order" as 

follows: "A business opportunity 

required by prior FTC or court order to 

follow the Franchise Rule, 16 CFR part 

436, may petition the Commission to 

amend the order or Lo stipulate to an 

amendment of the court order so that 

the business opportunity may follow the 

provisions of this part." 

In addition, the Staff Report noted 

that the first sentence of§ 437.9(a) 

proposed in the RPBOR was 

superfluous, and recommended deleting 

it. No comments in response to the Staff 

Report were directed at this provision. 

Upon consideration of the staff's 

recommendation and the rationale for 

475 Id. at 16136 (RPBOR § 437.8(a)). 476 Staff Report at 127. 

that recommendation, the Commission 

has decided to modify the text of this 

provision in the manner recommended 

in the Staff Report. As the Commission 

has stated previously, all determinations 

under this provision regarding the 

amendment of orders will be made on 

a case-by-case basis. 

2. Section 437.9(b): Preemption 

S~cti~n ~37.9(b) adopts a preemption 

pohcy similar to that embodied in the 

Amended Franchise Rule.477 rt provides 

that the Commission does not intend to 

preempt state or local business 

opportunity laws, except to the extent of 

any conflict with the Rule. Further, a 

law docs not conflict if it affords 

prospc~tive purchasers equal or greater 

protect10n, such as a requirement for 

registration of disclosure documents or 

more extensive disclosures.478 

One commenter suggested that the 

FTC should preempt conflicting state 

business opportunity rules, noting its 

belief that "enforcement of a nationwide 

standard by the FTC is preferable to a 

patchwork series of laws and 

regulations." 479 The Staff Report noted 

that the commenter is suggesting that all 

state laws and regulations that do not 

mirror exactly the Business Opportunity 

Rule would be in conflict with the Rule, 

and should therefore be preempted. The 

Commission has long recognized that 

state laws and regulations that afford 

equal or greater protections than do FTC 

trade regulations are not subject Lo 

preemption,4110 and therefore declines to 

follow this commenter's 

recommendation. 

J. Section 437.10: Severability 

Finally, § 437.10 adopts the 

severability provision recommended by 

the Slaff Report with one nonsubstantive change: The Commission 

removed the superfluous phrase, "it is 

the Commission's intention that" from 

the provision. This provision makes 

clear that, if any part of the Rule is held 

477 16 CFR 436.10. This approach is consistent 

with other Commission trade regulation rules. See, 

e.g., Appliance Labeling Rule, 16 CFR 305.17; 

Cooling-Off Rulo, 16 CFR 429.2; Mail Order Rule 

16 CFR 435.3(b)(2). . 

478 Although state laws offering equal or greater 

I?,rotectums are not preempted,§ 437.6(c] of the 

Imai Rule prohibits providing slate and federal 

disclosures togelher in one document. 

47"Tupperware-RNPR (5/28/2008). No other 

comments were received. At the June 2009 

Workshop, however, the panelist from the 

Maryland Attorney General"s Office expressed 

app".'':iation that ~tales were not preempted from 

~equmn~ th~t busmess opportunity sellers provide 

mformalwn Ill addition to that required by the 

proposed Rule. Cantone, June 2009 Tr at 20. 480 See_. e.g., Mail Order Rule, 16 CFR 435.3(b)(2) 

(rule does not preempt state or local laws that afford 

equal or greater protections). 

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invalid by a court, the remainder will 

still be in effect.481 No comments 

received in response to the RNPR or the 

Staff Report were directed to this 

provision. 

IV. Paperwork Reduction Act 

The Commission is submitting the 

final Rule and a Supplemental 

Supporting Statement to the Office of 

Management and Budget (0MB) for 

review under the Paperwork Reduction 

Act (PRA), 44 U.S.C. 3501-21. The final 

Rule amends a trade regulation rule 

governing business opportunity sales. 

The final Rule covers those business 

opportunities currently covered by the 

interim Business Opportunity Rule (and

formerly covered by the Original 

Franchise Rule, as explained above), as 

well as certain others not covered by the

interim Business Opportunity Rule, 

such as sellers of work-at-home 

programs. The final Rule requires 

business opportunity sellers to disclose 

specified information and to maintain 

certain records relating to business 

opportunity sales transactions. The 

currently approved estimate for the 

disclosure and recordkeeping burden 

under the interim Business Opportunity

Rule is 16,750 hours for business 

opportunity sellers. That estimate was 

based on an estimated 2,500 business 

opportunity sellers. As discussed below,

the final Rule reduces the existing 

burden on business opportunity sellers 

by streamlining disclosure requirements

to minimize compliance costs. 

In the RNPR, Commission staff 

estimated there were approximately 

3,050 business opportunity sellers 

covered by the RPBOR. This figure 

consisted of an estimated 2,500 vending 

machine, rack display, and other 

opportunity sellers currently covered by

the interim Business Opportunity Rule, 

and an estimated 550 work-at-home 

opportunity sellers, which would be 

newly covered entities under the final 

Rule. Because the final Rule is no 

different than the RPBOR regarding the 

types of entities to which it applies, and 

the Commission received no 

information suggesting the need to 

update these prior estimates, the 

Commission retains them for the final 

Rule. Additionally, Commission staff 

estimates that approximately 174 of 

those sellers market business 

opportunities in Spanish and that 

approximately 79 of the 3,050 business 

4 "' This provision is comparable to the 

severability provision in the Amended Franchise 

Rule, 16 CFR 436.11, as well as the severability 

provisions in other Commission rules. See, e.g., 

TSR, 16 CFR 310.9. 

opportunity sellers market in languages 

other than English or Spanish. 482 

A. Disclosure Requirements 

As discussed below, the final Rule is 

designed to streamline and substantially 

reduce the quantity of information 

business opportunity sellers are 

required to disclose under the interim 

Business Opportunity Rule. The final 

Rule impacts sellers differently, 

depending upon whether they are 

currently covered by the interim 

Business Opportunity Rule and what 

language they use to market the 

business opportunities. 

1. Mandatory Disclosures 

For the 2,500 vending machine, rack 

display, and other business opportunity 

sellers currently covered by the interim 

Business Opportunity Rule, the final 

Rule substantially reduces the 

disclosures from more than 20 

categories of information to five-the 

seller's identifying information, 

earnings claims, lawsuits, refund and 

cancellation policies, and prior 

purchasers. This streamlining also will 

minimize compliance costs for the 550 

business opportunity sellers that will be 

newly subject to the Rule. Business 

opportunity sellers must disclose 

whether or not they make earnings 

claims. The decision to make an 

earnings claim, however, is optional. 

While the disclosures of references and 

earnings claims retain, for the most part, 

the interim Business Opportunity Rule 

requirements, the required disclosure of 

lawsuits is reduced from the interim 

Business Opportunity Rule. 483 

The final Rule imposes one additional 

requirement that was not present in 

either the interim Business Opportunity 

Rule or the RPBOR, which was 

introduced in the Staff Report. For 

business opportunities marketed in 

Spanish, §437.5 ofthe final Rule 

••2 To estimate how many of the 3,050 sellers 

market business opportunities in languages other 

than English, staff relied upon 2009 United States 

Census Bureau ("Census") data. Calculations based 

upon a recent Census survey reveal that 

approximately 5.7% of the U.S. population speaks 

Spanish or Spanish Creole at home and speak 

English less than "very well." Calculations based 

upon that same survey reveal that approximately 

2.6% of the U.S. population speaks a language other 

than Spanish, Spanish Creole, or English at home 

and speak English less than "very well." Staff 

therefore projected that 5.7% of all entities selling 

business opportunities market in Spanish or 

Spanish Creole and 2.6% of all entities selling 

business opportunities market in languages other 

than English, Spanish and Spanish Creole. http:// 

factfindor.census.gov/servlet/STTable? __ bm=y&-

geo _id=n.t OOOUS&-

q1-_name=ACS _ 2009 _1 YR_ GOO_ S.1601&-

ds _ name=ACS _ 2009 _ 1 YR_ GOO_ &-_lm1g=e11&­

red0Log=false. 48" See supm Section III.C.2. 

requires that sellers provide potential 

purchasers with the Spanish version of 

the disclosure document (Appendix B to 

the Rule) and provide all other required 

disclosures in Spanish. For sales 

conducted in a language other than 

English or Spanish, the final Rule 

requires that sellers make the required 

disclosures in the same language as the 

sale, using the form and an accurate 

translation of the language set forth in 

Appendix A, as well as any additional 

required disclosures. As discussed in 

the Statement of Basis and Purpose, this 

translation requirement is supported by 

long-standing Commission policy, the 

Commission's law enforcement 

experience, the rulemaking record, and 

the rationale supporting staffs 

recommendation. 

2. Incorporation of Existing Materials 

The final Rule reduces collection and 

dissemination costs from those imposed 

by the interim Business Opportunity 

Rule, by permitting sellers to reference 

in their disclosure documents materials 

already in their possession. For 

example, a seller need not repeat its 

refund policy in the text of the 

disclosure document, but may 

incorporate its contract or brochures, or 

other materials that already provide the 

necessary details. 

3. Use of Electronic Dissemination of 

Information 

The final Rule defines the term 

"written" to include electronic media. 

Accordingly, all business opportunities 

covered by the final Rule are permitted 

to use the Internet and other electronic 

media to furnish disclosure documents. 

Allowing this distribution method 

should greatly reduce sellers' 

compliance costs over the long run, 

especially costs associated with printing 

and distributing disclosure documents. 

As a result of this proposal, the 

Commission expects sellers' compliance 

costs will decrease substantially over 

time. 

4. Use of Computerized Data Collection 

Technology 

Finally, because of advances in 

computerized data collection 

technology, the Commission anticipates 

that the costs of collecting information 

and recordkeeping requirements 

imposed by the final Rule will be 

minimal. For example, a seller can 

easily maintain a spreadsheet of its 

purchasers, which can be sorted by 

location. This would enable a seller to 

easily comply with the reference 

disclosure requirement (at least 10 prior 

purchasers in the last three years who 

are located nearest to the prospective 

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 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76857 

purchaser, or, if there are not 10 prior 

purchasers, then all prior purchasers). 

In the alternative, the final Rule permits 

a seller to maintain a national list of 

purchasers. 

B. Recordkeeping Requirements 

Section 437.7 of the final Rule 

prescribes rccordkecping requirements 

necessary for effective enforcement of 

the Rule. Specifically, sellers of a 

covered business opportunity, and their 

principals, must retain for at least three 

years the following types of documents: 

(1) Each materially different version of 

all documents required by the Rule; (2) 

each purchaser's disclosure receipt; (3) 

each executed written contract with a 

purchaser; and (4) all substantiation 

upon which the seller relies for each 

earnings claim made. The final Rule 

requires that these records be made 

available for the Commission's 

inspection, but does not otherwise 

require their production. As previously 

noted, because of advances in 

computerized data collection 

technology, the Commission anticipates 

that the costs of collecting information 

and recordkeeping requirements 

imposed by the final Ruic will be 

minimal. 

C. Estimated Hours Burden and Labor 

Cost 

For the RNPR, the Commission 

submitted the RPBOR and associated 

documentation under the PRA for 0MB 

review. 484 The Commission did not 

receive any public comments regarding 

staffs PRA burden estimates. The 

instant burden estimates differ from 

those previously submitted in the RNPR 

in two respects: (1) They account for the

final Rule's requirement that sellers 

must provide the disclosure document 

and other required disclosures to 

potential purchasers in the same 

language the seller uses to market the 

business opportunity; 485 and (2) they 

incorporate the one hour recordkeeping 

burden estimate included in the 

currently approved interim Business 

Opportunity Rule's burden estimates 

under the PRA. 

Through the Staff Report, the 

Commission sought comment on the 

new foreign language disclosure 

requirement, including the usefulness 

and sufficiency of the added foreign 

language disclosure requirement. The 

Staff Report, however, did not address 

4 4 8 73 FR at 16129. 

485 As discussed within the Statement of Basis 

and Purpose, this requirement was not present in 

the RNPR. Rather, it was recommended in the Staff 

Report, and ultimately adopted in the final Rule. 

the associated PRA burden.486 The 

Commission received just one comment 

on the new disclosure translation 

requircmcnt. 407 

1. Estimated Hours Burden: 10,533 

The estimated 2,500 vending 

machine, rack display, and related 

opportunity sellers currently covered by 

the interim Business Opportunity Rule 

(and, previously, the Original Franchise 

Rule) will have a disclosure document 

that needs merely streamlining and 

updating to comply with the final Rule. 

Thus, FTC staff estimates that these 

businesses likely will require no more 

than 3 hours to complete those tasks. 

Conversely, staff estimates that for 

existing businesses that were not 

covered by the interim Business 

Opportunity Rule but will be covered by 

the final Rule, e.g., work-at-home 

opportunities, approximately 5 hours 

will be required to prepare a new 

disclosure document. Staff further 

estimates that the total hours required in 

the first year to develop a disclosure 

document will be 10,250 ((2,500 entities 

x 3 hours per entity) + (550 entities x 

5 hours per entity)]. In addition, all 

these businesses likely will require 

approximately one hour per year to file 

and store records, for a total of 3,050 

hours [3,050 entities x 1 hour per 

entity]. Accordingly, the estimated total 

hours burden for the first year of 

implementation of these amendments 

would be 13,300 hours [10,250 hours+ 

3,050 hours]. Commission staff 

estimates that in subsequent years, the 

3,050 existing businesses will require no 

more than approximately two hours to 

update the disclosure document [6,100 

total hours] and approximately one hour 

to file and store records [3,050 total 

hours], for a total of 9,150 hours [6,100 

hours+ 3,050 hours] per year to meet 

the final Rule requirements. 

Thus, cumulative average annual 

burden for affected sellers, based on a 

prospective three-year 0MB clearance is 

10,533 hours 1((13,300 hours) + 18,300 

hours (2 years x 9,150 hours per year)) 

+ 3]. 

480 Seci Burnau of Consumer Protection. Staff 

Report to the Federal Trade Commission and 

Pmposed Revised Trade Regulation Rule (16 CFR 

Part 437) (Nov. 2010) ("Staff Report"), available at 

http://www.ftc.gov/os/fedreg/2010/octoberl 

101028businessopportunitiesstaffreport.pdf. In 

November, the Commission published a notice in 

the Federal RegislL'I' announcing the availability of, 

and seeking comment on, the Slaff Report. See 75 

FR 68559 (Nov. 8, 2010). 

4 7 8 DOJ Staff Report at 2. The comment, from the 

Office of Consumer Litigation. U.S. Department of 

Justice, registered strong support for the 

requirement. 

2. Estimated Labor Cost: $2,633,333 

Labor costs are determined by 

applying applicable wage rates to 

associated burden hours. Commission 

staff assumes that an attorney likely 

would prepare or update the disclosure 

document at an estimated hourly rate of 

$250. As noted above, Commission staff 

estimates that 13,300 hours will be 

needed to prepare, file, and store the 

disclosure document and required 

records in the first year, for a total cost 

of $3,325,000 [13,300 hours x $250 per 

hour]. 

As noted above, Commission staff 

expects that there will be a reduction in 

the annual hours burden after the first 

year to approximately 9,150 hours. 

Accordingly, staff estimates that the 

labor cost burden for subsequent years 

will be reduced to $2,287,500 [9,150 

hours x $250 per hour]. Thus, the 

average annual cost is approximately 

$2,633,333 1(($3,325,000) + ($2,287,500 

x 2)) + 3], when averaged over a 

prospective three-year 0MB clearance. 

Should disclosure or recordkeeping 

obligations be performed by clerical 

staff, the total labor costs would be 

significantly less. 

3. Estimated Capital and Other NonLabor Costs: $3,068,838 

Business opportunity sellers must 

also incur costs to print and distribute 

the single-page disclosure document, 

plus any attachments; These costs vary 

based upon the length of the 

attachments and the number of copies 

produced to meet the expected demand. 

Commission staff estimates that 3,050 

business opportunity sellers will print 

and mail approximately 1,000 

disclosure documents per year at a cost 

of $1.00 per document, for a total cost 

of $3,050,000. This is a conservative 

estimate because Commission staff 

anticipates that these costs will be 

reduced by many business opportunity 

sellers electing to furnish disclosures 

electronically, e.g., via email or the 

Internet. 

For sales conducted in a language 

other than English and Spanish, the 

final Rule requires that sellers use the 

form appearing in Appendix A and 

accurately translate it into the language 

used for sale. Thus, sellers marketing in 

languages other than English or Spanish 

will incur costs to translate the 

disclosure document, and these sellers 

may also need to translate the other 

required disclosures that may be 

attached to the disclosure document. 

Commission staff estimates that sellers 

marketing business opportunities in 

languages other than English and 

Spanish will incur a cost of 

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 	 	 76858 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

approximately $6,705 to translate the 

disclosure document in the first year. 

This figure is based upon Commission 

staffs estimate that it will cost 

approximately 17 .5 cents to translate 

each word into the language the sellers 

use to market the opportunities.488 

There are 485 words in Appendix A. 

Therefore, the total cost burden to 

translate the disclosure document is 

approximately $6,705 [79 sellers x (17.5 

cents per word x 485 words)]. In 

subsequent years, the existing business 

opportunities sellers will not incur 

additional costs to translate the 

Appendix A as it will already have been 

translated during the first year. The 17 4 

sellers marketing business opportunities

in Spanish will not incur any additional 

costs to translate Appendix A, as a 

Spanish version of that document is 

provided for them, as Appendix B Lo the

final Rule. 

Commission staff estimates that in the 

first year, sellers marketing business 

opportunities in languages other than 

English will incur a total cost burden of 

approximately $27,672 [(79 sellers+ 174

sellers) x (17.5 cents per word x 625 

words)] to translate their responses to 

the five mandatory disclosures required 

in the disclosure document. This 

estimate is based upon assumptions that

all sellers marketing business 

opportunities in languages other than 

English: (1) Are marketing in both 

English and another language; (2) are 

not incorporating any existing materials 

into their disclosure document; (3) have 

been the subject of civil or criminal 

legal actions; (4) are making earnings 

claims; (5) have a refund or cancellation 

policy; and (6) because of all of the 

above assumptions, require 

approximately 625 words 

(approximately 2.5 standard, doublespaced pages) to provide the required 

information. In reality, because it is 

unlikely that all such assumptions will 

apply Lo every seller marketing business 

opportunities in languages other than 

English, the cost burden will likely be 

much lower. In subsequent years, due to

the final Rule's requirement that sellers 

must update their disclosures, 

Commission staff estimates that sellers 

may incur an additional cosl burden of 

$11,069 [253 sellers x (17.5 cents per 

word x 250 words-approximately one 

standard, double-spaced page)] to 

translate the updates. 

Therefore, cumulative average cost for

affected sellers, based on a prospective 

three-year 0MB clearance, to print and 

distribute the disclosure document and 

any attachments and to translate both 

411" 17.5 cents is staffs estimate of the current 

market translation rate per word. 

the disclosure document and the 

additional required disclosures would 

be $3,068,838 [(($3,050,000 x 3) + 

$6,705 + $27,672 + ($11,069 X 2)) + 3]. 

V. Regulatory Analysis and Regulatory 

Flexibility Act 

Under Section 22 of the FTC Act, 15 

U.S.C. 57b, the Commission must issue 

a regulatory analysis for a proceeding to 

amend a rule only when it: (1) Estimates 

that the amendment will have an annual 

effect on the national economy of 

$100,000,000 or more; (2) estimates that 

the amendment will cause a substantial 

change in the cost or price of certain 

categories of goods or services; or (3) 

otherwise determines that the 

amendment will have a significant effect 

upon covered entities or upon 

consumers. The Commission has 

determined that the final Rule will not 

have such an annual effect on the 

national economy, on the cost or prices 

of goods or services sold through 

business opportunities, or on covered 

businesses or consumers. As noted in 

the Paperwork Reduction Act 

discussion above, the Commission staff 

estimates each business affected by the 

Rule will likely incur only minimal 

compliance costs. 

The Regulatory Flexibility Act 

("RFA"), 5 U.S.C. 601-612, requires an 

agency Lo provide an Initial Regulatory 

Flexibility Analysis ("IRFA") with a 

proposed rule and a Final Regulatory 

Flexibility Analysis ("FRFA") with the 

final rule, if any, unless the agency 

certifies that the rule will not have a 

significant economic impact on a 

substantial number of small entities.4119 

The FTC does not expect Lhal the final 

Rule will have a significant economic 

impact on a substantial number of small 

entities and this document serves as 

notice to the Small Business 

Administration of the agency's 

certification of no significant impact. 

The abbreviated disclosure and 

recordkeeping requirements of the final 

Rule are the minimum necessary to give 

consumers the information they need to 

protect themselves and permit effective 

enforcement of the Rule. Companies 

previously covered by the interim 

Business Opportunity Rule will 

experience a reduction in their 

compliance burden, while companies 

not previously covered will have 

minimal new disclosure obligations. As 

such, the economic impact of the final 

Rule will be minimal. In any event, the 

burdens imposed on small entities are 

likely to be relatively small. 

In the RNPR, the Commission 

provided notice to the Small Business 

4 "" See 5 U.S.C. 603--605. 

Administration of the agency's 

certification of no significant impact. 

Nonetheless, the Commission 

determined that it was appropriate to 

publish an IRF A in order to inquire into 

the impact of the proposed Rule on 

small entities. Based on the IRFA set 

forth in the Commission's earlier notice 

of proposed rulemaking, a review of the 

public comments submitted in response 

to that notice and additional 

information and analysis by 

Commission staff, the Commission 

submits this FRF A. 

A. Need for and Objectives of the Final 

Rule 

The Commission's law enforcement 

experience provides ample evidence 

that fraud is pervasive in the sale of 

many business opportunities marketed 

to consumers. Yet, the Commission 

believes that the current requirements of 

the interim Business Opportunity Rule 

are more extensive than necessary to 

protect prospective purchasers of 

business opportunities from deception. 

The pre-sale disclosures provided by the 

final Rule will give consumers the 

information they need to protect 

themselves from fraudulent sales 

claims, while minimizing the 

compliance costs and burdens on 

sellers. 

The objective of the final Rule is to 

provide consumers considering the 

purchase of a business opportunity with 

material information they need to 

investigate the offering thoroughly so 

they can protect themselves from 

fraudulent claims, while minimizing the 

compliance burdens on sellers. The 

legal basis for the final Rule is Section 

18 of the FTC Act, 15 U.S.C. 57a, which 

authorizes the Commission to 

promulgate, modify, and repeal trade 

regulation rules that define with 

specificity acts or practices in or 

affecting commerce that are unfair or 

deceptive within the meaning of Section 

(5)(a)(1) of the FTC Act, 15 U.S.C. 

45(a)(1). 

B. Significant Issues Raised by Public 

Comments, Summmy of Agency's 

Assessment of These Issues, and 

Changes, if Any, Made in Response 

In crafting the final Rule, the 

Commission has carefully considered 

the comments received throughout the 

Rule amendment proceeding. Section III 

of this document provides a more 

detailed discussion of the comments 

received by the Commission and the 

Commission's response to those 

comments. 

In sum, in response to INRP, the 

Commission received more than 17,000 

comments, the overwhelming majority 

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of which came from the MLM industr

The MLM industry urged the 

Commission to exclude MLM plans 

from the scope of IPBOR due to the 

burdens imposed on them through the 

IPBOR and the IPBOR's failure to 

differentiate between unlawful pyramid 

schemes and legitimate companies 

using an MLM model. In consideration 

of the comments received in response to 

the INPR, and a reassessment of the 

Commission's law enforcement history, 

the Commission subsequently issued a 

RNPR, in which the Commission 

decided to narrow the scope of the 

IPBOR to avoid broadly sweeping in all 

sellers of MLM plans. In addition, Lhe 

Commission proposed a more narrowed 

definition of "business opportunity" 

and also eliminated two required 

disclosures-information about legal 

actions pertaining to a business 

opportunity seller's sales personnel, and 

the number of cancellation or refund 

requests the seller received. The 

Commission received fewer than 125 

comments and rebuttal comments in 

response to RNPR addressing these 

changes. The Commission received 

written comment from six individuals 

and entities following the public 

workshop held by the Commission. 

Finally, the Commission received 27 

comments in response to the Staff 

Report. Many of those comments 

opposed the Commission's decision to 

narrow the scope of the Rule to avoid 

broadly sweeping in the MLMs. 

C. Description and an Estimate of the 

Number of Small Entities to Which the 

Final Rule Will Apply, or Explanation 

Why No Estimate Is Available 

The final Rule primarily applies to 

"sellers" of business opportunities, 

including vending, rack display, 

medical billing, and work-at-home (e.g., 

craft assembly, envelope stuffing) 

opportunities. The Commission believes 

that many of these sellers fall into the 

category of small entities. Determining 

the precise number of small entities 

affected by the final Rule, however, is 

difficult due to the wide range of 

businesses engaged in business 

opportunity sales. The staff estimates 

that there are approximately 3,050 

business opportunity sellers, including 

some 2,500 vending machine, rack 

display, and related opportunity sellers 

and 550 work-at-home opportunity 

sellers. Most established and some startup business opportunities would likely 

be considered small businesses 

according to the applicable Small 

Business Administration (''SBA") size 

y. standards.4 ~m The FTC staff estimates 

that as many as 70% of business 

opportunities, as defined by the Rule, 

are small businesses. 

D. Description of the Projected 

Reporting, Recordkeeping, and Other 

Compliance Requirements of the Final 

Rule, Including an Estimate of the 

Classes of Small Entities That Will Be 

Subject to the Requirements, and the 

Type of Professional Skills That Will Be 

Necessary To Comply 

As discussed in the Paperwork 

Reduction Act analysis of this notice 

(Section IV), the final Rule will impose 

compliance requirements (e.g., 

disclosure) and minor rccordkccping 

requirements on those entities covered 

by the final Rule. Specifically, the final 

Rule imposes disclosure and 

recordkeeping requirements, within the 

meaning of the Paperwork Reduction 

Act, on the "sellers" of business 

opportunities and their principals. 

The disclosure and recordkeeping 

requirements are fewer in number and 

lesser in extent than requirements 

currently applicable to such entities 

now covered by the interim Business 

Opportunity Rule and formerly covered 

by the Original Franchise Rule. Section 

437.2 of the final Rule requires "sellers" 

of covered business opportunities to 

provide potential purchasers with a onepage disclosure document, as specified 

by § 437.3 and Appendix A and if 

applicable, Appendix B, at least seven 

calendar days before they sign a contract 

or pay any money toward a purchase. 

For business opportunities marketed in 

Spanish, §437.5 of the final Rule 

requires that sellers provide potential 

purchasers with the Spanish version of 

the disclosure document (Appendix B to 

the Rule) and provide any required 

disclosures in Spanish. For sales 

conducted in a language other than 

English or Spanish, the final Rule 

requires that sellers use the form and an 

accurate translation of the language set 

forth in Appendix A. 

Section 437.7 of the final Rule 

prescribes recordkeeping requirements 

necessary for effective enforcement of 

the Ruic. Specifically, sellers of a 

covered business opportunity, and their 

principals, must retain for at least three 

years the following types of documents: 

(1) Each materially different version of 

4 oo Since October 2000, SBA size standards have 

been based on the North American Industry 

Classification System ("NAICS"), in place of the 

Standard Industrial Classil'icalion ("SIC") systmu. 

In general. a company in a non-manufacturing 

industry is a small business i[ its averagH annual 

receipts are $7 million or less. See littp:I / 

w»w.sba.govlcontent/sumnw,y-size-standardsindust,y. 

all documents required by the Rule; (2) 

each purchaser's disclosure receipt; (3) 

each executed written contract with a 

purchaser; and (4) all substantiation 

upon which the seller relies for each 

earnings claim made. The final Rule 

requires that these records be made 

available for inspection by the 

Commission, but does not otherwise 

require production of the records. 

Commission staff assumes that sellers 

will hire an attorney to complete, 

update, file, and store the disclosure 

documents. If applicable, sellers may 

require translation services to comply 

with the disclosure requirements. 

E. Steps the Agency Has Taken in the 

Final Rule To Minimize Any Sigmficant 

Economic Impact of the Final Rule on 

Small Entities, Consistent With 

Applicable Statutory Objectives, 

Including the Factual and Legal Basis 

for the Alternatives Adopted and Those 

Rejected 

As discussed throughout this 

document, the Commission has 

attempted to reduce compliance costs 

wherever possible. Compliance with the 

final Rule's disclosure requirements is 

significantly less burdensome than with 

the interim Business Opportunity Rule. 

The final Rule's disclosure and 

recordkeeping requirements are 

designed to impose the minimum 

burden on all affected business 

opportunity sellers, regardless of size. In 

formulating the final Rule, the 

Commission has taken a number of 

significant steps to minimize the 

burdens it would impose on large and 

small businesses. These include: (1) 

Limiting the required pre-sale 

disclosure to a one-page document, with 

check boxes provided to simplify 

disclosure responses; (2) allowing the 

disclosure to refer to information in 

other existing documents to avoid 

needless duplication; (3) permitting the 

disclosure document itself to be 

furnished in electronic form to 

minimize printing and distribution 

costs; and (4) employing specific 

prohibitions in place of affirmative 

disclosures whenever possible. 

Moreover, because the majority of 

sellers covered by the final Rule are 

already required to comply with the 

Commission's interim Business 

Opportunity Rule and the business 

opportunity laws in 22 states, F~C staff 

anticipates that the final Rule will 

drastically reduce their current 

compliance costs, while imposing 

exceedingly modest ongoing compliance 

cosls on all covered sellers. 

Consequently, the Commission believes 

that the final Rule will not have a 

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 	 	 76860 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

significant economic impact upon small 

businesses. 

The final Rule requires business 

opportunity sellers to provide only five 

affirmative disclosures in a one-page 

disclosure document. This is a 

significant reduction from the more than 

20 disclosures now required by the 

Commission's interim Business 

Opportunity Rule, with which many 

business opportunity sellers are now 

obligated to comply. 

VI. Final Rule Language 

List of Subjects in 16 CFR Part 437 

Reporting and recordkeeping 

requirements, Trade practices. 

By direction of the Commission. 

Donald S. Clark, 

Secretory. 

For the reasons set forth in the 

preamble, the Federal Trade 

Commission amends title 16, Code of 

Federal Regulations, by revising part 

437 to read as follows: 

PART 437-BUSINESS OPPORTUNITY 

RULE 

Sec. 

437.1 Definitions. 

437.2 The obligation to furnish written 

documents. 

437.3 The disclosure document. 

437.4 Earnings claims. 

437.5 Sales conducted in Spanish or other 

languages besides English. 

437.6 Other prohibited practices. 

437.7 Record retention. 

437.8 Franchise exemption. 

437.9 Outstanding orders; preemption. 

437.10 Severability. 

Appendix A to Part 437-Disclosure of 

Important Information About Business 

Opportunity 

Appendix B to Part 437-Disclosure of 

Important Information About Business 

Opportunity (Spanish-Language Version) 

Authority: 15 U.S.C. 41-58. 

§437.1 Definitions. 

The following definitions shall apply 

throughout this part: 

(a) Action means a criminal 

information, indictment, or proceeding; 

a civil complaint, cross claim, 

counterclaim, or third party complaint 

in a judicial action or proceeding; 

arbitration; or any governmental 

administrative proceeding, including, 

but not limited to, an action to obtain 

or issue a cease and desist order, an 

assurance of voluntary compliance, and 

an assurance of discontinuance. 

(b) Affiliate means an entity 

controlled by, controlling, or under 

common control with a business 

opportunity seller. 

(c) Business opportunity means a 

commercial arrangement in which: 

(1) A seller solicits a prospective 

purchaser to enter into a new business; 

and 

(2) The prospective purchaser makes 

a required payment; and 

(3) The seller, expressly or by 

implication, orally or in writing, 

represents that the seller or one or more 

designated persons will: 

(i) Provide locations for the use or 

operation of equipment, displays, 

vending machines, or similar devices, 

owned, leased, controlled, or paid for by 

the purchaser; or (ii) Provide outlets, accounts, or 

customers, including, but not limited to, 

Internet outlets, accounts, or customers, 

for the purchaser's goods or services; or (iii) Buy back any or all of the goods 

or services that the purchaser makes, 

produces, fabricates, grows, breeds, 

modifies, or provides, including but not 

limited to providing payment for such 

services as, for example, stuffing 

envelopes from the purchaser's home. 

(d) Designated person means any 

person, other than the seller, whose 

goods or services the seller suggests, 

recommends, or requires that the 

purchaser use in establishing or 

operating a new business. 

(e) Disclose or state means to give 

information in writing that is clear and 

conspicuous, accurate, concise, and 

legible. 

(0 Earnings claim means any oral, 

written, or visual representation to a 

prospective purchaser that conveys, 

expressly or by implication, a specific 

level or range of actual or potential 

sales, or gross or net income or profits. 

Earnings claims include, but are not 

limited to: 

(1) Any chart, table, or mathematical 

calculation that demonstrates possible 

results based upon a combination of 

variables; and 

(2) Any statements from which a 

prospective purchaser can reasonably 

infer that he or she will earn a minimum

level of income (e.g., "earn enough to 

buy a Porsche," "earn a six-figure 

income," or "earn your investment back 

within one year"). 

(g) Exclusive territory means a 

specified geographic or other actual or 

implied marketing area in which the 

seller promises not to locate additional 

purchasers or offer the same or similar 

goods or services as the purchaser 

through alternative channels of 

distribution. 

(h) General media means any 

instrumentality through which a person 

may communicate with the public, 

including, but not limited to, television, 

radio, print, Internet, billboard, Web 

site, commercial bulk email, and mobile 

communications. 

(i) Material means likely to affect a 

person's choice of, or conduct regarding, 

goods or services. 

(j) New business means a business in 

which the prospective purchaser is not 

currently engaged, or a new line or type 

of business. 

(k) Person means an individual, 

group, association, limited or general 

partnership, corporation, or any other 

business entity. 

(I) Prior business means: 

(1) A business from which the seller 

acquired, directly or indirectly, the 

major portion of the business' assets; or (2) Any business previously owned or 

operated by the seller, in whole or in 

part. 

(m) Providing locations, outlets, 

accounts, or customers means 

furnishing the prospective purchaser 

with existing or potential locations, 

outlets, accounts, or customers; 

requiring, recommending, or suggesting 

one or more locators or lead generating 

companies; providing a list of locator or 

lead generating companies; collecting a 

fee on behalf of one or more locators or 

lead generating companies; offering to 

furnish a list of locations; or otherwise 

assisting the prospective purchaser in 

obtaining his or her own locations, 

outlets, accounts, or customers, 

provided, however, that advertising and 

general advice about business 

development and training shall not be 

considered as "providing locations, 

outlets, accounts, or customers." 

(n) Purchaser means a person who 

buys a business opportunity. 

(o) Quarterly means as ofJanuary 1, 

April 1, July 1, and October 1. 

(p) Required payment means all 

consideration that the purchaser must 

pay to the seller or an affiliate, either by 

contract or by practical necessity, as a 

condition of obtaining or commencing 

operation of the business opportunity. 

Such payment may be made directly or 

indirectly through a third party. A 

required payment does not include 

payments for the purchase of reasonable 

amounts of inventory ut bona fide 

wholesale prices for resale or lease. 

(q) Seller means a person who offers 

for sale or sells a business opportunity. 

(r) Signature or signed means a 

person's affirmative steps to 

authenticate his or her identity. 

It includes a person's handwritten 

signature, as well as an electronic or 

digital form of signature to the extent 

that such signature is recognized as a 

valid signature under applicable federal 

law or state contract law. 

(s) Written or in writing means any 

document or information in printed 

form or in any form capable of being 

downloaded, printed, or otherwise 

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preserved in tangible form and read. It 

includes: type-set, word processed, or 

handwritten documents; information on 

computer disk or CD-ROM; information 

sent via email; or information posted on 

the Internet. It does not include mere 

oral statements. 

§ 437.2 The obligation to furnish written 

documents. 

In connection with the offer for sale, 

sale, or promotion of a business 

opportunity, it is a violation of this Rule 

and an unfair or deceptive act or 

practice in violation of Section 5 of the 

Federal Trade Commission Act ("FTC 

Act") for any seller to fail to furnish a 

prospective purchaser with the material 

information required by §§437.3(a) and 

437.4(a) of this part in writing at least 

seven calendar days before the earlier of 

the time that the prospective purchaser: 

(a) Signs any contract in connection 

with the business opportunity sale; or (b) Makes a payment or provides other

consideration to the seller, directly or 

indirectly through a third party. 

§ 437.3 The disclosure document. 

In connection with the offer for sale, 

sale, or promotion of a business 

opportunity, it is a violation of this Rule 

and an unfair or deceptive act or 

practice in violation of Section 5 of the 

FTC Act, for any seller to: 

(a) Fail to disclose to a prospective 

purchaser the following material 

information in a single written 

document in the form and using the 

language set forth in appendix A to this 

part; or if the offer for sale, sale, or 

promotion of a business opportunity is 

conducted in Spanish, in the form and 

using the language set forth in appendix 

B to this part; or if the offer for sale, sale,

or promotion of a business opportunity 

is conducted in a language other than 

English or Spanish, using the form and 

an accurate translation of the language 

set forth in appendix A to this part: 

(1) Identifying information. State the 

name, business address, and telephone 

number of the seller, the name of the 

salesperson offering the opportunity, 

and the date when the disclosure 

document is furnished to the 

prospective purchaser. 

(2) Earnings claims. If the seller 

makes an earnings claim, check the 

"yes" box and attach the earnings 

statement required by§ 437.4. If not, 

check the "no" box. 

(3) Legal actions. (i) If any of the 

following persons has been the subject 

of any civil or criminal action for 

misrepresentation, frauf, securities law 

violations, or unfair or deceptive 

practices, including violations of any 

FTC Rule, within the 10 years 

immediately preceding the date that the 

business opportunity is offered, check 

the "yes" box: 

(A) The seller; 

(B) Any affiliate or prior business of 

the seller; or (C) Any of the seller's officers, 

directors, sales managers, or any 

individual who occupies a position or 

perforn1s a function similar to an officer, 

director, or sales manager of the seller. 

(ii) If the "yes" box is checked, 

disclose all such actions in an 

attachment to the disclosure document. 

State the full caption of each action 

(names of the principal parties, case 

number, full name of court, and filing 

date). For each action, the seller may 

also provide a brief accurate statement 

not to exceed 100 words that describes 

the action. 

(iii) If there are no actions to disclose, 

check the "no" box. 

(4) Cancellation or refund policy. If 

the seller offers a refund or the right to 

cancel the purchase, check the "yes" 

box. If so, state all material terms and 

conditions of the refund or cancellation 

policy in an attachment to the 

disclosure document. If no refund or 

cancellation is offered, check the "no" 

box. 

(5) References. (i) State the name, 

state, and telephone number of all 

purchasers who purchased the business 

opportunity within the last three years. 

If more than 10 purchasers purchased 

the business opportunity within the last 

three years, the seller may limit the 

disclosure by stating the name, state, 

and telephone number of at least the 10 

purchasers within the past three years 

who are located nearest to the 

prospective purchaser's location. 

Alternatively, a seller may furnish a 

prospective buyer with a list disclosing 

all purchasers nationwide within the 

last three years. If choosing this option, 

insert the words "See Attached List" 

without removing the list headings or 

the numbers 1 through 10, and attach a 

list of the references to the disclosure 

document. 

(ii) Clearly and conspicuously, and in 

immediate conjunction with the list of 

references, state the following: "If you 

buy a business opportunity from the 

seller, your contact information can be 

disclosed in the future to other buyers." 

(6) Receipt. Attach a duplicate copy of 

the disclosure document to he signed 

and dated by the purchaser. The seller 

may inform the prospective purchaser 

how to return the signed receipt (for 

example, by sending to a street address, 

email address, or facsimile telephone 

number). 

(b) Fail to update the disclosures 

required by paragraph (a) of this section 

at least quarterly to reflect any changes 

in the required information, including, 

but not limited to, any changes in the 

seller's refund or cancellation policy, or 

the list of references; provided, however, 

that until a seller has 10 purchasers, the 

list of references must be updated 

monthly. 

§ 437.4 Earnings claims. 

In connection with the offer for sale, 

sale, or promotion of a business 

opportunity, it is a violation of this Rule 

and an unfair or deceptive act or 

practice in violation of Section 5 of the 

FTC Act, for the s.eller to: 

(a) Make any earnings claim to a 

prospective purchaser, unless the seller: 

(1) Has a reasonable basis for its claim 

at the time the claim is made; 

(2) Has in its possession written 

materials that substantiate its claim at 

the time the claim is made; 

(3) Makes the written substantiation 

available upon request to the 

prospective purchaser and to the 

Commission; and 

(4) Furnishes to the prospective 

purchaser an earnings claim statement. 

The earnings claim statement shall be a 

single written document and shall state 

the following information: 

(i) The title "EARNINGS CLAIM 

STATEMENT REQUIRED BY LAW" in 

capital, bold type letters; 

(ii) The name of the person making 

the earnings claim and the date of the 

earnings claim; 

(iii) The earnings claim; 

(iv) The beginning and ending dates 

when the represented earnings were 

achieved; 

(v) The number and percentage of all 

persons who purchased the business 

opportunity prior to the ending date in 

paragraph (a)(4)(iv) ofthis section who 

achieved at least the stated level of 

earnings; 

(vi) Any characteristics of the 

purchasers who achieved at least the 

represented level of earnings, such as 

their location, that may differ materially 

from the characteristics of the 

prospective purchasers being offered the 

business opportunity; and 

(vii) A statement that written 

substantiation for the earnings claim 

will be made available to the 

prospective purchaser upon request. 

(b) Make any earnings claim in the 

general media, unless the seller: 

(1) Has a reasonable basis for its claim 

at the time the claim is made; 

(2) Has in its possession written 

material that substantiates its claim at 

the time the claim is made; 

(3) Stales in immediate conjunction 

with the claim: 

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 	 	 76862 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 

(i) The beginning and ending dates 

when the represented earnings were 

achieved; and 

(ii) The number and percentage of all 

persons who purchased the business 

opportunity prior to the ending date in 

paragraph (b)(3)(i) of this section who 

achieved at least the stated level of 

earnings. 

(c) Disseminate industry financial, 

earnings, or performance information 

unless the seller has written 

substantiation demonstrating that the 

information reflects, or does not exceed, 

the typical or ordinary financial, 

earnings, or performance experience of 

purchasers of the business opportunity 

being offered for sale. 

(d) Fail to notify any prospective 

purchaser in writing of any material 

changes affecting the relevance or 

reliability of the information contained 

in an earnings claim statement before 

the prospective purchaser signs any 

contract or makes a payment or provides 

other consideration to the seller, 

directly or indirectly, through a third 

party. 

§437.5 Sales conducted in Spanish or 

other languages besides English. 

(a) If the seller conducts the offer for 

sale, sale, or promotion of a business 

opportunity in Spanish, the seller must 

provide the disclosure document 

required by §437.3(a) in the form and 

language set forth .in appendix B to this 

part, and the disclosures required by 

§§437.3(a) and 437.4 must be made in 

Spanish. 

(bl If the seller conducts the offer for 

sale, sale, or promotion of a business 

opportunity in a language other than 

English or Spanish, the seller must 

provide the disclosure document 

required by§ 437.3(a) using the form 

and an accurate translation of the 

language set forth in appendix A to this 

part, and the disclosures required by 

§§437.3(a) and 437.4 must be made in 

that language. 

§437.6 Other prohibited practices. 

In connection with the offer for sale, 

sale, or promotion of a business 

opportunity, it is a violation of this part 

and an unfair or deceptive act or 

practice in violation of Section 5 of the 

FTC Act for any seller, directly or 

indirectly through a third party, to: 

(a) Disclaim, or require a prospective 

purchaser to waive reliance on, any 

statement made in any document or 

attachment that is required or permitted 

to be disclosed under this Rule; 

(bl Make any claim or representation, 

orally, visually, or in writing, that is 

inconsistent with or contradicts the 

information required to be disclosed by 

§§ 43 7 .3 (basic disclosure document) 

and 437.4 (earnings claims document) of 

this Rule; 

(c) Include in any disclosure 

document or earnings claim statement 

any materials or information other than 

what is explicitly required or permitted 

by this Rule. For the sole purpose of 

enhancing the prospective purchaser's 

ability to maneuver through an 

electronic version of a disclosure 

document or earnings statement, the 

seller may include scroll bars and 

internal links. All other features (e.g., 

multimedia tools such as audio, video, 

animation, or pop-up screens) are 

prohibited; 

(d) Misrepresent the amount of sales, 

or gross or net income or profits a 

prospective purchaser may earn or that 

prior purchasers have earned; 

(e) Misrepresent that any 

governmental entity, law, or regulation 

prohibits a seller from: 

(1) Furnishing earnings information to 

a prospective purchaser; or 

(2) Disclosing to prospective 

purchasers the identity of other 

purchasers of the business opportunity; 

(f) Fail to make available to 

prospective purchasers, and to the 

Commission upon request, written 

substantiation for the seller's earnings 

claims; 

(g) Misrepresent how or when 

commissions, bonuses, incentives, 

premiums, or other payments from the 

seller to the purchaser will be calculated 

or distributed; 

(h) Misrepresent the cost, or the 

performance, efficacy, nature, or central 

characteristics of the business 

opportunity or the goods or services 

offered to a prospective purchaser; 

(i) Misrepresent any material aspect of 

any assistance offered to a prospective 

purchaser; 

(j) Misrepresent the likelihood that a 

seller, locator, or lead generator will 

find locations, outlets, accounts, or 

customers for the purchaser; 

(kl Misrepresent any term or 

condition of the seller's refund or 

cancellation policies; 

(]) Fail to provide a refund or 

cancellation when the purchaser has 

satisfied the terms and conditions 

disclosed pursuant to §437.3(a)(4); 

(ml Misrepresent a business 

opportunity as an employment 

opportunity; 

(n) Misrepresent the terms of any 

territorial exclusivity or territorial 

protection offered to a prospective 

purchaser; 

(o) Assign to any purchaser a 

purported exclusive territory that, in 

fact, encompasses the same or 

overlapping areas already assigned to 

another purchaser; 

(pl Misrepresent that any person, 

trademark or service mark holder, or 

governmental entity, directly or 

indirectly benefits from, sponsors, 

participates in, endorses, approves, 

authorizes, or is otherwise associated 

with the sale of the business 

opportunity or the goods or services 

sold through the business opportunity; 

(q) Misrepresent that any person: 

( 1) Has purchased a business 

opportunity from the seller or has 

operated a business opportunity of the 

type offered by the seller; or (2) Can provide an independent or 

reliable report about the business 

opportunity or the experiences of any 

current or former purchaser. 

(r) Fail to disclose, with respect to any 

person identified as a purchaser or 

operator of a business opportunity 

offered by the seller: 

(1) Any consideration promised or 

paid to such person. Consideration 

includes, but is not limited to, any 

payment, forgiveness of debt, or 

provision of equipment, services, or 

discounts to the person or to a third 

party on the person's behalf; or 

(2) Any personal relationship or any 

past or present business relationship 

other than as the purchaser or operator 

of the business opportunity being 

offered by the seller. 

§437.7 Record retention. 

To prevent the unfair and deceptive 

acts or practices specified in this Rule, 

business opportunity sellers and their 

principals must prepare, retain, and 

make available for inspection by 

Commission officials copies of the 

following documents for a period of 

three years: 

(a) Each materially different version of 

all documents required by this Rule; 

(b) Each purchaser's disclosure 

receipt; 

(c) Each executed written contract 

with a purchaser; and 

(d) All substantiation upon which the 

seller relies for each earnings claim from 

the time each such claim is made. 

§ 437 .8 Franchise exemption. 

The provisions of this Rule shall not 

apply to any business opportunity that 

constitutes a "franchise," as defined in 

the Franchise Rule, 16 CFR part 436; 

provided, however, that the provisions 

of this Rule shall apply to any such 

franchise if it is exempted from the 

provisions of part 436 because, either: 

(a) Under§ 436.B(a)(l), the total of the 

required payments or commitments to 

make a required payment, to the 

franchisor or an affiliate that are made 

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 	 	 	 Federal Register/Vol. 76, No. 236/Thursday, December 8, 2011/Rules and Regulations 76863 

any time from before to within six 

months after commencing operation of 

the franchisee's business is less than 

$500, or 

(bl Under § 436.8(al(7l, there is no 

written document describing any 

material term or aspect of the 

relationship or arrangement. 

§437.9 Outstanding orders; preemption. 

(al A business opportunity required 

by prior FTC or court order to follow the 

Franchise Rule, 16 CFR part 436, may 

• 

petition the Commission to amend the 

order or to stipulate to an amendment 

of the court order so that the business 

opportunity may follow the provisions 

of this part. 

(bl The FTC does not intend to 

preempt the business opportunity sales 

practices laws of any state or local 

government, except to the extent of any 

conflict with this part. A law is not in 

conflict with this Rule if it affords 

prospective purchasers equal or greater 

protection, such as registration of 

disclosure documents or more extensive 

disclosures. All such disclosures, 

however, must be made in a separate 

state disclosure document. 

§437.10 Severability. 

The provisions of this part arc 

separate and severable from one 

another. If any provision is stayed or 

determined to be invalid, the remaining 

provisions shall continue in effect. 

BILLING CODE 6750--01-P 

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 	 	 	 76864 Federal Register /Vol. 76, No. 236 /Thursday, December 8, 2011 / Rules and Regulations 

APPENDIX A to PART 437 

DISCLOSURE OF IMPORTANT INFORMATION ABOUT BUSINESS OPPORTUNITY 

Required by the Federal Trade Commission, Ruic 16 C.F.R. Part 437 

Name of Seller: Address: 

Phone: Salesperson: Date: 

[Name of Seller] has completed this form, which provides important information about the business opportunity it 

is offering you. The Federal Trade Commission, an agency of the federal government, requires that [Name of 

Seller] complete this form and give it to you. However, the Federal Trade Commission has not seen this completed 

form or checked that the information is true. Make sure that this Information is the same as what the 

salesperson told you about this opportunity. 

LEGAL ACTIONS: Has !Name of Seller} or any of its key personnel been the subject of a civil or criminal 

action involving misrepresentation, fraud, securities law violation, or unfair or deceptive practices, including 

violations of any FTC Rule, within the past 10 years? 

 YES  



If the answer is yes, [Name of Seller) must allach a list of all such legal actions to this form. 

NO 

CAi~CELLATION OR REFUND POLICY: Does [Name of Seller] offer a cancellation or refund policy'! 

 YES  If the answer is yes, [Name of Seller] must attach a statement describing this policy to this form. 

 ~o 

EARNINGS: Has [Name of Seller) or its salesperson discussed how much money purchasers of this business 

opportunity can earn or have earned? In other words, have they stated or implied that purchasers can eam a 

specific level of sales, income, or profit? 

 YES  If the answer is yes, [Name of Seller] must attach an Earnings Claims Statement lo this.form. 

Read thi.t statement carefully. You may wish to show this information to an advisor or 



accountant. 

NO 

REFERENCES: In the section below, (Name of Seller! must provide you with contact information for at least 

l O people who have purchased a business opportunity from them. If fewer than IO are listed, this is the total list 

of all purchasers. You may wish to contact the people below to compare their experiences with what 

[Name of Seller) told you about the business opportunity. 

Note: If you purchase a business opportunity from [Name of Seller), your contact information can be disclosed 

in the future to other potential buyers. 

Name State Tele12hone Number Name State. Telenhone Number 

L 6. 

2. 7. 

3. 8. 

4. 9. 

5. IO 

Signature: ______________ _ Date: ______ _ 

By signing above, you are acknowledging that you have received this form. This is .!1Q! a purchase contract. To 

give you enough time to research this opportunity, the Federal Trade Commission requires that after you receive 

this fonn, [Name of Seller} must wait at least seven calendar da;ys before asking you to sign a purchase contract or 

make any payments. 

For more information about business opportunities in general: Visit the FTC's website at www.ftc,govJbjzopns 

or call l-877-FTC-HELP (877-382-4357). You can also contact your state's Attorney General. 

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 	 	 	 Federal Register/ Vol. 76, No. 236 / Thursday, December 8, 2011 / Rules and Regulations 76865 

APPENDIX B to PART 437 

DIVULGACION DE INFORMACION IMPORTANTE SOBRE OPORTUNIDAD DE NEGOCIO 

Fonnulario requerido por la Comision Federal de Comercio (FTC) 

Regla 16 de la Parte 437 del C6digo de Regulaciones Federales 

Nombre de! Vendedor: Domicilio: 

Telefono: Representante de Ventas: Fecha: 

[Nombrc del Vendedoc] complet6 el presentc formulario y en el mismo le suministra informacion importante sobre la oportunidad de 

negocio que le esta ofreciendo. La Comision Federal de Comereio (Federal Trade Commission, FTC), una agcncia de! gobierno 

federal, le requiere a la compatiia [?Sombre dcl 1⁄4rult.-<lor) que complete cl prcscntc formulario y que sc lo entrcgue a us1ed. Pero la 

FTC !1Q ha visto este formulario completado por la compail.fa ni ha vcrificado que la informacion indicada sea veraz. Asegurese de 

que la information contenida en el presente formulario coindda con lo que le dijo el representante de ventlls respecto de esta 

oportunldad, 

ACCIONES LEGALES: i,La compail.ia fr:!ombre del Vendcdorj o alguno de los principales miembros de su personal ha sido sujeto 

de una aecion civil o penal, que involucre falsedad, fraude. infraccion de las !eyes de titulos y valores, o practicas desleales o 

engaflosas, incluyendo infracciones de las Rcglas o Normas de la FTC, dcntro de los 10 ultimos allos? 

 SI  SI la respuesta es ajirmativa. [l'iomb~ de! Vepdedor} debe adjuntar alformulario 1ma lista compfeta de dichas 

acciones legates. 

 NO 

POLiTICA DE CANCELACJ6S O REJNTEGRO: i,Ofrece (Nombre de! VendedQt] una politica de cancelaci6n o reintegro? 

 Si  Si la respuesta es afirmativa. fNombre del V cndedor) debe adjuntar al formu/ario u11a declaracion con la descripcion de 

dicha politico. 

 NO 

JNGRESOS: i,La compaftia [Nombre del Vendedor] o alguno de sus representantes de ventas ha manifestado la cantidad de dinero 

que puedcn ganar o que ban ganado los compradores de esta oportunidad de negocio? 1,Dicho en otras palabras, ban expresado de 

mancra explicita o implicita que los compradores pucdcn alcanzar un nivel espccifico de ventas, o ganar un nivel especifico de 

ingresos? 

 Si  Si la respuesra es afirmativa, lNombre de1 Vendedor) debe adjuntar a este formulario una Declaracion de los lngresos 

Proclamados. Lea e.rta declaraci611 atentamente. Puede q11e desee a11alizar esta informacion con 1111 asesor o co111ador. 

 NO 

REFERENCIAS: En est11 sccci6n del formulario. (NQmbrc dcl Vendedor] debe listar la informaci6n de contacto de por lo menos 10 

personas que le hayan comprado una oportunidad de negocio. Si le suministran los datos de menos de 10 personas, es porque esa es 

la lista completa de todos los compradorcs. Puede que desee comunlcarse con las personas llstadas a eontinuael6n para 

comparar sus respectlvas experieueias con lo que le dijo [Nombrc de! Vcndedorl sobre la oportunldad de negocio que le esta 

ofreelendo. 

Nota: Si usted compra una oportunidad de negocio de [Nombre del Vcndedorl. podra divulgarse su informaci6n de contacto a otros 

posibles compradorcs. 

Nombre ~ Nyrnero ge TclefQno Nombre Estado Numero de Isl~[ono 

I. 6. 

2. 7. 

3. 8. 

4. 9. 

5. 10. 

Finna: _____________ _ Fecha: _____ _ 

Por medio de su firma, usted acusa recibo de! presente formulario. Esto fill es un contrato de compra. La Comision Federal de 

Comercio (FTC) cstablece que con cl fin de concederle el tiempo necesario para que usted investigue esta oportunidad, [Nombrc del 

Vendeclorl debe esperar un minimo de sicte dias naturales o corrjdos a partir de la fecha en que le entregue este formulario antes de 

pedirle que firme un contra to de compra o quc efocnie un pago. · 

Para mas lnformaci6n sobre oportunldades de negodo en general: Visite el sitio Web de la FTC www.ftc.gov.lbizopps o llame al 

1•877-FTC-HELP (877-3824357). Usted tambien pucde estab!ccer eontacto con el Fiscal General de su estado de rcsidencia. 

[FR Doc:. 2011-30597 Filed 12-7-11; 8:45 am] 

BILLING CODE 6750-01-C 

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ATTACHMENT B 

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 	 	 	 FEDERAL TRADE COMMISSION 

FINANCIAL STATEMENT OF INDIVIDUAL DEFENDANT 

Definitions and Instructions: 

1. Complete all items. Enter "None" or "NIA" ("Not Applicable") in the first field only of any item that does not apply 

to you. If you cannot fully answer a question, explain why. 

2. "Dependents" include your spouse, live-in companion, dependent children, or any other person, whom you or your 

spouse (or your children's other parent) claimed or could have claimed as a dependent for tax purposes at any 

time during the past five years. 

3. "Assets" and "Liabilities" include ALL assets and liabilities, located within the United States or any foreign country 

or territory, whether held individually or jointly and whether held by you, your spouse, or your dependents, or held 

by others for the benefit of you, your spouse, or your dependents. 

4. Attach continuation pages as needed. On the financial statement, state next to the Item number that the Item is 

being continued. On the continuation page(s), identify the Item number(s) being continued. 

5. Type or print legibly. 

6. Initial each page in the space provided in the lower right corner. 

7. Sign and date the completed financial statement on the last page. 

Penalty for False Information: 

Federal law provides that any person may be imprisoned for not more than five years, fined, or both, if such person: 

(1) "in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the 

United States, knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or devise a material fact; 

makes any materially false, fictitious or fraudulent statement or representation; or makes or uses any false writing or 

document knowing the same to contain any materially false, fictitious or fraudulent statement or entry" (18 U.S.C. § 1001 ); 

(2) "in any ... statement under penalty of perjury as permitted under section 1746 of title 28, United States Code, 

willfully subscribes as true any material matter which he does not believe to be true" (18 U.S.C. § 1621); or 

(3) "in any ( ... statement under penalty of perjury as permitted under section 17 46 of title 28, United States 

Code) in any proceeding before or ancillary to any court or grand jury of the United States knowingly makes any false 

material declaration or makes or uses any other information ... knowing the same to contain any false material 

declaration" (18 U.S.C. § 1623). 

For a felony conviction under the provisions cited above, federal law provides that the fine may be not more than the 

greater of (i) $250,000 for an individual or $500,000 for a corporation, or (ii) if the felony results in pecuniary gain to any 

person or pecuniary loss to any person other than the defendant, the greater of twice the gross gain or twice the gross 

loss. 18 U.S.C. § 3571. 

Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 	 . t'~::tt '\ .. ~ l~t;"::f{:t:·. .... :t'fl:<:r' ,t;xl ""GROUND.INFORMAll . ' ', 

11: I' )f••:'""'··•·' ., 

Item 1. Information About You I 

Full Name Social Security No. 

Current Address of Primary Residence Driver's License No. I State Issued 

Phone Numbers Date of Birth: I I 

Home: ( ) (mrn/dd/yyyy} 

Place of Birth Fax: ( ) 

 Rent O0IM1 From (Date): I I E-Mail Address 

(mrn/dd/wvvl 

Internet Home Page 

Previous Addresses for past five years {iffeq1,1ired, use. additional pages at end of form) ', 

Address From: I I Until: I I 

(mm/dd/yyyy) (mm/dd/yyyy) 

 Rent O0IM1 

Address From: I I Until: I I 

 Rent O0IM1 

Address From: I I Until: I I 

 Rent O0IM1 

Identify any other name(s) and/or social security number(s) you have used, and the time period(s) during which they 

were used: 

Item 2. •Information About Your Spouse or Live-In Companion I ' 

Spouse/Companion's Name Social Security No. Date of Birth 

I I 

(mrn/dd/vvvvl 

Address (if different from yours) Phone Number Place of Birth 



( ) 

Rent O0IM1 From (Date): I I 

(mm/dd/yyyy) 

Identify any other name(s) and/or social security number(s) you have used, and the time period(s) during which they were used: 

Employer's Name and Address Job Title 

Years in Present Job Annual Gross Salary/Wages 

$ 

Item 3 •. lnformat1ori1~boutYour Previous Spouse 

Name and Address Social Security No. 

Date of Birth 

I I 

(mm/dd/yyyy) 

Item 4. Contact Information (name and address of closest living relative other than your spouse) 

Name and Address Phone Number 

( ) 

Initials: 

1 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 	 Item 5. Information About Dependents {whetnyr or not they reside with you) 

Name and Address Social Security No. Date of Birth 

I I 

(mm/dd/yyyy) 

Relationship 

Name and Address Social Security No. Date of Birth 

I I 

(mm/dd/vvvvl 

Relationship 

Name and Address Social Security No. I Date of Birth 

I I 

(mm/dd/vvvvl 

Relationship 

Name and Address Date of Birth Social Security No. I 

I I 

(mm/dd/vwvl 

Relationship 

ltem6.CE~leyrnent Information/Employment Income 

Provide the following information for this year-to-date and for each of the pr~vious five full years, for each business entity of which you wer~ a director, 

officer, member, partner, employee (including self-employment), agent, owne~. shareholder, contractor, participant or consultant at any time' during that 

period. "Income· includes, but is not limited to, any Sc!lary, commissions, distributions, draws, consulting fees, loans, loan payments, .dividends, 

royalties, and benefits for which you did not pay (e.g., health insurance premiums, automobile lease or loan payments) received by you or anyone else 

on your behalf. 

Company Name and Address Dates Employed Income Received: Y-T-D & 5 Prior Yrs. 

Year Income 

From (Month/Year) To (Month/Year) 

I I 20 

Ownership Interest?  Yes  

$ 

No $ 

Positions Held From (Month/Year) To (Month/Year) $ 

I I $ 

I I $ 

I I $ 

Company Name and Address Dates Employed Income Received: Y-T-D & 5 Prior Yrs. 

Year Income 

From (Month/Year) To (Month/Year) 

I I 20 $ 

Ownership Interest?  Yes  No $ 

Positions Held From (Month/Year) To (Month/Year) $ 

I I $ 

I I $ 

I I $ 

Company Name and Address Dates Employed Income Received: Y-T-D & 5 Prior Yrs. 

Year Income 

From (Month/Year) To (Month/Year) 

I I 20 $ 

Ownership Interest? D Yes  No $ 

Positions Held From (Month/Year) To (Month/Year) $ 

I I $ 

I I $ 

I I $ 

Initials: 

2 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 	 Item 7. Pending Lawsuit$ F'.lle~ By or Against You or Your Spouse 

List all pending lawsuim .that ha~ bflen flied by or against you or your spouse in any court or before an administrative agency in the United States or in 

any foreign country onerrttory/ Notti: Ai Item 12, list lawsuits that resulted in final judgments or settlements in your favor. At Item 21, list lawsuits that 

resulted in final judgments or settlements against you. · 

Nature of Status or Caption of Proceeding Court or Agency and Location Case No. Relief Requested Proceeding Disoosilion 

Item 8. Safe Deposit Boxes 

List all safe deposit boxes., located within the United States or in any foreign country or territory, whether held individually or jointly and whether held by 

you, your spouse, or any of your dependents, or held by others for the benefit of you, your spouse, or any of your dependents. 

Name of Owner(s) Name & Address of Depository Institution Box No. Contents 

Initials: 

3 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 		 ASSETS 

Item 9. Cash, Bank, and Money Market Accounts 

List cash on hand (as opposed to cash in bank accounts or other financial accounts) and all bank accounts, money market accounts1 or other financial 

limited to checking accounts, savings accounts, and certificates of deposit. The term "cash on hand" includes but is not accounts, including but not 

limited to cash in the form of currency, uncashed checks, and money .orders. 

a. Amount of Cash on Hand $ Form of Cash on Hand 

Current Balance b. Name on Account Name & Address of Financial Institution Account No. 

$ 

$ 

$ 

$ 

$ 

Item 10. Publicly Traded Secu.rit.les . .. List all publicly traded securities, including but not limited to, stocks, stock options, corporate bonds, mutual funds, u.s: government securiti.es (including 

but not limited to treasury bills and treasury notes), and state and municipal bonds. Also list any U.S. savings bonds. 

Issuer Type of Security No. of Units Owned Owner of Security 

Broker House, Address Broker Account No. 

Current Fair Market Value Loan(s) Against Security 

$ $ 

of Security No. of Units Owned Owner of Security Issuer Type 

Broker House, Address Broker Account No. 

Current Fair Market Value Loan(s) Against Security 

$ $ 

Issuer Type of Security No. of Units Owned Owner of Security 

Broker House, Address Broker Account No. 

Current Fair Market Value Loan(s) Against Security 

$ $ 

4 of 10 

Initials: 

Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 	 ,, 

Item .1t Non-Public Business and Financial Interests ' 

corporation,. limited all n~n-publlc business. and financial interests, including but not limited t6 any interest in a non-public corporation, subchapter-S List proprietorship, international business corporation or personal investment liability corporation ("LLC), general or limited partnership, joint venture, sole 

corporation, and oil or mineral lease. 

Officer, Director, Member Type of Business or Financial Owner Ownership If 

Entity's Name & Address Interest (e,g,, LLC, partnership) (e.g., self, spouse) % or Partner, Exact Title 

Item 12. Amounts Owed to You, YourSpouse,.or'YourDependents ·.•· 

result of a final court Debtor's Name & Address Date Obligation Original Amount Owed Nature of Obligation (if the 

Incurred (Month/Year) judgment or settlement, provide court name $ 

I and docket number) 

Current Amount Owed Payment Schedule 

$ $ 

Debtor's Telephone Debtor's Relationship to You 

Date Obligation Original Amount Owed Nature of Obligation (if the result of a final court Debtor's Name & Address 

Incurred (Month/Year) judgment or settlement, provide court name $ 

I and docket number) 

Current Amount Owed Payment Schedule 

$ $ 

Debtor's Telephone Debtor's Relationship to You 

Item 13. Life Insurance Policies 

List all life insurance policies (including t,rid()Wmi:t~ policies) with any cash surrender value. 

Policy Insurance Company's Name, Address, & Telephone No. Beneficiary No, Face Value 

$ 

Insured Loans Against Policy Surrender Value 

$ $ 

Insurance Company's Name, Address, & Telephone No, Beneficiary Policy No. Face Value 

$ 

Insured Loans Against Policy Surrender Value 

$ $ 

Item 14. Deferred Income Arrangements profit-sharing plans, 401 (k) plans, IRAs, Keoghs, List all deferred iocome arrangements, including but not limited to, deferred annuities, pensions plans, 

other retirement accounts, and college savings plans (e.g., 529 Plans). 

Name on Account Account No. Trustee or Administrator's Name, Address & Telephone No, I 

Date Established Type of Plan Surrender Value before 

I I Taxes and Penalties 

(mm/dd/yyyy) $ 

Administrator's Name, Address & Telephone No. Name on Account Trustee or I Account No. 

Date Established Type of Plan Surrender Value before 

I I Taxes and Penalties 

$ 

Initials: 

5 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 . Item 15. Paneling •~suran~~ Payrp;n~ or ··• 

Inheritances 

List any pending insurance paym!!!pls or lpll~rltan.ces owed to you. 

Amount Expected Date Expected (mm/dd/yyyy) Type 

I I $ 

I I $ 

I I $ 

VehiC?l~s . , .. ··. ·· . 

Item 16. . List all ca~, tr1,1c1t&;motqrcyctes, boats, airplanes, and other vehicles. . 

Vehicle Type I Registered Owner's Name Purchase Price Original Loan Amount Current Balance Year 

$ $ $ 

Make Registration State & No. Account/Loan No. Current Value Monthly Payment 

$ $ 

Model Address of Vehicle's Location Lender's Name and Address 

Type I Registered Owner's Name Purchase Price Original Loan Amount Current Balance Vehicle Year 

$ $ $ 

Registration State & No. Current Value Monthly Payment Make Account/Loan No. 

$ $ 

Model Address of Vehicle's Location Lender's Name and Address 

Vehicle Type I Registered Owner's Name Purchase Price Original Loan Amount Current Balance Year 

$ $ $ 

Make Registration State & No. Account/Loan No. Current Value Monthly Payment 

$ $ 

Model Address of Vehicle's Location Lender's Name and Address 

Original Loan Amount Current Balance Vehicle Type I Registered Owner's Name Purchase Price Year 

$ $ $ 

Monthly Make Registration State & No. Account/Loan No. Current Value Payment 

$ $ 

Model Address of Vehicle's Location Lender's Name and Address 

Item 17. Other Personal Property not List all other personal property n.ot listed.in ltems 9-16 by category, whether held for personal use. investment or any other reason, including but 

limited to coins, intellectual stamps, artwork, gemstones, jewelry, bullion, other collectibles, copyrights, patents, and other property. 

Property Category Current Value Name of Owner Property Location Acquisition Cost 

(e.g., artwork. jewelry) 

$ $ 

$ $ 

$ $ 

Initials: 

6 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 Item 18. Real Property < .. ··•-•·· 

List all real property int~ts (includi~. any land contr~qt) 

Property's Location Type of Property Name(s) on Title or Contract and Ownership Percentages 

Ajuisi~on Date I Basis of Valuation (mm/dd/yyyy) ;urchase Price I ~urrent Value 

Lender's Name and Address Loan or Account No. Current Balance On First Mortgage or 

Contract 

$ 

Monthly Payment 

$ 

Other Mortgage Loan(s) (describe) Monthly Payment D Rental Unit 

$ 

Current Balance Monthly Rent Received 

$ $ 

Property's Location Type of Property Name(s) on Title or Contract and Ownership Percentages 

I Basis of Valuation Ajuisi~on Date (mrn/dd/yyyy) ;urchase Price I ~urrent Value 

Name and Address Loan or Account No. Current Balance On First Mortgage or Lender's Contract 

$ 

Monthly Payment 

$ 

Other Mortgage Loan(s) (describe) Monthly Payment D Rental Unit 

$ 

Current Balance Monthly Rent Received 

$ $ 

LIABILITIES 

Item_ 1~. Cl'editCards 

your spouse, or your dependents, and any other credit cards that you, your spouse, or your dependents use, . List ea.ch credit card account held by you, 

whether issued by a United States or foreign financial institution. < · 

Name of Credit Card (e.g., Visa, Account No. Name(s) on Account Current Balance 

MasterCard, Department Store) 

$ 

$ 

$ 

$ 

·. .. / .. ,. $ .. 

Item 20. Taxes Payable / 

List all taxes, such as income taxes orreal estat~ taxes, owed by you, .your spouse, or your dependents. . 

Type of Tax Amount Owed Year Incurred 

$ 

$ 

$ 

Initials: 

7 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 Item 21. Other Amounts Owed.by You, Your Spouse, or Your Dependents 

List all other amounts, not lis\ed elsewhere in this financial statement, owed by you, your spouse, or your dependents. 

Lender/Creditor's Name, Address, and Telephone No. Nature of Debt (if the result of a court judgment or settlement, provide court name and docket 

number) 

Lender/Creditor's Relationship to You 

Date Liability Was Incurred I ~riginal Amount Owed I ~urrent Amount Owed I Payment Schedule 

I I 

(mm/dd/vvvv) 

Lender/Creditor's Name, Address, and Telephone No. Nature of Debt (if the result of a court judgment or settlement, provide court name and docket 

number) 

Lender/Creditor's Relationship to You 

Date Liability Was Incurred I ~riginal Amount Owed I ~urrent Amount Owed I Payment Schedule 

I I 

(mm/dd/vvvv) 

OTHER FINANCIAL INFORMATION 

Item 22. Trusts and E$~re:>ws ·· : 

Include any legal List all funds and. other asse~ t~!II ~re being held in trust or escrow by any person or entity for you, your spouse, or your dependents. 

retainers being held Qn. your bel'lalt;~Y legal co.unsel. Also list all funds or other assets that are being held in trust or escrow by you, your spouse, or your 

dependents, for any pe!;Son .or entity. .. · 

Date Established of Trustee or Escrow Agent's Name & Address Grantor Beneficiaries Present Market Value Assets* (mm/dd/vvvvl 

I I $ 

I I $ 

I I $ 

*If the market value of any asset is unknown, describe the asset and state its cost, if you know ii. .. 

Item 23. Transfers of Assets 

List eactr person or entity to whom. yoo have,trll°'~ferred, iq the aggregate, more than $5,000 in funds or other assets during lhe previous five years by 

loan, gift, sale, or other trans~r (exclud~,Rf'l11°'ary arld ~ssary living and business expenses paid to unrelated tl'lird parties). For each such person or 

entity, state the total amount tra:nsfetr~ during th~ period, . ·' 

Transfer Date Type of Transfer 

Transferee's Name, Address, & Relationship Property Transferred Aggregate Value* (mm/dd/yyyy) (e.g., Loan, Gift) 

$ I I 

I I $ 

I I $ 

*If the market value of any asset is unknown, describe the asset and state its cost, if you know ii. 

Initials: 

8 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 Item 24. Document Requests 

Provide copies of the following documents wit~ your completed Financial Statement. 

Federal tax returns filed during the last three years by or on behalf of you, your spouse, or your dependents. 

All applications for bank loans or other extensions of credit (other than credit cards) that you, your spouse, or your 

dependents have submitted within the last two years, including by obtaining copies from lenders if necessary. 

Item 9 For each bank account listed in Item 9, all account statements for the past 3 years. 

For each business entity listed in Item 11, provide (including by causing to be generated from accounting records) the 

Item 11 most recent balance sheet, tax return, annual income statement, the most recent year-to-date income statement, and all 

general ledger files from account records. 

All appraisals that have been prepared for any property listed in Item 17, including appraisals done for insurance 

Item 17 purposes. You may exclude any category of property where the total appraised value of all property in that category is 

less than $2,000. 

Item 18 All appraisals that have been prepared for real property listed in Item 18. 

Item 21 Documentation for all debts listed in Item 21. 

All executed documents for any trust or escrow listed in Item 22. Also provide any appraisals, including insurance Item 22 appraisals that have been done for any assets held by any such trust or in any such escrow. 

i •• •.:- " ··•···· • .. ""; . : ;~ir.~l~~~.~.IAL SCHEDULES •·ti/' V"(SP ,,• . j, .......... ,;:•• i <?·' . ,,,•, ... 

Item 25. Combined Balance Sheet forYou;.Yo11r Spouse, and Your Dependents 

Assets Liabilities 

Cash on Hand (Item 9) $ Loans Against Publicly Traded Securities (Item 10) $ 

Funds Held in Financial Institutions (Item 9) $ Vehicles - Liens (Item 16) $ 

U.S. Government Securities (Item 10) $ Real Property - Encumbrances (Item 18) $ 

Publicly Traded Securities (Item 10) $ Credit Cards (Item 19) $ 

Non-Public Business and Financial Interests (Item 11) $ Taxes Payable (Item 20) $ 

Amounts Owed to You (Item 12) $ Amounts Owed by You (Item 21) $ 

Life Insurance Policies (Item 13) $ Other Liabilities (Itemize) 

Deferred Income Arrangements (Item 14) $ $ 

Vehicles (Item 16) $ $ 

Other Personal Property (Item 17) $ $ 

Real Property (Item 18) $ $ 

Other Assets (Itemize) $ 

$ $ 

$ $ 

$ $ 

Total Assets $ Total Liabilities $ 

Item 26. Combined Current Monthly Income and Expenses for You, Your Spouse, and Your Depelldf:!nts 

Provide the current monthly income and expenses fOryou,. your spouse, and your dependents. Do not include credit card payments separately; rather, 

include credit card expenditures in the appropriate categories. · 

Income (State source of each item) Expenses 

Salary - After Taxes Mortgage or Rental Payments for Residence(s) $ $ Source: 

Fees, Commissions, and Royalties Property Taxes for Residence(s) $ $ Source: 

Interest Rental Property Expenses, Including Mortgage Payments, Taxes, $ $ Source: and Insurance 

Dividends and Capital Gains Car or Other Vehicle Leas~ or Loan Payments $ $ Source: 

Gross Rental Income Food Expenses $ $ Source: 

Profits from Sole Proprietorships Clothing Expenses $ $ Source: 

Distributions from Partnerships, S-Corporations, Utilities 

and LLCs $ $ 

Source: 

Initials: 

9of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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 	 	 item 2s. cornlhi~'Egrr•nt 

Distributions from Trusts and Estates Medical Expenses, Including Insurance 

$ $ Source: 

Distributions from Deferred Income Arrangements Other Insurance Premiums 

$ $ Source: 

Social Security Payments $ Other Transportation Expenses $ 

Alimony/Child Support Received $ Other Expenses (Itemize) 

Gambling Income $ $ 

Other Income (Itemize) $ 

$ $ 

$ $ 

$ $ 

Total Income $ Total Expenses $ 

: : .. :-r. .·.· : ::::< _: 

.. ENIS : .·,\c;:r:i:ii:i:i;!,i::::::.:· :;:::::::.: 

Item 27. Documents Attached to this FinanclalStatement 

List all documents that are being submitted with this finansi;;il stat?ment. For any Item 24 documents that are not attached, explalni,vhy. 

Item No. Document Relates To Description of Document 

I am submitting this financial statement with the understanding that it may affect action by the Federal Trade 

Commission or a federal court. I have used my best efforts to obtain the information requested in this statement. The 

responses I have provided to the items above are true and contain all the requested facts and information of which I have 

notice or knowledge. I have provided all requested documents in my custody, possession, or control. I know of the 

penalties for false statements under 18 U.S.C. § 1001, 18 U.S.C. § 1621, and 18 U.S.C. § 1623 (five years imprisonment 

and/or fines). I certify under penalty of perjury under the laws of the United States that the foregoing is true and correct. 

Executed on: 

(Date) Signature 

10 of 10 Federal Trade Commission Financial Statement of Individual Defendant 

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ATTACHMENT C 

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 	 	 FEDERAL TRADE COMMISSION 

FINANCIAL STATEMENT OF CORPORATE DEFENDANT 

Instructions: 

1. Complete all items. Enter "None" or "NIA" ("Not Applicable") where appropriate. If you cannot fully answer a 

question, explain why. 

2. The font size within each field will adjust automatically as you type to accommodate longer responses. 

3. In completing this financial statement, "the corporation" refers not only to this corporation but also to each of its 

predecessors that are not named defendants in this action. 

4. When an Item asks for information about assets or liabilities ''held by the corporation," include ALL such assets 

and liabilities, located within the United States or elsewhere, held by the corporation or held by others for the 

benefit of the corporation. 

5. Attach continuation pages as needed. On the financial statement, state next to the Item number that the Item is 

being continued. On the continuation page(s), identify the Item number being continued. 

6. Type or print legibly. 

7. An officer of the corporation must sign and date the completed financial statement on the last page and initial 

each page in the space provided in the lower right comer. 

Penalty for False Information: 

Federal law provides that any person may be imprisoned for not more than five years, fined, or both, if such person: 

(I) "in any matter within the jurisdiction of any department or agency of the United States knowingly and 

willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, 

fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the 

same to contain any false, fictitious or fraudulent statement or entry" (18 U.S.C. § 1001); 

(2) "in any ... statement under penalty of perjury as permitted under section 1746 of title 28, United States Code, 

willfully subscribes as true any material matter which he does not believe to be true" (18 U.S.C. § 1621); or 

(3) "in any( ... statement under penalty of perjury as permitted under section 1746 of title 28, United States 

Code) in any proceeding before or ancillary to any court or grand jury of the United States knowingly makes any 

false material declaration or makes or uses any other information ... knowing the same to contain any false 

material declaration." (18 U.S.C. § 1623) 

For a felony conviction under the provisions cited above, federal law provides that the fine may be not more than the 

greater of (i) $250,000 for an individual or $500,000 for a corporation, or (ii) if the felony results in pecuniary gain to any 

person or pecuniary loss to any person other than the defendant, the greater of twice the gross gain or twice the gross loss. 

18 u.s.c. § 3571. 

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 	 	 BACKGROUND INFORMATION 

Item 1. General Information 

Corporation's Full Name---------------------------------

Primary Business Address ________________________ From (Date) ___ _ 

Telephone No. Fax No. ------------- -------------

E-Mail Address Internet Home Page __________ _ 

All other current addresses & previous addresses for past five years, including post office boxes and mail drops: 

Address __________________________ From/Until ________ _ 

Address From/Until -------------------------- ---------

Address From/Until ---------

A II predecessor companies for past five years: 

Name & Address From/Until ---~--------------------- ------

Name & Address From/Until ------

Name & Address From/Until ------

Item 2. Legal Information 

Federal Taxpayer ID No. ___________ State & Date of Incorporation __________ _ 

State Tax ID No. State _______ Profit or Not For Profit ________ _ 

Corporation's Present Status: Active Inactive _______ Dissolved _______ _ 

If Dissolved: Date dissolved By Whom ________________ _ 

Reasons ---------------------------------------

Fiscal Year-End (Mo./Day) _______ Corporation's Business Activities ____________ _ 

Item 3. Registered Agent 

Name of Registered Agent _______________________________ _ 

Address _________________________ Telephone No. _______ _ 

Page 2 Initials ----

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 	 	 	 Item 4. Principal Stockholders 

List all persons and entities that own at least 5% of the corporation's stock. 

Name & Address %Owned 

Item 5. Board Members 

List all members of the corporation's Board of Directors. 

Name & Address % Owned Term (From/Until} 

Item 6. Officers 

List all of the corporation's officers, including de facto officers (individuals with significant management responsibility 

whose titles do not reflect the nature of their positions). 

Name & Address %Owned 

Page 3 Initials ----

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 	 	 Item 7. Businesses Related to the Corporation 

List all corporations, partnerships, and other business entities in which this corporation has an ownership interest. 

Name & Address Business Activities % Owned 

State which of these businesses, if any, has ever transacted business with the corporation __________ _ 

Item 8. Businesses Related to Individuals 

List all corporations, partnerships, and other business entities in which the corporation's principal stockholders, board 

members, or officers (i.e., the individuals listed in Items 4 - 6 above) have an ownership interest. 

Individual's Name Business Name & Address Business Activities % Owned 

State which of these businesses, if any, have ever transacted business with the corporation __________ _ 

Item 9. Related Individuals 

List all related individuals with whom the corporation has had any business transactions during the three previous fiscal 

years and current fiscal year-to-date. A "related individual" is a spouse, sibling, parent, or child of the principal 

stockholders, board members, and officers (i.e., the individuals listed in Items 4 - 6 above). 

Name and Address Relationship Business Activities 

Page 4 Initials ___ _ 

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 	 	 Item 10. Outside Accountants 

List all outside accountants retained by the corporation during the last three years. 

Firm Name Address CPA/PA? 

Item 11. Corporation's Recordkeeping 

List all individuals within the corporation with responsibility for keeping the corporation's financial books and records for 

the last three years. 

Name, Address, & Telephone Number Position(s) Held 

Item 12. Attorneys 

List all attorneys retained by the corporation during the last three years. 

Firm Name Address 

Page 5 Initials ----

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 	 	 Item 13. Pending Lawsuits Filed by the Corporation 

List all pending lawsuits that have been filed by the corporation in court or before an administrative agency. (List 

lawsuits that resulted in final judgments or settlements in favor of the corporation in Item 25). 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ________________________________ _ 

Docket No. _______ Relief Requested _________ Nature of Lawsuit ________ _ 

________________ Status _______________________ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ---------------------------------

Docket No. Relief Requested Nature of Lawsuit -------- --------- ---------

________________ Status _______________________ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ---------------------------------

Docket No. Relief Requested Nature of Lawsuit ------- --------- ---------

________________ Status _______________________ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ________________________________ _ 

Docket No. _______ Relief Requested _________ Nature of Lawsuit ________ _ 

________________ Status _______________________ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ---------------------------------

Docket No. ________ Relief Requested _________ Nature of Lawsuit ________ _ 

________________ Status _______________________ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ________________________________ _ 

Docket No. ________ Relief Requested _________ Nature of Lawsuit ________ _ 

________________ Status _______________________ _ 

Page 6 Initials ___ _ 

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 	 	 Item 14. Current Lawsuits Filed Against the Corporation 

List all pending lawsuits that have been filed against the corporation in court or before an administrative agency. (List 

lawsuits that resulted in final judgments, settlements, or orders in Items 26 - 27). 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ________________________________ _ 

Docket No. ________ Relief Requested _________ Nature of Lawsuit ________ _ 

________________ Status _______________________ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ________________________________ _ 

Docket No. ________ Relief Requested _________ Nature of Lawsuit ________ _ 

Status ---------------- ------------------------

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ---------------------------------

Docket No. Relief Requested Nature of Lawsuit ------- --------- ---------

________________ Status _______________________ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ________________________________ _ 

Docket No. Relief Requested Nature of Lawsuit ------- --------- ---------

Status ---------------- ------------------------

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ________________________________ _ 

Docket No. Relief Requested Nature of Lawsuit -------- --------- ---------

________________ Status _______________________ _ 

Opposing Party's Name & Address ___________________________ _ 

Court's Name & Address ---------------------------------

Docket No. Relief Requested Nature of Lawsuit -------- --------- ---------

________________ Status _______________________ _ 

Page 7 Initials ___ _ 

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 	 	 Item 15. Bankruptcy information 

List all state insolvency and federal bankruptcy proceedings involving the corporation. 

Commencement Date Tennination Date Docket No. -------- -------- --------

_ If State Court: Court & County __________ lf Federal Court: District __________ 

Disposition --------------------------------------

Item 16. Safe Deposit Boxes 

List for the all safe deposit boxes, located within the United States or elsewhere, held by the corporation, or held by others 

benefit of the corporation. On a separate page, describe the contents of each box. 

Owner's Name Name & Address of Depository Institution Box No. 

FINANCIAL INFORMATION 

REMINDER: When an Item asks for information about assets or liabilities "held by the corporation," include 

ALL such assets and liabilities, located within the United States or elsewhere, held by the corporation or held by 

others for the benefit of the corporation. 

Item 17. Tax Returns 

List all federal and state corporate tax retums filed for the last three complete fiscal years. Attach copies of all returns. 

Federal/ Tax Year Tax Due Tax Paid Tax Due Tax Paid Preparer's Name 

State/Both Federal Federal State State 

$ $ $ $ 

$ $ $ $ 

$ $ $ $ 

Page 8 Initials ----

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 	 	 Item 18. Financial Statements 

List all financial statements that were prepared for the corporation's last three complete fiscal years and for the current 

fiscal year-to-date. Attach copies of all statements, providing audited statements !f available. 

Balance Sheet Profit & Loss Statement Cash Flow Statement Changes in Owner's Equity Audited? 

Item 19. Financial Summary 

For each of the last three complete fiscal years and for the current fiscal year-to-date for which the corporation has not 

financial provided a profit and loss statement in accordance with Item 18 above, provide the following summary 

information. 

Current Year-to-Date 1 Year Ago 2 Years Ago 3 Years Ago 

_ $ ______ _ Gross Revenue $ 

-------- $ $ ____ -------

$ ______ _ Expenses $ $ $ ______ _ -------- -------

$ ______ _ Net Profit After Taxes $ $ $ -------- ---~=--

Payables $ --------

Receivables $ 

--------

Item 20. Cash, Bank, and Money Market Accounts 

and List cash and all bank and money market accounts, including but not limited to, checking accounts, savings accounts, 

certificates of deposit, held by the corporation. The term "cash" includes currency and uncashed checks. 

_ Cash on Hand$ ___________ Cash Held for the Corporation's Benefit$ _________ 

Name & Address of Financial Institution Signator(s) on Account Account No. Current 

Balance 

______________________________________ $ ____ _ 

_______________________________________ $ ____ _ 

_______________________________________ $ ____ _ 

_______________________________________ $ ____ _ 

Page 9 Initials ----

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 	 	 Item 21. Government Obligations and Publicly Traded Securities 

List all U.S. Government obligations, including but not limited to, savings bonds, treasury bills, or treasury notes, held by 

the corporation. Also list all publicly traded securities, including but not limited to, stocks, stock options, registered and 

bearer bonds, state and municipal bonds, and mutual funds, held by the corporation. 

Issuer ______________ Type of Security/Obligation ______________ _ 

No. of Units Owned Current Fair Market Value$ Maturity Date ---- -------- -------

Issuer ______________ Type of Security/Obligation ______________ _ 

No. of Units Owned ____ Current Fair Market Value$ ________ Maturity Date ______ _ 

Item 22. Real Estate 

List all real estate, including leaseholds in excess of five years, held by the corporation. 

Type of Property ______________ Property's Location ______________ _ 

Name(s) on Title and Ownership Percentages _________________________ _ 

Current Value$ Loan or Account No. --------- ------------

Lender's Name and Address _______________________________ _ 

Current Balance On First Mortgage $ _______ Monthly Payment$ _____ _ 

Other Loan(s) (describe) ___________________ Current Balance$ _______ _ 

Monthly Payment $ ________ Rental Unit? _______ Monthly Rent Received$ _____ _ 

Type of Property ______________ Property's Location ______________ _ 

Name(s) on Title and Ownership Percentages _________________________ _ 

Current Value$ Loan or Account No. --------- ------------

Lender's Name and Address --------------------------------

Current Balance On First Mortgage $ _______ Monthly Payment $ _____ _ 

Other Loan(s) (describe) Current Balance$ ------------------- --------

Monthly Payment $ ________ Rental Unit? _______ Monthly Rent Received$ _____ _ 

Page 10 Initials ___ _ 

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 	 	 Item 23. Other Assets 

List all other property, by category, with an estimated value of $2,500 or more, held by the corporation, including but not 

limited to, inventory, machinery, equipment, furniture, vehicles, customer lists, computer software, patents, and other 

intellectual property. 

Property Category Property Location Acguisition Current 

Cost Value 

$ $ 

$ $ 

$ $ 

$ $ 

$ $ 

$ $ 

$ $ 

$ $ 

$ $ 

Item 24. Trusts and Escrows 

List all persons and other entities holding funds or other assets that are in escrow or in trust for the corporation. 

Trustee or Escrow Agent's Description and Location of Assets Present Market 

Name & Address Value of Assets 

___________________________________ $ _______ _ 

___________________________________ $ _______ _ 

___________________________________ $ _______ _ 

___________________________________ $ _______ _ 

___________________________________ $ _______ _ 

___________________________________ $ _______ _ 

___________________________________ $ _______ _ 

Page I I Initials ___ _ 

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 	 	 Item 25. Monetary Judgments and Settlements Owed To the Corporation 

List all monetary judgments and settlements, recorded and unrecorded, owed to the corporation. 

Opposing Party's Name & Address -----------------------------

Court's Name & Address _______________________ Docket No. _____ _ 

Nature of Lawsuit _____________ Date of Judgment _______ Amount $ ____ _ 

Opposing Party's Name & Address ___________________________ _ 

Court's Name & Address Docket No. ----------------------- ------

Nature of Lawsuit _____________ Date of Judgment _______ Amount $ ____ _ 

Item 26. Monetary Judgments and Settlements Owed By the Corporation 

List all monetary judgments and settlements, recorded and unrecorded, owed by the corporation. 

Opposing Party's Name & Address ___________________________ _ 

Court's Name & Address ----------------------- Docket No. ------

Nature of Lawsuit _________________ Date ______ Amount$ _____ _ 

Opposing Party's Name & Address -----------------------------

Court's Name & Address _______________________ Docket No. _____ _ 

Nature of Lawsuit _____________ Date of Judgment _______ Amount$ ____ _ 

Opposing Party's Name & Address ___________________________ _ 

Court's Name & Address _______________________ Docket No. _____ _ 

Nature of Lawsuit _____________ Date of Judgment _______ Amount $ ____ _ 

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address ----------------------- Docket No. ------

Nature of Lawsuit Date of Judgment Amount $ ------------- ----,----- -----

Opposing Party's Name & Address ____________________________ _ 

Court's Name & Address Docket No. ----------------------- ------

Nature of Lawsuit _____________ Date of Judgment _______ Amount$ ____ _ 

Page 12 Initials ----

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 	 	 	 Item 27. Government Orders and Settlements 

List all existing orders and settlements between the corporation and any federal or state government entities. 

Name of Agency Contact Person -------------------- ------------

Address ___________________________ Telephone No. ______ _ 

Agreement Date ______ Nature of Agreement ______________________ _ 

Item 28. Credit Cards 

List all of the corporation's credit cards and store charge accounts and the individuals authorized to use them. 

Name of Credit Card or Store Names of Authorized Users and Positions Held 

Item 29. Compensation of Employees 

List all compensation and other benefits received from the corporation by the five most highly compensated employees, 

independent contractors, and consultants ( other than those individuals listed in Items 5 and 6 above), for the two previous 

fiscal years and current fiscal year-to-date. "Compensation" includes, but is not limited to, salaries, commissions, 

consulting fees, bonuses, dividends, distributions, royalties, pensions, and profit sharing plans. "Other benefits" include, 

but are not limited to, loans, loan payments, rent, car payments, and insurance premiums, whether paid directly to the 

individuals, or paid to others on their behalf. 

Name/Position Current Fiscal 1 Year Ago 2 Years Ago Compensation or 

Year-to-Date Type of Benefits 

$ $ $ 

$ $ $ 

$ $ $ 

$ $ $ 

$ $ $ 

Page 13 Initials ___ _ 

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 	 	 Item 30. Compensation of Board Members and Officers 

List all compensation and other benefits received from the corporation by each person listed in Items 5 and 6, for the 

and the two previous fiscal years. "Compensation" includes, but is not limited to, salaries, current fiscal year-to-date 

commissions, consulting fees, dividends, distributions, royalties, pensions, and profit sharing plans. "Other benefits" 

include, but are not limited to, loans, loan payments, rent, car payments, and insurance premiums, whether paid directly t

the individuals, or paid to others on their behalf. 

Name/Position Current Fiscal 1 Year Ago 2 Years Ago Compensation or 

Year-to-Date Type of Benefits 

$ $ $ 

$ $ $ 

$ $ $ 

$ $ $ 

$ $ $ 

$ $ $ 

$ $ $ 

$ $ $ 

ltem 31. Transfers of Assets lncluding Cash and Property 

business, during the List all transfers of assets over $2,500 made by the corporation, other than in the ordinary course of 

previous three years, by loan, gift, sale, or other transfer. 

Transferee's Name, Address, & Relationship Property Aggregate Transfer Type of Transfer 

Transferred Value Date (e.g., Loan. Gift) 

o 

_________________________ $ __________ -----------

_________________________ $ ________________ _ 

_________________________ $ ________________ _ 

_________________________ $ ________________ _ 

_________________________ $ ________________ _ 

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 	 	 Item 32. Documents Attached to the Financial Statement 

List all documents that are being submitted with the financial statement. 

Item No. Document Description of Document 

Relates To 

I am submitting this financial statement with the understanding that it may affect action by the Federal Trade 

Commission or a federal court. I have used my best efforts to obtain the information requested in this statement. The 

responses I have provided to the items above are true and contain all the requested facts and information of which I have 

notice or knowledge. I have provided all requested documents in my custody, possession, or control. I know of the 

penalties for false statements under 18 U.S.C. § 1001, 18 U.S.C. § 1621, and 18 U.S.C. § 1623 (five years imprisonment 

and/or fines). I certify under penalty of perjury under the laws of the United States that the foregoing is true and correct. 

Executed on: 

(Date) Signature 

Corporate Position 

Page 15 Initials ----

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ATTACHMENT D 

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 	 	 CONSENT TO RELEASE OF FINANCIAL RECORDS 

I, _____________ of ______________ , do 

hereby direct any bank, savings and loan association, credit union, depository institution, finance 

company, commercial lending company, credit card processor, credit card processing entity, 

electronic funds transfer processing agent, automated clearinghouse processing agent, demand 

draft processing agent, brokerage house, escrow agent, money market or mutual fund, title 

company, commodity trading company, trustee, or person that holds, controls or maintains 

custody of assets, wherever located that are owned or controlled by me or at which I have an 

account of any kind, or at which a corporation or other entity has a bank account of any kind 

upon which I am authorized to draw, and its officers, employees and agents, to disclose all 

information and deliver copies of all documents of every nature in your possession or control 

which relate to the said accounts to any attorney of the Federal Trade Commission, and to 

give evidence relevant thereto, in the matter of Federal Trade Commission v. A WS, LLC, et al., 

No. 2:18-cv-00442-JCM-PAL, now pending in the United States District Court for the 

District of Nevada, and this shall be irrevocable authority for so doing. 

This direction is intended to apply to the laws of countries other than the United States of 

America which restrict or prohibit the disclosure of bank or other financial information without 

the consent of the holder of the account, and shall be construed as consent with respect thereto, 

and the same shall apply to any of the accounts for which I may be a relevant principal. 

Dated ______ ., 2018. 

Signature _____________ _ 

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