June 4, 2007
The Federal Trade Commission has settled consumer fraud charges with Mid-South Distributors, saying the company and its president, Thomas E. Richardson, misrepresented the potential earnings that consumers could make. The FTC also alleged Richardson did not provide any disclosure documents to purchasers, as required.
The settlement bars the businessman from making false earnings claims, using shills, and misrepresenting the profitability of secured locations in the future, and prohibits him from violating the Franchise Rule or Business Opportunity Rule.
The FTC says Richardson advertised his greeting card display rack business opportunities in classified ads in local newspapers, claiming that purchasers could earn as much as $65,000 a year. Based in Florence, Alabama, he sold distributorships in Georgia, Alabama, Tennessee, Mississippi, Florida, and Kentucky.
Richardson promised potential purchasers that for an investment of $8,500 or more, they would receive everything they needed to start a business: an initial inventory of greeting cards, display racks for the cards, and profitable locations where he would supposedly place the cards and racks for the purchaser.
According to the FTC, consumers never earned anything close to the income levels they were promised. The Commission alleged that in almost every case, consumers made less than $100 per month. The highest earning purchaser only returned $2,006 for the entire year by investing in 20 locations. In addition, Richardson often did not provide his customers with the promised number of locations for their display racks.
Typically, the locations he did provide were not in high traffic areas, and resulted in few greeting card sales for the consumers. Also, the FTC accused Richardson of not providing any of the disclosures that are required by the Franchise Rule.
Under the settlement, Richardson was ordered to pay $901,402.89 the total amount of money consumers paid, minus any refunds that were given. The judgment is suspended based on sworn financial disclosures. However, if it is found the defendant lied in those financial statements, then the full amount will be due.
