Sandcastle Creations; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 922 3265]

Sandcastle Creations; Proposed Consent Agreement With Analysis To

Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of Federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

prohibit, among other things, the Oregon-based respondents, who

marketed potholders and mohair for use as doll's hair, from making any

material misrepresentations regarding earnings or profits or

participants in any work opportunity and from making misrepresentations

about the marketplace demand for any product or service. In addition,

the proposed settlement would require the respondents to pay $536,000

to the Commission for consumer redress or disgorgement.

DATES: Comments must be received on or before March 7, 1994.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Jeffrey Klurfeld or Gerald Wright, San Francisco Regional Office,

Federal Trade Commission, 901 Market St., suite 570, San Francisco, CA

94103. (415) 744-7920.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the

Commission's Rules of Practice (16 CFR 2.34), notice is hereby given

that the following consent agreement containing a consent order to

cease and desist, having been filed with and accepted, subject to final

approval, by the Commission, has been placed on the public record for a

period of sixty (60) days. Public comment is invited. Such comments or

views will be considered by the Commission and will be available for

inspection and copying at its principal office in accordance with

Sec. 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

Agreement Containing Consent Order To Cease and Desist

In the Matter of William E. Taylor, and Susan L. Taylor,

individually, and trading and doing business as Sandcastle

Creations.

The Federal Trade Commission having initiated an investigation of

William E. Taylor and Susan L. Taylor, individually, and trading and

doing business as Sandcastle Creations (``proposed respondents'' or

``respondents''), and it now appearing that proposed respondents are

willing to enter into an agreement containing an order to cease and

desist from the acts and practices being investigated.

It is hereby agreed by and between William E. Taylor and Susan L.

Taylor, individually, and trading and doing business as Sandcastle

Creations, and their attorney, and counsel for the Federal Trade

Commission that:

1. Proposed respondents William E. Taylor and Susan L. Taylor are

individuals, trading and doing business as Sandcastle Creations, an

unincorporated association, with its principal office and place of

business located at 126 SE. 1st Street, Newport, Oregon 97365.

Proposed respondent William E. Taylor is a co-owner of Sandcastle

Creations. Individually or in concert with others, he formulates,

directs and controls the policies, acts and practices of Sandcastle

Creations and his address is the same as that of Sandcastle Creations.

Proposed respondent Susan L. Taylor is a co-owner of Sandcastle

Creations. Individually or in concert with others, she formulates,

directs and controls the policies, acts and practices of Sandcastle

Creations and her address is the same as that of Sandcastle Creations.

2. Proposed respondents admit all the jurisdictional facts set

forth in the draft complaint here attached.

3. Proposed respondents waive:

a. Any further procedural steps;

b. The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

c. All rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement;

and

d. All claims under the Equal Access to Justice Act.

4. This agreement shall not become part of the public record of the

proceeding unless and until it is accepted by the Commission. If this

agreement is accepted by the Commission, it, together with the draft of

complaint contemplated thereby, will be placed on the public record for

a period of sixty (60) days and information in respect thereto publicly

released. The Commission thereafter may either withdraw its acceptance

of this agreement and so notify the proposed respondents, in which

event it will take such action as it may consider appropriate, or issue

and serve its complaint (in such form as the circumstances may require)

and decision, in disposition of this proceeding.

5. This agreement is for settlement purposes only and does not

constitute an admission by proposed respondents that the law has been

violated as alleged in the draft of complaint, or that the facts

alleged in the draft complaint, other than the jurisdictional facts,

are true.

6. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 2.34 of the Commission's

Rules, the Commission may, without further notice to proposed

respondents, (1) issue its complaint corresponding in form and

substance with the draft of complaint here attached and its decision

containing the following order to cease and desist in disposition of

the proceeding, and (2) make information public in respect thereto.

When so entered, the order to cease and desist shall have the same

force and effect and may be altered, modified or set aside in the same

manner and within the same time provided by statute for other orders.

The order shall become final upon service. Delivery by the U.S. Postal

Service of the complaint an decision containing the agreed-to order to

proposed respondents' address as stated in this agreement shall

constitute service. Proposed respondents waive any right they may have

to any other manner of service. The complaint may be used in construing

the terms of the order, and no agreement, understanding,

representation, or interpretation not contained in the order or the

agreement may be used to vary or contradict the terms of the order.

7. Proposed respondents have read the proposed complaint and order

contemplated hereby. They understand that once the order has been

issued, they will be required to file one or more compliance reports

showing that they have fully complied with the order. Proposed

respondents further understand that they may be liable for civil

penalties in the amount provided by law for each violation of the order

after it becomes final.

Order

For purposes of this order, the following definitions shall apply:

``Work Opportunity'' means any offer to a person to earn income by

producing goods or providing services, where (1) the offeree must pay

to the offeror, or a person identified by the offeror, any amount of

money, whether in the form of a registration, application or other fee,

a payment for initial inventory or supplies, or in any other form, as a

condition of participating; and (2) the offeror represents that the

offeree will or could be compensated in any manner by the offeror or by

a person identified by the offeror.

``Participant'' means any person who pays the offeror of a work

opportunity, or a person identified by such offeror, any amount of

money, whether in the form of a registration, application or other fee,

a payment for initial inventory or supplies, or in any other form, as a

condition of participating in a work opportunity.

``Net Earnings or Profits'' means the compensation paid to a

participant in a work opportunity, less the costs to a participant of

materials, supplies and shipping.

I

It is ordered that, Respondents William E. Taylor and Susan L.

Taylor, individually and trading and doing business as Sandcastle

Creations, an unincorporated association, and respondents' agents,

representatives and employees, directly or through any corporation,

subsidiary, division, or other device, in connection with the

marketing, advertising, promotion, offering, or sale of any work

opportunity, in or affecting commerce, as ``commerce'' is defined in

the Federal Trade Commission Act, do forthwith cease and desist from:

A. Making any material misrepresentation, including but not limited

to:

1. Misrepresenting the past, present or potential future earnings

or profits of participants in any work opportunity; or

2. Misrepresenting the marketplace demand for any product or

service for which respondents are offering a work opportunity.

B. Making any earnings-related or profit-related claim which uses

the phrase ``up to'' or words of similar import or which states any

dollar amount, unless the stated level of earnings or profits

constitutes the net earnings or profits which can be achieved by an

appreciable number of participants; and further, in any instances where

consumers could not reasonably foresee the major factors or conditions

affecting the ability to achieve the stated level of earnings or

profits, cease and desist from failing to disclose clearly and

prominently the class of consumers who can achieve the stated level.

II

It is further ordered that, For three (3) years after the last date

of dissemination of any representation covered by this Order,

respondents shall maintain and upon request make available to the

Federal Trade Commission for inspection and copying:

A. Specimen copies of all materials disseminated which contain such

representation;

B. All materials that were relied upon as substantiation in

disseminating such representation;

C. The names, addresses and telephone numbers of all work

opportunity participants who paid any money to respondents within the

previous three years; and

D. The names, addresses and telephone numbers of all work

opportunity participants who earned any income or profits from

respondents during the previous three years, and for each such

participant: all written agreements between respondents and each

participant during the previous three years; and the dates and amounts

of all payments paid to each participant for work completed pursuant to

the work opportunity during the previous three years.

III

It is further ordered:

A. That respondents shall jointly and severally pay to the FTC as

consumer redress the sum of five hundred and thirty-six thousand

dollars ($536,000); provided however, that this liability will be

suspended, subject to the provisions of subparts B and D below, upon

the payment of twenty-five thousand dollars ($25,000) no later than

fifteen (15) days after the date of service of this Order. Such payment

shall be made by cashier's check or certified check payable to the

Federal Trade Commission and shall be delivered to the Federal Trade

Commission, San Francisco Regional Office, 901 Market Street, suite

570, San Francisco, CA 94103.

B. That, in the event of respondents' default on the $25,000

payment set forth in subpart A above, the amount of five hundred and

thirty-six thousand dollars ($536,000), less the sum of any payments

made pursuant to subpart A above, shall become immediately due and

payable without any notice required to be given to the respondents, and

interest computed at the rate prescribed under 28 U.S.C. 1961, as

amended, shall immediately begin to accrue on the unpaid balance.

C. That any funds paid by respondents pursuant to subparts A and B

above shall be paid into a redress fund administered by the Federal

Trade Commission and shall be used to provide direct redress to those

purchasers of respondents' introductory kits (as described in the

complaint) who have not previously been reimbursed by respondents for

the cost of the kit through a refund or through the purchase of

finished product. If the Federal Trade Commission determines, in its

sole discretion, that the redress to purchasers (as defined above) is

wholly or partially impracticable, any funds not so used shall be paid

to the United States Treasury. Respondents shall be notified as to how

the funds are disbursed, but shall have no right to contest the manner

of distribution chosen by the Commission. No portion of the payment as

herein described shall be deemed a payment of any fine, penalty, or

punitive assessment.

D. That the Commission's acceptance of this Order is expressly

premised upon the financial statements and related documents previously

provided by respondents to the FTC, signed and dated July 27, 1992.

After service upon respondents of an order to show cause, the FTC may

reopen this proceeding to make a determination whether there are any

material misrepresentations or omissions in said financial statements

and related documents. Respondents shall be given an opportunity to

present evidence on this issue. If, upon consideration of respondents'

evidence and other information before it, the FTC determines that there

are any material misrepresentations or omissions in the financial

statements and related documents, that determination shall cause the

entire amount of monetary liability of five hundred and thirty-six

thousand dollars ($536,000), less the sum of any payments made under

subpart A above, to become immediately due and payable to the Federal

Trade Commission, and interest computed at the rate prescribed in 28

U.S.C. 1961, as amended, shall immediately begin to accrue on the

unpaid balance. Proceedings initiated under Part III are in addition

to, and not in lieu of, any other civil or criminal remedies as may be

provided by law, including any proceedings the Federal Trade Commission

may initiate to enforce this Order.

IV

It is further ordered that, The individual respondents shall

promptly notify the Commission of the discontinuance of their present

business or employment and, for a period of five (5) years after the

date of service of this order, shall promptly notify the Commission of

each affiliation with a new business or employment.

V

It is further ordered that, Respondents shall, within sixty (60)

days after service of this Order on them, and on the first through the

fifth anniversaries of the effective date of this order, file with the

Commission a report in writing, setting forth in detail the manner and

form in which it has complied with this Order.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement to a proposed consent order from William E.

Taylor and Susan L. Taylor, who do business under the name Sandcastle

Creations (``proposed respondents''). The proposed respondents are

located in Newport, Oregon.

The proposed consent order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement and take other appropriate action, or make

final the proposed order contained in the agreement.

Sandcastle Creations disseminates advertising seeking individuals

to assemble craft items at home. It sells instructional kits and craft

materials, and/or charges registration fees, to individuals wanting to

perform such assembly work.

The complaint alleges that proposed respondents have misrepresented

the weekly earnings that are regularly realized by Sandcastle

Creations' home assemblers, through performing such assembly work and

submitting it to Sandcastle Creations for Compensation. The complaint

alleges that this misrepresentation violates section 5(a)(1) of the

Federal Trade Commission Act (15 U.S.C. 45(a)(1)).

The proposed order requires proposed respondents to cease making

any material misrepresentations, including specifically

misrepresentations regarding past, present or future earnings or

profits of participants in any work opportunity. The order further

prohibits misrepresentations regarding the marketplace demand for any

product or service for which proposed respondents are offering a work

opportunity.

The proposed order also prohibits proposed respondents from making

any earnings-related or profit-related claims through using phrases

such as ``up to,'' or through stating any dollar amount, unless the

stated earnings or profit figures can be achieved by an appreciable

number of participants. The latter prohibition also requires disclosure

of the class of consumers who can achieve stated earnings or profit

levels, where factors or conditions affecting earnings or profits are

not reasonably foreseeable by prospective workers.

The proposed order additionally requires proposed respondents to

retain specified records relating to their advertising of work

opportunities, the persons who paid money to participate in any work

opportunity, and the earnings or profits of participants.

Additionally, the proposed order requires the individual proposed

respondents to notify the Commission of their discontinuance of their

present business or employment and each new business or employment

affiliation, and requires the proposed respondents to file compliance

reports with the Commission. Proposed respondents would be subject to

civil penalties if they did not comply with any of the above order

provisions.

The proposed order also requires proposed respondents to pay to the

Federal Trade Commission $536,000 for consumer redress or disgorgement.

This liability is suspended, however, on the basis of financial

disclosures made by proposed respondents to the FTC, and the payment to

the Federal Trade Commission of $25,000, with the proviso that the

Commission can reopen the proceeding if it subsequently determines that

there are material misrepresentations or omissions in the financial

disclosures.

The purpose of this analysis is to facilitate public comment on the

proposed order. It is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

Benjamin I. Berman,

Acting Secretary.

[FR Doc. 94-156 Filed 1-4-94; 8:45 am]

BILLING CODE 6750-01-M