The Hairbow Company, et al.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 922 3262]

The Hairbow Company, et al.; 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 California-based corporations and

officers, who purported to hairbows, from making any material

misrepresentations regarding earnings or profits of 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 $1.9 million

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 Section 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 Section 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 RUSSELL J. OSBORN, a/k/a Russell J. Osborne and

Russell J. Osbourne, individually, trading and doing business as THE

HAIRBOW COMPANY, and as an officer of Rainbow Productions, Inc., and

RAINBOW PRODUCTIONS, INC., a corporation.

The Federal Trade Commission having initiated an investigation of

Russell J. Osborn, a/k/a Russell J. Osborne and Russell J. Osbourne

(hereafter ``Russell J. Osborn''), individually, trading and doing

business as The Hairbow Company, and as an officer of Rainbow

Productions, Inc., and Rainbow Productions, Inc., a corporation

(``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 Russell Osborn, individually,

trading and doing business as The Hairbow Company, and as an officer of

Rainbow Productions, Inc., and Rainbow Productions, Inc., a

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

Commission that:

1. Respondent The Hairbow Company is an unincorporated association,

with its principal office and place of business located at 19 Front

Street, Danville, California 94526.

Respondent Rainbow Productions, Inc., is a corporation, organized,

existing, and doing business under and by virtue of the laws of the

State of California, with its principal office and place of business

located at 19 Front Street, Danville, California 94526.

Respondent Russell Osborn is an individual, is the owner of The

Hairbow Company, and is the owner and president of Rainbow Productions,

Inc. Individually or in concert with others, he formulates, directs and

controls the policies, acts and practices of The Hairbow Company and

Rainbow Productions, Inc. His address is 19 Front Street, Danville,

California 94526.

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 and 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 Russell J. Osborn, individually,

trading and doing business as The Hairbow Company, and as an officer of

Rainbow Productions, Inc., and Rainbow Productions, Inc., a

corporation, its successors and assigns, 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 respondent Russell J. Osborn shall pay to the FTC as

consumer redress the sum of one million nine hundred thousand dollars

($1,900,000); provided however, that this liability will be suspended,

subject to the provisions of subpart B below.

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

premised upon the representations regarding the financial condition of

the respective respondents made to the FTC in a ``Financial Statement

of Debtor'' executed by Russell J. Osborn on September 22, 1992, and

appended ``Statement of Assets and Liabilities'' executed by Russell J.

Osborn on September 14, 1992; a ``Financial Statement of Corporate

Defendant'' relating to Rainbow Productions, Inc. executed by Russell

J. Osborn on September 22, 1992; and on the federal and California tax

returns of Russell J. Osborn for 1990. 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 representations regarding the financial condition of

the respective respondents. 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 one million nine

hundred thousand dollars ($1,900,000) to become immediately due and

payable to the Federal Trade Commission, and interest computed at the

rate prescribed in 28 U.S.C. Sec. 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 corporate respondent shall notify

the Commission at least thirty (30) days prior to any dissolution,

assignment, or sale resulting in the emergence of a successor

corporation, the creation or dissolution of subsidiaries, or any other

change in the corporation that may affect compliance obligations

arising out of the Order.

V

It is further ordered That the individual respondent shall promptly

notify the Commission of the discontinuance of his present business or

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

service of this order, and shall promptly notify the Commission of each

affiliation with a new business or employment.

VI

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 The Hairbow

Company, Inc., Rainbow Productions, Inc., and Russell J. Osborne

(``proposed respondents''). All of the proposed respondents are located

in Danville, California.

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.

The Hairbow Company and Rainbow Productions disseminate advertising

seeking individuals to assemble craft items at home. The Hairbow

Company 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 The Hairbow

Company's home assemblers, through performing such assembly work and

submitting it to The Hairbow Company for compensation. The complaint

further alleges that proposed respondents have misrepresented that

there is a significant marketplace demand for the demand for the

products they offer for assembly. The complaint alleges that these

misrepresentations violate Section 5(a)(1) of the Federal Trade

Commission Act (15 U.S.C. Sec. 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 corporate respondent

to notify the Commission of changes in corporate structure, the

individual respondent to notify the Commission of his discontinuance

his present business or employment and each new business or employment

affiliation, and all proposed respondent 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 $1,900,000 for consumer redress or

disgorgement. This liability is suspended, however, on the basis of

financial disclosures made by proposed respondents to the FTC, 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. 94-157 Filed 1-4-94; 8:45 am]

BILLING CODE 6750-01-M