Kalvin P. Schmidt; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 972-3308]

Kalvin P. Schmidt; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before October 23, 1998.

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

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Tara Flynn, FTC/H-238, Washington,

D.C. 20580. (202) 326-3710.

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 above-captioned 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. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for July 14, 1998), on the World Wide Web, at ``http://www.ftc.gov/os/

actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W.,

Washington, D.C. 20580, either in person or by calling (202) 326-3627.

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)).

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement containing a consent order from Kalvin P.

Schmidt, individually, and doing business as DKS Enterprises, DS

Productions, DES Enterprises, www.mkt-america.com, and www.mkt-usa.com.

Schmidt promoted Mega$Nets and MegaResource, two high tech versions of

traditional chain or pyramid marketing programs, on web sites he

operated, and in unsolicited e-mail messages he created and sent via

the Internet on his behalf and on the behalf of others. He also created

and hosted web sites for participants in Mega$Nets and MegaResources

programs.

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 or make final the agreement's proposed

order.

This matter concerns allegations about Schmidt's promotion and

dissemination of two chain or pyramid marketing programs over the

Internet. The Commission has issued a proposed draft complaint that

sets forth the allegations to be resolved by the proposed

administrative consent order. The draft complaint alleges that

respondent Schmidt misrepresented that all or virtually all consumers

who participate in the Mega$Nets and MegaResources program earn

substantial amounts of money. The draft complaint also alleges that

respondent Schmidt did not possess a reasonable basis that

substantiated these earnings claims at the time he made those

representations. In additions, the draft complaint alleges that

respondent Schmidt, by creating and designing for others web sites

promoting the Mega$Nets and MegaResources programs, hosting these web

sites, and composing and sending unsolicited electronic mail messages

to consumers directing them to these web sites, violated the law by

providing the ``means and instrumentalities'' to others

[[Page 45064]]

to make unsubstantiated and false earnings claims.

The proposed administrative consent order, published for comment

with this notice, contains prohibitions designed to prevent respondent

from engaging in similar acts and practices in the future. Section I of

the proposed consent prohibits Mr. Schmidt from participating in or

assisting in any manner or capacity whatsoever in any prohibited

marketing program, as defined in the order. The definition of

``prohibited marketing program'' is similar to the definition in the

settlement of FTC v. Nia Cano, et al., Civil No. 97-7947-CAS (AJWx),

and includes any pyramid sales scheme, ponzi scheme, and chain

marketing scheme. Sections IIA of the proposed order requires the

respondent to have substantiation when in connection with any marketing

plan or program or sale of good or service, he makes representations

regarding material facts, including the income, profits, or sales

volume achieved by participants in any marketing program or purchasers

of any good or service. Section IIB requires the respondent to make

certain affirmative disclosures when, in connection with any marketing

plan or program, he makes any representations regarding earnings,

profits, or sales volume.

Sections III, IV, V, and VI require the respondent to maintain

copies of certain business records; to provide copies of the order to

all of his current and future employees; to notify the Commission of

any change in employment or corporate structure that might affect

compliance with the order; and to file compliance reports with the

Commission. Section VII is a ``sunset'' provision that terminates the

order twenty years after it is issued or after a complaint is filed in

federal district court.

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.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-22639 Filed 8-21-98; 8:45 am]

BILLING CODE 6750-01-M