[Federal Register Volume 59, Number 3 (Wednesday, January 5, 1994)]
[Notices]
[Pages 580-582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-158]


[[Page Unknown]]

[Federal Register: January 5, 1994]


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FEDERAL TRADE COMMISSION
[File No. 922 3264]

 

Homespun Products, Inc., 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 an 
officer, who purported to market pillows and Christmas ornaments, 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 $1.04 
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 HOMESPUN PRODUCTS, INC., a corporation, G & S 
MARKETING, INC. a corporation, and GREGORY A. STRAW, individually 
and as an officer of said corporations.

    The Federal Trade Commission having initiated an investigation of 
Homespun Products, Inc., a corporation, G & S Marketing, Inc., a 
corporation, and Gregory A. Straw, individually and as an officer of 
said corporations (``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 Homespun Products, Inc. by its 
duly authorized officer, G & S Marketing, Inc., by its duly authorized 
officer, and Gregory A. Straw, individually and as an officer of said 
corporations, and their attorney, and counsel for the Federal Trade 
Commission that:
    1. Proposed respondent Homespun Products, 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 201 Benton Court, Suisun, California 94585.
    Proposed respondent G & S Marketing, 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 or place of 
business located at 201 Benton Court, Suisun, California 94585.
    Proposed respondent Gregory A. Straw is an officer of said 
corporation. He formulates, directs and controls the policies, acts and 
practices of said corporation and his address is the same as that of 
the corporation.
    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 Homespun Products, Inc., a 
corporation, G & S Marketing, Inc., a corporation, their successors and 
assigns, and their officers, and Gregory A. Straw, individually and as 
an officer of Homespun Products, Inc. and G & S Marketing, Inc., 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, or their successors and assigns, 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 Homespun Products, Inc., G & S Marketing, Inc. 
and Gregory A. Straw shall pay to the FTC as consumer redress the sum 
of one million and forty thousand dollars ($1,040,000); 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 Corporate Defendant'' relating to Homespun Products, Inc., dated 
February 12, 1993; a ``Financial Statement of Corporate Defendant'' 
relating to G & S Marketing, Inc., dated February 12, 1993; a 
``Financial Statement of Debtor'' executed by Gregory A. Straw, dated 
February 8, 1993; the federal income tax returns of Homespun Products, 
Inc. for 1990, 1991 and 1992; the federal income tax returns for G & S 
Marketing, Inc. for 1991 and 1992; and the federal income tax returns 
for Gregory A. Straw and Susan M. Straw for 1991 and 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 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 and forty thousand dollars ($1,040,000) 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 corporate respondents 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 corporations 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, shall promptly notify the Commission of each 
affiliation with a new business or employment.
    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 Homespun 
Products, Inc., G & S Marketing, Inc., and Gregory A. Straw (``proposed 
respondents''). All of the Proposed respondents are located in Suisun, 
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.
    Homespun Products and G & S Marketing disseminate advertising 
seeking individuals to assemble craft items at home. Homespun Products 
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 Homespun Products' 
home assemblers, through performing such assembly work and submitting 
it to Homespun Products for compensation. The complaint further alleges 
that proposed respondents have misrepresented that there is a 
significant marketplace 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. 
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 respondents 
to notify the Commission of changes in corporate structure, the 
individual respondent to notify the Commission of his discontinuance of 
his present business or employment and each new business or employment 
affiliation, and all 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 $1,040,000 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. 94-158 Filed 1-4-94; 8:45 am]
BILLING CODE 6750-01-M