"Bogus business opportunity," responds the Federal Trade Commission.
"Lacking a reasonable basis for each claim," adds the U.S. Department of Justice.
The federal agencies on Dec. 6 filed a civil lawsuit in U.S. District Court in Salt Lake City that accuses Universal of harming consumers and the public interest.
It is the only Utah action among more than 100 taken nationwide in Project FAL$E HOPE$, an FTC crackdown on alleged franchise and work-at-home scams.
The suit alleges Universal has violated the Franchise Rule that requires franchisers to have a reasonable basis for earnings claims, to provide complete and accurate financial information to potential buyers and to disclose the number of prior purchasers who achieved the same or better results as touted in promotional material.
The lawsuit seeks monetary civil penalties, refunds to franchisees, rescission of contracts and an injunction prohibiting future violations of the Franchise Rule and FTC regulations. Named as defendants are Universal and Paul E. Porter, the company's president.
Porter declined to comment on the suit or say how many franchises the company has sold.
The franchise works this way: By spending at least $3,995, franchisees buy a display rack called a Profit Center that holds business cards and brochures. Either by themselves or by paying a professional locator, the franchisees then set up racks in restaurants, hair salons, hotels, car repair centers and other places where people wait.
The franchisees then charge advertisers an annual or monthly fee to put their business cards or brochures on the racks, which carry the label "Outstanding Businesses." With 33 compartments for business cards and three compartments for brochures, a display rack "can produce a very handsome income," the Universal Web site says.
By charging monthly fees of $10 for card space and $30 for brochure space, the owner of a Profit Center can generate $5,040 a year, the site says.
Universal also claims that it conducted a survey that shows the majority of 49 franchisees charge between $11 and $40 a month to place cards on the rack and $30 to $75 a month for brochures.
This claim, contained in small print in a footnote at the bottom of the Web page, also states that Universal makes no representation or guarantee that the buyer will achieve the same or similar results.
The page still doesn't meet legal standards, according to the lawsuit.
"Despite the purported disclaimer, however, Universal does represent - repeatedly, throughout its Web site - that a purchaser will earn a substantial income with the Profit Centers," the suit says.
Project FAL$E HOPE$ was conducted by the FTC, the Department of Justice, the U.S. Postal Service and law enforcement agencies in 11 states.
Among others, the targeted business opportunities involved vending machines, ATM and Internet terminals, display racks for coffee and ink cartridges, envelope stuffing and medical billing.
"If a business opportunity promises no risk, little effort and big profits, it almost certainly is a scam," FTC Chairman Deborah Platt Majoras said in a written statement. "These scams offer only a money pit, where no matter how much time and money is invested, consumers never achieve the riches and financial freedom promised."
pmanson@sltrib.com
Other cases filed as part of Project FAL$E HOPE$ allege:
* The Results Group in Phoenix took between $99 and $599 to build and host Web sites "affiliated" with the sites of Fortune 500 retailers, such as Overstock.com and Amazon.com. Buyers of the services were to receive a commission for sales made through their affiliated sites. The retailers were unaware of any affiliation.
* HBG Publications in California charged a $40 "registration fee" to send customers everything they needed to earn $7 for every envelope they stuffed, along with a promise to refund the fee after the first 100 envelopes. Instead, the customers received instructions on how to buy their own ads and collect $7 from each person who responded.
* EDI Health Claims Network, operating in northern Ohio, made misrepresentations when selling work-at-home electronic medical billing business opportunities by promising buyers the name of their first medical billing client or lists of potential clients. After consumers paid $5,985, EDI told them to find their first client on their own by looking in the Yellow Pages. The vast majority never found a single client.
* Route Wizard in Montgomery, Ala., advertised that customers could make $1,710 a week after buying a candy vending machine business. The business cost from $7,000 to $59,000 to purchase and the earnings claims were false.
