RealTime IT News

FTC Freezes Internet Kiosk Businesses

It seemed like a great idea: own fee-based, public Internet terminals located in malls and rake in the cash. Too good, in fact, according to the Federal Trade Commission (FTC).

Tuesday the agency announced it won a temporary restraining order to stop the allegedly illegal practices of an "Internet kiosk" business opportunity and froze the assets of the companies and their principals.

In court documents filed in the Southern District of Florida, the FTC alleges the companies' income claims and terminal location assistance offers are false. The FTC is in the process of seeking an order to permanently bar the defendants from selling Internet kiosk business opportunities.

The FTC's complaint names as defendants Transnet Wireless Corp. of Plantation, Fla., and its president Bradley Cartwright; Nationwide Cyber Systems of Hollywood, Fla., and its president Farris Pemberton; and Paul Pemberton, who directed day-to-day operations at the companies.

The complaint also names Margaret Pemberton as a relief defendant, which the FTC defines as someone who is not accused of wrongdoing, but has allegedly received ill-gotten gains and does not have a legitimate claim to them.

Charging from $10,000 to $15,000 for one kiosk and up to $100,000 for multiple kiosks, the FTC claims the defendants told consumers they could use the kiosks to start their own business selling Internet access in high-traffic, high-income locations.

"You simply receive a monthly check for all the wireless revenue generated at your location . . . There is unlimited income potential . . . Prime locations are available now," the companies claimed in radio and television spots.

Through a toll-free number, the FTC claims the companies' salespeople then made additional false claims including touting "a 142 percent return on investments in the first year," and "locations include convention centers, military bases, malls [and] hospitals."

The companies also claimed $1,000 to $2,000 per month could be generated through the machines. According to the FTC, buyers were told the machines would be delivered to the location within two weeks to 45 days after purchase.

Court documents claim the terminals, however, were rarely, if ever, delivered and installed in profitable areas. In many cases, the terminals consumers bought were never delivered at all. The FTC also claims the defendants had no support for the earnings claim they made.

"Typically, buyers lost their entire investment," the FTC said in a statement.

The FTC complaint also alleges that while the defendants did supply the required disclosure document for franchises, it was missing crucial information, including information on all of the corporate officers, the names and addresses of consumers who had bought into the business venture, and any information about how long it would take to place a terminal.

The complaint was filed under seal on Sept. 26 with the court granting the temporary restraining order and asset freeze on Tuesday.