Toy Troubles : Firms Selling Display Rack Ventures for Disney, Other Products Are Sued
Federal and state authorities Tuesday launched a crackdown on business opportunity promoters who allegedly promised investors big money selling brand-name toys and clothing licensed by Disney, Warner Bros., Coca-Cola and other well-known companies.
The Federal Trade Commission and eight states, including California, have filed 18 lawsuits in recent days against six companies selling display rack ventures.
As part of the coordinated sweep unveiled Tuesday and dubbed “Project Trade Name Games,” authorities have charged these firms with using inflated earnings claims, phony references and other misleading pitches to swindle investors out of more than $50 million since 1995.
For minimum investments ranging from $5,000 to $18,900, investors thought they would be able to obtain the hottest Disney and other licensed products to sell on consignment in convenience stores and other locations. In reality, many spent their life savings on overpriced, outdated merchandise that wouldn’t sell, according to Jodie Bernstein, the director of the bureau of consumer protection at the FTC in Washington.
These promoters are “opportunists who exploit a recognized corporate name to sell an unworkable business,” said Bernstein, who added that the firms are in no way connected to the big-name companies whose brands they sell.
The FTC is seeking permanent injunctions against the promoters as well as restitution for alleged victims. Defendants named in the six civil actions announced Tuesday by the FTC include:
* Kansas-based Parade of Toys Inc. and its successor corporation, Wonderful World of Toys Inc., along with company officers Robert E. Bouckhout, Dennis Vaughan and Megan Wall.
* Texas-based Unitel Systems Inc., doing business as Universe of Toys, and its principals, Robert Kenneth Frisch Jr., Delaney Leon Hinton, Baljeet S. Anand and Harmit S. Anand.
* Florida-based Carousel of Toys USA Inc. and company director Kelie Brodzinski.
* New York-based Global Toy Distributors Inc. and principals Richard D. Patetta and George J. McDermott.
* Florida-based Toys Unlimited International Inc. and principals Robert G. Garrow and Andrew B. Moss.
* An unnamed company still under a court-ordered seal until the defendants can be served.
An employee of Toys Unlimited International who declined to be named said the company plans to vigorously defend itself against FTC allegations that it violated federal franchise laws.
“We are doing everything we can to make this a viable experience for our distributors,” the employee said. “We will definitely answer these charges with fists blazing.”
None of the other defendants could be reached for comment.
As part of the crackdown, the California attorney general last Friday filed suit against Toys Unlimited, charging the firm with violating the state’s business opportunity laws.
Also as part of Tuesday’s proceedings, a group of big-name merchandisers led by the Walt Disney Co. said they will team up with the FTC to educate the public about the potential pitfalls of vending rack ventures. Disney helped design and print a consumer brochure that will be distributed through consumer protection offices nationwide.
Joining Disney in that effort are Warner Bros., Coca-Cola Co., PepsiCo and the Coalition to Advance the Protection of Sports Logos, whose members include collegiate and major league sports licensors.
“By using these trusted company names . . . promoters have been able to lure individual investors to make unsound investments with their hard-earned savings,” said Sandy Litvack, chief of corporate operations at Disney.
But investors such as Rachelle Bachman of Huntington Beach, who lost about $3,000 in a failed Disney products distributorship, said the entertainment giant should have acted sooner to tip off consumers to potentially shady ventures.
“It’s too little too late for the people who lost money,” Bachman said. “They’ve known this was going on for a couple of years.”
Disney officials acknowledge as much, but contend there was little they could do but cooperate with regulators and law enforcement officials while authorities gathered enough evidence to pursue the promoters in court.
Federal officials agreed.
“No private company has the law enforcement authority that we do,” said the FTC’s Bernstein. “Disney’s hands were basically tied. But they were extremely important in bringing this to our attention.”
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In an era of corporate downsizing, authorities say, scam artists are increasingly targeting Americans looking to become their own bosses.
Billed as the hottest new business of the ‘90s, vending rack ventures featuring brand-name toys and clothing are really just the latest twist on a business opportunity that has been used to hawk everything from cookies to pantyhose.
The pitch is basically the same. Investors are offered the opportunity to purchase display kiosks and inventory to place in high-traffic locations such as convenience stores and gift shops. They then simply restock the shelves and collect their profits--as much as $100,000 a year according to the advertisements of some promoters.
But authorities Tuesday said there was no way for investors to make money in the display rack businesses charged under Project Trade Name Games.
They said the promoters charged hefty start-up fees and inflated prices for the merchandise, which typically consisted of cast-offs, overstock and other slow-selling items that other retailers dumped from their shelves long ago.
“Investors may have been promised Hercules and George of the Jungle, but instead they’d end up with Pocahontas,” said FTC spokeswoman Bonnie Jansen, referring to merchandise based on popular Disney films. “They were getting older, shopworn leftovers.”
Tim Dillon, a Northern California investor who lost nearly $22,000 in his Disney products distributorship, praised the FTC action Tuesday but held out little hope of getting his money back.
“I’m not going to hold my breath waiting on restitution,” Dillon said. “I just hope this prevents someone else from making the same mistake.”
