Officials Sue Promoters of Toy Distributorships
Federal and state authorities Tuesday launched a crackdown on promoters who allegedly promised investors big money selling toys and clothing bearing household names such as Disney, Warner Bros. and Coca-Cola.
The Federal Trade Commission and eight states, including California, have filed 18 lawsuits in recent days against six companies selling the 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 In reality, many spent their life savings on overpriced, outdated merchandise that wouldn’t sell, according to Jodie Bernstein, director of the FTC’s consumer protection bureau.
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 agency 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 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.
* A company whose name is under a court-ordered seal until the defendants can be served.
An employee of Toys Unlimited International who declined to be identified 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’s office on Friday filed suit against Toys Unlimited, charging the firm with violating the state’s business opportunity laws.
As part of Tuesday’s proceedings, a group of big-name merchandisers led by Disney said it will team up with the FTC to educate the public about the potential pitfalls of display-rack ventures. Disney helped design and print a consumer brochure that will be distributed through consumer protection offices nationwide.
Joining Disney are Warner Bros., Coca-Cola, PepsiCo Inc. and the Coalition to Advance the Protection of Sports Logos.
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 alert consumers. “It’s too little too late for the people who lost money,” Bachman said.
