The Federal court has declared Daniel Albert, Managing Director of Photo safe, Data Vault and ie Networks, all of which are in liquidation, guilty of deceiving 37 small businesses in a series of scams which offered prospective franchisees high returns that never materialised.
The court also found Greg Zimbulis, sales manager of Photo Safe and Data Vault, to be engaged in similar conduct in breach of the Trade Practices Act 1974.
The declarations were made following legal action initiated by the Australian Competition and Consumer Commission (ACCC) in April last year. In October last year, Australian Securities and Investment Commission (ASIC) also found Albert in breach of the Corporations Act (See story: http://www.computerworld.com.au/index.php?id=202178587).
While the ACCC sought broad injunctions to prevent Albert and Zimbulis from engaging in similar conduct in the future, these orders were not granted by the Federal Court. However, the court ordered that Albert and Zimbulis undergo trade practices compliance training and pay a contribution to the ACCC's costs.
The ACCC estimates that the three separate business scams collectively netted more than $3 million. The three so-called business opportunities were: Photo Safe, which claimed to provide a service that saved customers' photographs to a compact disc and to an online album on the internet; Data Vault, which was set up to market a software product that stored computer files and emails at a secure, remote location; and ie Networks, which was touted to provide coin-operated internet access terminals and mobile phone content download terminals in shopping centres and other popular locations.
Franchisees that signed up as Photo Safe or Data Vault distributors for amounts of up to $160,000 or paid ie Networks for internet terminals made small returns or no returns at all.
Albert admitted that he misled and deceived Photo Safe and Data Vault small business investors by claiming that there were existing and potential markets for the Photo Safe service and the Data Vault products. Significant amounts would be spent by franchisors on marketing and advertising, and major national traders including Australia Post, Harvey Norman and members of the Australian Newsagents Federation, had agreed to offer the Photo Safe service to the public.
He claimed that major national traders, including Dick Smith Electronics, Tandy Electronics, Officeworks, Harvey Norman and members of the Australian Newsagents Federation, had agreed to offer the Data Vault product to the public.
Albert also said he could secure the franchisees a number of retail outlets as customers for each distributor, that high incomes would be generated by distributors who took up a distributorship, and the products and services offered by the companies would be launched in the market on a particular date.
None of these promises materialised.
"Small business investments and franchises have the potential to attract unscrupulous operators," ACCC Chairman, Graeme Samuel, said in a media statement. "This makes it a priority area for ACCC enforcement. Operators who make false claims about the profitability of small business opportunities risk getting sued by the ACCC.
"In this case, Mr Albert and Mr Zimbulis were not able to avoid action by the ACCC by hiding behind the liquidation of their companies. This reinforces the ACCC's commitment to pursue corporate executives and senior sales staff who are responsible for misleading or deceiving small business investors."