In the last several years, the Division has experienced an increasing number of complaints from Maryland investors in ""business opportunities."" The Division has increased our enforcement and education efforts in this area, and we supported the passage of a 1996 revision to the Maryland Act. Among other provisions, the 1996 revision to the law increases the enforcement options available to the Division so that we are able to take more effective action against business opportunity fraud.
U.S. Federal Trade Commission
July 25, 1997
Public Comment
Dale E. Cantone, Assistant Attorney General
Request for public comment on possible revisions to The Franchise Rule.
State of Maryland
Office of the Attorney General
Securities Division
200 Saint Paul Place Baltimore, MD 21202-2020
Telephone Numbers: (410) 576-6360 # D.C. Metro: 470-7534
Telephone for Deaf: (410) 576-6372
Comment #99
Dale E. Cantone
(410) 576-6368
su.dm.etats.gao|enotnaCD#su.dm.etats.gao|enotnaCD
July 25, 1997
Donald S. Clark, Secretary
Federal Trade Commission, Room 159
Sixth Street and Pennsylvania Avenue
Washington, D.C. 20580
Re: CFR Part 436—Comment
Issue: Trade Shows and Trade Show Promoters
Dear Secretary Clark:
I am writing in response to the federal Trade Commission's Advance Notice of Proposed
Rulemaking ("ANPR") to amend the FTC's Trade Regulation Rule on Disclosure Requirements
and Prohibitions concerning Franchising and Business Opportunity Ventures (the "Franchise
Rule"). Commissioner Robert N. McDonald has asked me to provide a comment on behalf of
the Maryland Division of Securities (the "Division") of the Office of the Maryland Attorney
General.
The purpose of this comment is to discuss the issue of trade show promoters. This comment is
being sent in anticipation of the public workshop on this topic scheduled for, Monday, July 28,
1997 in Washington, D.C. The Division anticipates that it will be filing a supplementary, more
comprehensive comment in response to the ANPR at a later date.
The Division administers and enforces a number of investor protection laws in Maryland,
including the Maryland Franchise Registration and Disclosure Law. Title 14, Subtitle 2,
Business Regulation Article, Annotated Code of Maryland (1992 Repl. Vol. and 1995 Cum
.Supp.) (the "Franchise Law") and the Maryland Business Opportunity Sales Act, Title 14,
Subtitle 1, Business Regulation Article, Annotated Code of Maryland (1992 Repl. Vol. and
1996 Cum. Supp.) (the "Maryland Act"). I am the chief of the Division's Franchise and
Business Opportunity Unit and Chair of the Franchise and Business Opportunity Committee of
the North American Securities Administrators Association ("NASAA").
In the last several years, the Division has experienced an increasing number of complaints from
Maryland investors in "business opportunities." The Division has increased our enforcement and
education efforts in this area, and we supported the passage of a 1996 revision to the Maryland
Act. Among other provisions, the 1996 revision to the law increases the enforcement options
available to the Division so that we are able to take more effective action against business
opportunity fraud.
On August 10, 1995, Securities Commissioner Robert N, McDonald, on behalf of the Division,
submitted an initial response to the Federal Trade Commission's request for public comment on
the Franchise Rule. In that comment, the Commissioner expressed the opinion that the FTC
should not revoke the present conditional exemption for trade show promoters, that is, that the
FTC maintain conditions for promoters to be exempt from the Franchise Rule. As the
Commissioner discussed in that comment, trade shows provide a forum for many business
opportunity sellers to reach a large number of potential investors. Under the current federal
scheme, trade show promoters have little incentive to police the activities of the business
opportunity sellers. These sellers pay a fee to the promoter for space to exhibit at their shows.
In the past, the Division has had only limited success in convincing trade show promoters to
give us advance notice of Maryland shows, so that we can make sure that all exhibitors have
appropriate disclosure documents and have otherwise complied with the Maryland Act.
The Division has had some experience in the last several years with trade shows that exhibit
franchises and business opportunities. We have found that there are several issues of concern in
this area. Some exhibitors at trade shows are not registered with the Division, as required under
the Maryland Act. Some exhibitors do not provide disclosure statements to prospective
purchasers, which is required under both the Maryland Act and the Franchise Rule. Exhibitors
may make unlawful earnings claims as part of their sales efforts, or engage in other deceptive or
misleading sales practices.
The FTC now seeks comments an a number of questions. The first is whether the FTC should
modify the Franchise Rule to exempt show promoters. The second is whether the FTC should
require that show exhibitors have "readily available for public inspection" a copy of their
disclosure documents or a letter from an attorney explaining why they are not required to
comply with the disclosure requirement of the Franchise Rule. Third, in the alternative, is
whether the FTC should modify the definition of first "personal meeting" to require exhibitors to
have disclosure documents readily available at trade shows or a letter from their attorney
explaining why they are not required to comply with the disclosure obligations of the Franchise
Rule.
With regard to the issue of exempting trade show promoters from the Franchise Rule, the
Division suggests that trade show promoters should maintain some responsibility under the
Franchise Rule for sales activities that take place at trade shows. Trade show promoters
undoubtedly are aware of the abuses by some exhibitors to whom they provide this forum.
They should not be allowed to present a show to the public without accepting some
responsibility to warn that public about potential problems and the protections available under
federal and state laws.
Under current federal requirements, trade show promoters are required to distribute notices
about the requirements of the Franchise Rule in order to qualify for an exemption under the
Franchise Rule. These notices are inadequate to effectively advise prospective investors about
the law. A person attending a trade show is given a significant amount of sales literature, most of
it consisting of glossy advertisements, color photographs, and eye-catching brochures. The
present form of notice is often lost among all of the other literature. Trade show promoters have
the means and the opportunity to post more readable notices to the public about the
requirements of applicable laws, and to warn them about misleading sales practices, including
the making of unlawful earnings claims. Promoters should be required to post, in conspicuous
locations, warnings to the public in order to maintain their exemption from the requirements of
the Franchise Rule. Those warnings should also include information about federal and state laws
that relate to the sale of franchises and business opportunities.
The Division also would favor a requirement that trade show promoters must verify with each
applicable state authority that every company exhibiting at the show has been properly
registered with state authorities, if applicable, and that the exhibitor has an approved form of
disclosure document, if required. Alternatively, the promoters should be required to give
reasonable advance notice (at least fifteen days) to the applicable state or federal authorities
whenever the promoter schedules a trade show. Reasonable advance notice should also identify
the names of the exhibitors scheduled to participate in the trade show.
With regard to the second question presented in the ANPR, the Division favors a requirement
that trade show exhibitors must have readily available for public inspection a specimen copy of
a disclosure document, or a letter from an attorney stating that the seller d not need to meet the
FTC's requirements. The definition of "readily available" should include a requirement that trade
show promoters provide, to federal and state authorities or some type of central registry,
advance copies of disclosure documents or a letter from an attorney explaining why a disclosure
document is not required under federal or state law.
On behalf of the Division, I appreciate the opportunity to comment on this issue. If you have
any questions about this matter, please feel free to contact me.
Sincerely,
Dale E. Cantone
Assistant Attorney General
For Review, see FTC “Table of Commenters”
http://www.ftc.gov/bcp/franchise/comments/tabcomm.htm
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Risks: F.T.C. Public Comments, United States, 1997, Franchise show, Trade show are where the greatest lies are told, United States, 19970725 Comment 99
