FTC bars company from selling Web-design franchises

A Web-design franchising company and its owner will return $160,000 to customers and are banned for life from selling franchises under a settlement with the U.S. Federal Trade Commission.

Netvertise and owner Elliot Krasnow used bogus earnings claims to lure customers into buying their Web services franchises, the FTC said. Krasnow also failed to tell customers that the FTC previously took action against him for deceptively promoting rare coins, the agency said in a press release.

The settlement order, announced by the FTC Tuesday, was approved by the U.S. District Court for the Southern District of Florida on Friday. However, if it is found that Krasnow misrepresented his financial holdings, he will be required to repay a total of $500,000, the FTC said.

Between 2000 and 2005, Netvertise sold franchises for $20,000 to $100,000, and those franchises offered Internet services to small and medium-size businesses, the FTC said. The franchise included search engine optimizing software, which the company claimed would allow franchises to create high-quality Web sites that would appear on the first page of results at Google.com and other Internet search engines.

Franchisee clients using the search-engine software could increase their online business by 10 to 20 times, Netvertise claimed.

But Netvertise misrepresented the potential income from franchises and overstated the value of its software, the FTC said. The company advertised that franchisees could build a "24/7 money machine," according to court documents.

A franchise could be "worth a million [dollars] to your grandchildren tomorrow," the company said in promotional materials. Customers could make money "on holidays, weekends, even while you are on vacation. You'll make money at every turn."

When pitching the franchises, Netvertise sales representatives pressured prospective customers to increase sales projections, saying conservative estimates were too low, the FTC said.

The franchise disclosure documents did not tell franchisees that a 1990 FTC order required Krasnow to repay $400,000 and prohibited him from making misrepresentations when dealing in rare coins. The disclosure was required by law, the FTC said.