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Home inspection franchises: Pro's and Con's

This article warns new home inspectors of home inspection company franchise frauds involving a home inspection franchise company.

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Home Inspection Franchise Fraud Warning for home inspectors

Date: Fri, 30 Aug 1996 11:02:31 -0400
From: Joe Regan 
To: Daniel Friedman (by email) 
Subject: Franchise Fraud Attachments
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HOME INSPECTION FRANCHISOR, OFFICER RESOLVE FTC´S FRANCHISE RULE CHARGES
To resolve charges that a Massachusetts-based home inspection service
franchisor and its president have violated the FTC´s Franchise Rule by
making unsubstantiated earnings claims and by failing to make requisite
disclosures about the business, bankruptcy, and fraud-litigation histories
of the franchisors´ officers, Building Inspector of America, Inc. and
company president Ralph Tisei will not violate the rule in the future, and
Tisei will pay a $20,000 civil penalty, according to a proposed consent
judgment filed in the U.S. District Court for the District of
Massachusetts. (U.S. v. Building Inspector of America, Inc., DC Mass, No.
93-10838Y, 5/3/96)
According to the underlying complaint, filed in April 1993, Building
Inspector of America, Inc. (TBIA) and its officers--Lawrence Finkelstone,
Ralph L. Tisei, and Beverly A. Tisei--had promoted and sold TBIA
dealerships for home inspection services throughout the nation since 1985.
In promoting and marketing the dealerships, the defendants allegedly placed
ads and promotional pieces in newspapers and magazines circulated
nationwide. The dealerships sold for between $10,000 and $30,000.
The complaint charged that, in numerous instances, the defendants had
violated the Franchise Rule by making unsubstantiated earnings claims.
In addition, they allegedly failed to comply with either the rule´s
disclosure requirements or the alternative--the Uniform Franchise Offering
Circular.

Specifically, the complaint asserted, the defendants failed to provide
prospective franchisees with disclosures of:
[Image] TBIA´s current executive officers and their business experience;
[Image] Each executive officer´s bankruptcy history during the previous
seven fiscal years; and
[Image] Each executive officer´s litigation history concerning fraud or
misrepresentation during the previous seven fiscal years.
In October 1995, Finkelstone--the company´s director of sales and
marketing--agreed to resolve the charges as to himself by paying a $5,000
civil penalty. Beverly Finkelstone agreed to settle the allegations as to
herself by paying a civil penalty of $10,000.
Under this proposed consent judgment, Ralph Tisei will pay a $20,000 civil
penalty and, along with TBIA, agrees not to violate the rule in the future.
The Commission´s vote to authorize the Justice Department to file the
proposed settlement on its behalf was 5-0.

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  FOR RELEASE: OCTOBER 24, 1995

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BUILDING INSPECTION FRANCHISE SALESMAN TO PAY $5,000 CIVIL PENALTY
Lawrence Finklestone, Director of Sales & Marketing for The Building
Inspector of America, Inc., has agreed to pay a $5,000 civil penalty as
part of a settlement of federal charges against him for failing to disclose
to potential purchasers the litigation and bankruptcy history of the
franchisor and two other company officers. The complaint charges that
Finklestone and the other defendants also made unsubstantiated claims to
potential purchasers about the earnings they could expect, among other
violations of the Federal Trade Commission's Franchise Rule.
The Building Inspector of America, Inc., in operation since 1985, offers
franchises for home-inspection services. It is based in Wakefield,
Massachusetts. Finklestone resides in Framingham. The federal district
court has entered partial summary judgments against two of the other
defendants in the case, but has yet to set the injunctive requirements and
any damages or civil penalties.

The FTC's Franchise Rule, designed to assist franchisees in evaluating a
business investment, requires franchisors to provide each potential
franchisee with a complete and accurate disclosure document describing the
financial status of the company, the experience and background of the
franchisors, their litigation history, the nature of the business, the
terms of the proposed franchise relationship, and other key information.
The rule also requires franchisors to have a reasonable basis for any
earnings claims they make, and to provide prospective purchasers with a
document containing substantiation for those claims. In an April 1993
complaint, filed in federal district court and detailing the allegations in
this case, the FTC charged the defendants with failing to disclose to
potential franchisees the litigation history concerning fraud or
misrepresentation and the bankruptcy history of each executive officer. The
complaint also alleges that defendants made claims about the earnings that
franchise buyers could expect, without having adequate support for the
claims.
The proposed consent judgment that Finklestone has signed to settle the
charges against him, and which requires the court's approval to become
binding, would require him to pay the $5,000 civil penalty within five days
of the court's approval. In addition, Finklestone would be prohibited from
violating the FTC's Franchise Rule in the future. Finally, the settlement
includes various reporting requirements
* -- including a require ment that, for seven years, Finklestone notify
  the FTC of any involvement in the sale of franchises
 * -- that would assist the FTC in monitoring his compliance.
The proposed consent judgment was filed in U.S. District Court for the
District of Massachusetts, in Boston, on Oct. 23, by the Department of
Justice at the request of the FTC. The Commission vote to authorize filing
was 5-0.
NOTE: This consent judgment is for settlement purposes only and does not
constitute an admission by the defendant of a law violation. Consent
judgments have the force of law when signed by the judge.
Two free FTC brochures -- titled "Franchises and Business Opportunities"
and "A Consumer Guide to Buying a Franchise" -- explain the FTC's Franchise
Rule in more detail and offers advice to those considering investing in
such a business. Copies of the brochures, as well as the consent judgment
and other documents associated with this case, are available from the FTC's
Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue,
N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired
202-326-2502. To find out the latest news as it is announced, call the FTC
NewsPhone recording at 202-326-2710 FTC news releases and other materials
also are available on the Internet at the FTC's World Wide Web site at:
http://www.ftc.gov
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(FTC File No. X940061)
(Civil Action No. 93-10838-NG)
(tbia-2)
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