The Federal Court has ordered that 23 small businesses receive compensation totalling more than $3.5 million following Australian Competition and Consumer Commission action against Global Pre Paid Communications Pty Ltd, In-Touch Networks Pty Ltd and the companies' representatives.
The ACCC had alleged that Global Pre Paid and In-Touch had misled the businesses about the profitability and operations of pre-paid phone card and vending machine distributorships.
Justice Gyles found that Global Pre Paid and In-Touch and representatives, Mr Nicholas Yates, Mr Frank Yates, Mr Nicholas Rhodin, Mr Russell Fielding and Mr Daniel Albert, repeatedly engaged in misleading and deceptive conduct when dealing with the small business investors.
"Small business investments and franchises have the potential to attract unscrupulous operators", ACCC Chairman, Mr Graeme Samuel, said today. "This makes it one of the areas that the ACCC targets. Operators who make false claims about the profitability of small business opportunities risk civil or criminal action by the ACCC.
"In this case, the representatives who actually made the deceptive claims, as well as the companies involved, have had large compensation orders made against them".
The conduct began in 2001 when Global Pre Paid began advertising phone card vending machine franchises and exclusive distributorships for various machine locations. The initial sets of vending machines were second-hand, having been used at the Sydney Olympics.
Global Pre Paid and In-Touch also advertised for exclusive distributors of 'GSM Global easyRoam' cards, claiming that phone card users could call anywhere in the world for the price of a local call and could 'roam' on various telephone networks when using the cards overseas.
The advertisements represented that distributors of cards and purchasers of machines could earn huge profits, up to "$1,500,000 per year". Card and machine purchasers contacted the ACCC after investing between $15,400 and $260,000 and finding that they could make little or no money from the businesses; that the vending machines and phone cards were faulty; and that the franchisor did not provide suitable locations for the machines.
Justice Gyles found that Nick Yates: "authorised the initial representations made by advertisements in each case and knew that there was then no proper or reasonable basis for those representations. He could not have believed them to be true. Further he very quickly became actually aware of all of the serious deficiencies that occurred in relation to the successful operation of each of the Vending Machines and the Swisscom cards and of all the difficulties and deficiencies complained of by the distributors in relation to the conduct of the distributorships".
The court declared that Global Pre Paid, In-Touch and the five named individuals contravened section 52 of the Trade Practices Act 1974 and ordered:
- a range of injunctions to prevent the respondents engaging in unlawful conduct in future
- a total of $3,538,243.94 in compensation to be paid to 23 small businesses
- that the respondents pay the ACCC's costs.
The court also declared that Global Pre Paid and In-Touch contravened s.51AD of the Act.
"This case demonstrates the ACCC's resolve to pursue scammers, both corporate and individuals, especially those using misleading profitability claims to target small business investors", Mr Samuel said.