The promoters of the 'Little Joe' and 'Joey's' franchises, Mr Bon Levi (aka Ron Frederick) and Mr Craig Cleary, have been declared to have breached the Trade Practices Act 1974.
Mr Levi has been found to have engaged in misleading and deceptive conduct and breaches of the Franchising Code and Mr Cleary, as Mr Levi's national distribution sales manager, to be knowingly concerned in Mr Levi's contraventions.
Justice Susan Kiefel of the Federal Court, Brisbane granted the declarations and orders by consent of the parties.
The Australian Competition and Consumer Commission had alleged that through advertising in major Australian newspapers and appearing at franchising trade shows throughout Australia, Mr Levi and Mr Cleary had promoted various distributorships, including distributorships to deliver snack foods, cookies and fruit juices.
From October 2003 to June 2004, the ACCC alleged Mr Levi and Mr Cleary sold more than 60 distributorships, for between $36,600 and $42,900, by telling purchasers:
- that after an initial training period they were guaranteed payment of $2,000 per week for five years (a return on investment in the order of five per cent per week or more than $500,000 over the term of the agreement),
- that Mr Levi would conduct a national TV, radio and magazine campaign sufficient to make the 'Little Joe' brand a substantial competitor to existing major brands, and
- that the distribution agreement was not a franchise.
The court declared that the distribution agreements were in fact franchise agreements and Mr Levi and Mr Cleary had contravened the Act by failing to provide disclosure documents and copies of the Franchising Code of Conduct.
"This case demonstrates the critical importance of the Franchising Code to small investors", ACCC Chairman, Mr Graeme Samuel, said today. "The code requires franchisors to reveal relevant matters including their business experience and convictions for serious offences over the past ten years, as well as certain current proceedings against them.
"In Mr Levi's case, this would have disclosed that he had carried on business under other names, including Ron Frederick; that he had been jailed for three years in the USA for selling fraudulent business licences to distribute snack foods; that he had no real experience in, or knowledge of the business he was selling; and that he was then on bail pending trial upon indictment for numerous counts involving dishonesty".*
The court declared, with the consent of Mr Levi, that the representations to investors had been misleading, contravening section 52 of the Act, as Mr Levi had no reasonable grounds for making them.
Justice Kiefel also declared, with Mr Cleary's consent, that he had been knowingly concerned in Mr Levi's contraventions as he knew Mr Levi did not have reasonable grounds for representing that the 'guaranteed' payments to investors would be made. Mr Levi had made promises to pay his investors more than $45 million over the next five years.
Justice Kiefel also granted extensive injunctions against Mr Levi including requiring him to provide people to whom he promotes or sells any future business opportunity with a copy of the orders made by the court and informing the prospective investor of names previously used by him. Those names include: Ronald Frederick Heelan, Ronald Frederick, Roddy Farrow, Brett Wyatt and Ronald White. These orders will be in force for five years.
"This compulsory disclosure enables investors to know who they are dealing with and to make appropriate inquiries", Mr Samuel said. "An internet search will allow potential investors to discover his record and make an informed choice about dealing with him. Remember, if it seems to good to be true, it probably is".
Mr Levi is also required to pay $40,000 to the ACCC in costs.
Injunctions were also granted against Mr Cleary for a period of three years and he is required to pay $5,000 to the ACCC in costs.