By Adam Coleman
SYDNEY: Several small business investors have been duped in a scam which falsely claimed to have agreements with retailers including Dick Smith Electronics, Tandy Electronics and Harvey Norman and promised prospective franchisees high returns that never materialised.
The Federal Court has declared that Photo Safe Australia, Data Vault Services and IE Networks managing director, Daniel Albert, misled and deceived 37 small business investors with franchising scams, which the Australian Consumer Competition Commission (ACCC) believes netted more than $3 million.
The scams boasted that major national retailers had agreed to offer the Photo Safe service and the Data Vault product to the public and that the franchisor could secure the franchisees a number of retail outlets as customers for each distributor.
The ACCC began legal proceedings against Albert, Photo Safe and Data Vault sales manager, Greg Zimbulis, in April 2005 for their involvement in the scams, which encouraged investors to sign up as Photo Safe or Data Vault distributors, for amounts of up to $160,000 or pay IE Networks for internet terminals that made little or no returns.
The three so-called business opportunities turned out to be far from what the hapless investors expected.
Photo Safe claimed to provide a service which saved customers’ photographs to a compact disc and to an online album on the internet; Data Vault was set up to market a software product that stored computer files and emails at a secure, remote location and IE Networks was touted to provide coin-operated internet access terminals and mobile phone content download terminals in shopping centres and other popular locations.
The true situation was significantly different to the one Albert and Zimbulis presented. While Photo Safe did launch on the market, there was only a minor marketing campaign, with most distributors making only minimal or no sales at all. Data Vault was never even launched on the market.
To make matters worse, no retail arrangements had been reached with any national retailers to stock Photo Safe or Data Vault products or services and ie Networks had no terminals to provide to distributors, no operational terminals in the market place and no contracts in place to provide material for downloading.
Albert admitted to the Federal Court that he misled and deceived Photo Safe, Data Vault and IE Networks small business investors in breach of sections 52 and 59 of the Trade Practices Act 1974. Zimbulis also admitted to breaching sections 52 and 59 of the Act.
The ACCC sought broad injunctions to prevent Albert and Zimbulis from engaging in similar conduct in the future, but these orders dismissed by the Federal Court.
However, the Court did at least order Albert and Zimbulis to undergo trade practices compliance training and pay a contribution to the ACCC’s costs.
“Small business investments and franchises have the potential to attract unscrupulous operators,” said ACCC chairman, Graeme Samuel.
“This makes it a priority area for ACCC enforcement. Operators who make false claims about the profitability of small business opportunities risk getting sued by the ACCC.
“In this case, Albert and Zimbulis were not able to avoid action by the ACCC by hiding behind the liquidation of their companies. This reinforces the ACCC’s commitment to pursue corporate executives and senior sales staff who are responsible for misleading or deceiving small business investors,” said Samuel.