FTC Halts Coffee Business Opportunity Scam

November 17, 2005
A Costa Rican operation that used Voice over Internet Protocol (VoIP) services, shell corporations, aliases, and shills to con U.S. consumers into investing in a bogus coffee display rack business opportunity has been halted.

A U.S. District Court, at the request of the Federal Trade Commission, has issued a temporary restraining order barring the false claims, freezing the defendants� assets, and appointing a receiver, who shut down the toll-free and U.S. phone lines used to market the scheme.

�With the advent of Internet telephony, the days when consumers could rely upon a phone number to know where the person they call is located have come and gone,� said Lydia Parnes, Director of the FTC�s Bureau of Consumer Protection.

�You may think you are calling an established American business, but you are talking to an overseas scam artist. Consumers should never rely solely on what they are told or shown by sellers of franchise or business opportunities, and should always investigate the opportunity with their own eyes,� Parnes said.

The defendants used classified ads and a Web site to advertise their coffee display rack franchises.

They claimed that in exchange for payments from $18,000 to $85,000, they would provide customers with what they needed to operate a successful coffee display rack business, including assistance in finding profitable locations for the racks.

According to the company�s Web site, it was located in Las Cruces, New Mexico and had been in business since 1994.

The FTC�s complaint says that although the scam actually was based in Costa Rica, the defendants used VoIP services to obscure the location of the business and make it appear that they were operating from New Mexico. The complaint also alleges the company has been operating for months, not years, as claimed on the Web site.

The FTC�s complaint contends the defendants made false claims about earnings potentials, locations available for the display racks, and company-selected references.

It further says the defendants did not make certain disclosures required in the initial disclosure documents and in advertising that contained earnings claims.

Representatives selling the franchises for the defendants claimed that consumers would make no less than $1,055.60 per week if they operated a 13-display rack venture. The FTC counters that such claims were false.

As part of the sales pitch, representatives assured consumers that numerous retail locations were already lined up in their local area -- another claim the FTC says was untrue.

Representatives referred prospective buyers to �satisfied purchasers.� The references echoed earnings claims made by the representatives for the company and spoke highly of the location service.

The FTC charged, however, that often the references were simply shills, paid by the company for endorsements, using prepaid cell phones to make it appear purchasers were operating successful coffee display routes throughout the United States.

Named as defendants are USA Beverages, Inc,; Dilraj Mathauda, also known as �Dan Reynolds;� Sirtaj Mathauda; Jeff Pearson, also known as �Paul Clayton�; David Mead; and Silvio Carrano.

The U.S. district court judge granted an ex-parte temporary restraining order, asset freeze, immediate access, and the appointment of a receiver.

The TRO also prohibits the defendants from the six law violations alleged in the FTC�s complaint.

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