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The 11th U.S. Circuit Court of Appeals continues to debate how far hawkers of business opportunities may go in enticing new investors — and Judge Gerald B. Tjoflat appears to be winning the argument. Last month a panel voted 2-1 to overrule a lower court decision that absolved a company selling telephone card dispensers of misrepresentation charges brought by the Federal Trade Commission. The majority decision by Tjoflat held that the company, which had aired radio commercials boasting of investors earning “a lot more” than $140 an hour, had no basis for many of its claims. The dissenter, visiting U.S. District Judge Roger Vinson from the Northern District of Florida, wrote that while the company “may have tried to stretch the allowable limits,” the FTC had failed to prove the firm violated the law. The split decision mirrored one from last fall, in which a different panel voted 2-1 that a company airing television commercials boasting of “profits as high as 200 to 300 percent” from agricultural futures contracts had committed fraud. ‘LOPSIDED ADVERTISING’ In that case, Tjoflat blasted the company’s commercial as “lopsided advertising.” The dissenter, 11th Circuit Judge Charles R. Wilson, said the firm did not misrepresent profit potential or downplay the risk, noting that the commercial emphasized that “Nothing is guaranteed.” The dissenters in both cases argued that the federal laws governing the defendants’ conduct were vague. But Tjoflat, a 73-year-old jurist known as a harsh interrogator during oral arguments, saw little gray when it came to sellers’ responsibilities to the investors, especially inexperienced ones. The case last fall stemmed from a television pitch by R.J. Fitzgerald & Co. that told viewers how they might cash in on the weather phenomenon known as El Ni�o. The commercial showed a satellite photograph of a hurricane and announced “Droughts, floods and other adverse conditions could drastically alter the supply and demand dynamics of the corn market. … Find out how as little as $5,000 could translate into profits as high as 200 to 300 percent.” Over Wilson’s dissent, Tjoflat and visiting Senior Judge Robert E. Cowen of the 3rd Circuit voted to reverse a Florida trial court’s decision exonerating the company of charges it violated federal commodities laws. WARNING CHALLENGED In a concurring opinion, Tjoflat took issue with Wilson’s argument that the commercial’s warning that investing was risky immunized the company from liability. “Viewed from the perspective of a reasonable investor — not an investment banker at Merrill Lynch or a futures specialist for ADM — a misleading expectation of investment success can certainly be made even if conditional language is used,” wrote Tjoflat. Commodity Futures Trading Commission v. R.J. Fitzgerald & Co., 310 F.3d 132 (2002) The case decided last month concerned businessman Stephen I. Tashman and his company, Telephone Dispensing Corp., called TDC in the decision. The company sold machines that dispensed cards offering prepaid long-distance telephone service. According to the decision, its radio commercials asked, “Do you really want to make more money — an additional twenty-five to thirty-five thousand dollars a year or more, possibly a lot more, and only work three to five hours per week?” The commercial concluded, “Stop the excuses. You can do it. You can change your life.” The FTC claimed that, through the commercials and follow-up conversations, TDC misled purchasers to believe they reasonably could expect prepaid telephone card sales to generate $600 to $700 or more per week per machine — or enough within one year to recoup their investment in the machine. Among other things, the FTC alleged that the company’s telemarketers deceived investors with claims that it would help them place the machines where as many as 500 people would pass them each day. After a six-day trial, Senior Judge Kenneth L. Ryskamp of the U.S. District Court for the Southern District of Florida ruled for the company. Ryskamp, according to Tjoflat’s decision, noted that the telephone card business was new and concluded that it was “up to the potential customers to weigh the risks and profit potential, and to follow up their investment with the hard work and business savvy to make the venture successful and profitable.” Tjoflat, joined by Senior 11th Circuit Judge Phyllis A. Kravitch, reversed Ryskamp and called his points “irrelevant.” “Indeed, it is precisely in the context of a new venture that investors are unlikely to have their own data,” Tjoflat wrote. “In the ‘new business’ setting, investors are the most vulnerable to the representations and purported ‘expertise’ of those in the business selling novel business opportunities.” But as in the R.J. Fitzgerald case, the dissenting judge did not see the matter quite so simply. Vinson wrote that he agreed with the majority that Ryskamp had erred in one area of his decision, but added that “I believe the majority paints with too broad a brush.” Calling the controlling standards “ambiguous,” Vinson wrote that the trial “amounted to weighing the sometimes suspect and often conflicting testimony of a small percentage of disgruntled customers about their perceptions of the appellees’ representations.” Vinson said he agreed Ryskamp may have misapplied the law to the facts of this case, but “upon careful review of the record, I am compelled to agree with the district court that the FTC failed to meet its burden of proof with respect to the lack of reasonable basis for the potential earnings representations.” Federal Trade Commission v. Tashman, No. 01-14137 (11th Cir. Jan. 24, 2003). Lawrence DeMille-Wagman of the FTC’s general counsel’s office called the decision “a complete victory” and said the commission would ask Ryskamp on remand to order the defendants to return about $900,000 to $1 million to investors. C. Thomas Tew of Miami’s Tew Cardenas Rebak Kellogg Lehman DeMaria Tague Raymond & Levine represented Tashman and the defendants. He could not be reached.

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