US v. Robert Ferrara

Federal Trade Commission (FTC) (CLOSED)

Most Recent Update 10/03 (See end of document)

United States v. Ferrara, Crim. No. 4:02-CR-00016-001-W-5 (W.D. Mo.):

2/5/02 Update:

On January 17, 2002, Robert Ferrara was indicted on six counts of criminal contempt (18 U.S.C. § 401(3)) for disobeying an injunctive order entered by the U.S. District Court for the Western District of Missouri. The indictment, originally filed under seal, was unsealed on January 23, 2002.

After a detention hearing on January 28, 2002, United States Magistrate Judge Sarah W. Hays ordered Ferrara to be detained in jail pending his trial, now scheduled to begin March 11, 2002, before United States District Court Judge Nanette K. Laughrey at the United States Courthouse in Kansas City, Missouri.

The indictment charges Ferrara with disobeying a court order requiring him to comply with the Federal Trade Commission's (FTC) Franchise Rule. According to the Indictment: (1) Ferrara violated the Franchise Rule by selling franchises without providing the necessary disclosures; (2) Ferrara concealed a prior FTC order and a bankruptcy filing, as well as his role in the companies, from prospective investors; and (3) Ferrara failed to disclose company financial statements and the names of other franchises as required by the court order.

Ferrara has been engaged in the sale of franchises and other business ventures since the 1980s. In 1983, the United States alleged in a civil action that Ferrara violated the Franchise Rule provisions. That case was settled by a consent judgment. That order, which resolved the suit brought by the Justice Department on behalf of the FTC, remains in place. The consent judgment requires Ferrara to comply with the Franchise Rule in all future sales of franchises.

The investigation in this matter is being conducted by agents of the Federal Bureau of Investigation, the U.S. Postal Inspection Service, and the Internal Revenue Service. The case is being prosecuted by trial attorneys from the Fraud Section of the Criminal Division and the Civil Division's Consumer Protection Branch.

The next scheduled event in this matter is the trial, set to begin March 11, 2002, in the United States Courthouse in Kansas City, Missouri.

3/02 Update:

The trial of Robert Ferrara, which was originally set to begin on March 11, 2002, was postponed until April 15, 2002.

5/02 Update:

On April 24, 2002, Robert Lee Ferrara pled guilty to charges of violating a court order in order to defraud investors of more than $100,000. Ferrara, 66, pled guilty with no plea agreement to the six-count federal indictment that was pending before U.S. District Judge Nanette K. Laughrey, of the Western District of Missouri. Ferrara was indicted by a federal grand jury in Kansas City, Missouri, on January 17, 2002.

By pleading guilty, Ferrara admitted that, in the process of selling business opportunity franchises for Emily Water & Beverage Company and for Synergy brand skin cream, he violated a permanent injunctive order of the U.S. District Court issued on March 20, 1984. As part of a consent judgment agreed to by Ferrara to settle the case of United States v. Ferrara Foods, Inc., that court had ordered Ferrara to:

1) Pay a civil penalty of $40,000.

2) Comply with the Franchise Rule and its disclosure requirements, including providing information on litigation history, when selling franchises. The Franchise Rule was issued by the Federal Trade Commission and is formally known as "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures." It is found in the Code of Federal Regulations at 16 C.F.R. § 436.

3) Disclose to potential franchisees that he was subject to the 1984 court order relating to the sale of franchises and that he filed for bankruptcy in the United States Bankruptcy Court for the Western District of Missouri on April 17, 1998.

In the case of United States v. Ferrara Foods, Inc., Ferrara admitted that he had violated the Federal Trade Commission Act and the Franchise Rule. Ferrara admitted that he failed to furnish potential customers with a basic disclosure document as required by the Franchise Rule, which is designed to prevent fraudulent franchise sales practices. The Franchise Rule requires franchisors to provide potential franchisees with an accurate written document disclosing information about the franchisor and its current directors and executive officers. These disclosures provide consumers with accurate information about a potential franchise opportunity.

According to the federal grand jury indictment, Ferrara, acting on his own and through companies such as C&C Sales, B&F Custom Vending, Emily Water & Beverage Company and Emily Vending, engaged in the sale of franchises, business opportunities and business ventures by placing classified advertisements in newspapers across the United States, which listed a toll-free number for consumers to call.

According to the indictment, four victims who purchased Emily Water & Beverage franchises each paid between $12,500 and $32,500 for exclusive distributorships for the sale of Emily-brand bottled water in 1998. Ferrara admitted that he made and caused others to make misrepresentations, false statements and omissions to encourage the sale of these franchises. Ferrara also admitted that he disobeyed the court order by failing to provide all the disclosures required by the order, including informing consumers about the 1984 court order and his bankruptcy petition.

According to the indictment, two victims who purchased Synergy skin cream franchises paid $3,850 and $4,500, respectively, for exclusive distributorships in January and February of 2001. Ferrara admitted that he made and caused others to make misrepresentations, false statements and omissions to encourage the sale of these franchises. Ferrara also admitted that he disobeyed the court order by failing to provide all the disclosures required by the order, including informing consumers about the 1984 court order and his bankruptcy petition.

As a result of his guilty plea, Ferrara could be subject to a sentence of imprisonment of any duration. A sentencing hearing will be scheduled sometime after the completion of a presentence investigation by the U.S. Probation Office. Ferrara remains incarcerated as a result of the charges that were filed in this case.

6/02 Update:

No change in status, see 5/02 update.

9/02 Update:

A sentencing hearing has been scheduled in Kansas City, Missouri, for Thursday, September 26, 2002, at 1:00 p.m. before Judge Nanette Laughrey of the United States District Court for the Western District of Missouri. The hearing will take place in the Charles Evans Whittaker Courthouse, 400 East Ninth Street, Kansas City, Missouri.

10/02 Update:

On October 2, 2002, Judge Nanette Laughrey of the United States District Court for the Western District of Missouri sentenced Robert Ferrara to 125 months (10 years, 5 months) in prison. The Court also ordered Ferrara to pay $102,674.90 in restitution to the consumers who were victims of the counts of conviction. Under federal law, restitution is ordered without regard to a defendant's ability to pay the restitution ordered, and it is unclear whether Mr. Ferrara has the financial resources to pay restitution. Accordingly, the United States cannot predict when the defendant will actually make such payments.

After sentencing, Mr. Ferrara filed a notice of appeal. Assuming Mr. Ferrara pursues his appeal, the sentence will be reviewed by the Court of Appeals for the Eighth Circuit.

2/03 Update:

Ferrara is pursuing his appeal (Dkt. No. 02-3656) in the Eighth Circuit.

6/03 Update:

Oral argument held in April 2003, awaiting Eighth Circuit decision.

10/03 Update:

Eighth Circuit affirmed sentencing findings on July 2, 2003.