State Settles Huge Franchise Fraud Case
Attorney General Spitzer today announced the settlement of the largest franchise fraud case ever brought by the Attorney General's office. The case involves a franchise scam in the snack and beverage industry that cost dozens of investors more than $900,000. The scam preyed upon small business people in the tri-state area who invested between $20,000-$50,000 apiece to purchase distributorships in the belief that their snack and beverage product lines would be ''exclusive." However, the provider of the franchises never delivered and the investors lost their money.
"Fly-by-night operators can expect to be vigorously prosecuted," Spitzer said. "The unfortunate experience of these victims serves as a powerful lesson that we must all be extremely careful when investing our money. The importance of conducting due diligence, seeking professional counsel and contacting my Investor Protection Bureau before investing money in a franchise cannot be overstated."
The owners of the business, Michael L. Glass, 67, of Mahopac, and his son Joshua G. Glass, 32, of Ridgefield, Ct., sold the unregistered franchises to investors in 1993-95. Also involved in the scam were Adriane Glass, 50, of Granite Springs, the wife of Michael Glass, and Peter M. Glass, 37, of Patterson, another son of Michael L. Glass.
Exclusive territories were sold to investors in New York City, Suffolk, Nassau and Westchester counties, as well as 19 counties in New Jersey, and in Ohio, Connecticut and Washington. The senior Glass founded two companies, Westcool Snacks and Beverages, Inc. and Maricopa Products to perpetrate the fraud. Adriane Glass owned 50 percent of both companies. Joshua Glass aided the scam by soliciting investors. Peter Glass' company, Wacky Snacks and Beverages, which did business under the name of Key Marketing, participated in the fraud by holding itself out as an essential vehicle for franchisees to help them secure commercial accounts to buy Maricopa products. All three corporations have been dissolved for failure to pay taxes.
After taking the money of franchisees, Michael Glass encouraged them to purchase equipment and to lease warehouse space, which only further increased their losses. Although he promised success to investors, none made a profit. All lost money and two declared bankruptcy. Glass never delivered on his promises to create an exclusive line of snacks and beverages. Instead Glass only provided potato chips and a sparse line of flavored water. Stores stopped buying the flavored water when the labels peeled off to reveal another beverage's label, and the potato chips when the bags deflated and leaked oil. Not long after taking investors' money, Glass closed his warehouse and did not return the telephone calls of franchisees.
Under New York law all franchisors must register a prospectus with the Attorney General's office and provide a copy of the prospectus to potential franchisees. The Glasses failed to do so.
"Without submitting a prospectus and receiving approval from the Attorney General's office, these defendants provided investors with unregistered brochures that contained unsupported statements that franchisees could earn up to $780,000 annually. Additionally, they falsely stated that Maricopa Products had 12 warehouses nationwide," said Assistant A.G. Joseph J. Punturo, head of the Attorney General's Franchise Section. "Had proper disclosure been made, investors would have learned that Michael Glass had previously been convicted of grand larceny and a scheme to defraud."
As a result of the settlement, filed in Manhattan Supreme court, the four members of the Glass family have been permanently barred from engaging in any business relating to the sale of franchises in New York. The Attorney General's office has already collected two settlements, one with Joshua Glass, Peter Glass and Key Marketing for $35,000, and the other settlement with Adriane Glass for $100,000, the proceeds of which will soon be distributed to investors, who will receive approximately 10 cents on the dollar. Michael Glass, Maricopa Products, Inc. and Westcool Snacks and Beverages, Inc. settled for $936,525. The A.G.'s office is currently searching for assets to satisfy the judgment.