ADMINISTRATIVE PROCEEDING BEFORE THE SECURITIES COMMISSIONER OF MARYLAND FINAL ORDER TO CEASE AND DESIST

Transcription

1 ADMINISTRATIVE PROCEEDING BEFORE THE SECURITIES COMMISSIONER OF MARYLAND IN THE MATTER OF: * * COFFEE HEAVEN, LLC * Case No and * JAMES JAY CUMMINGS, * Respondents. * * * * * * * * * * * * * * * * FINAL ORDER TO CEASE AND DESIST WHEREAS, the Securities Division of the Office of the Maryland Attorney General (the Division ), under the authority granted in Section of the Maryland Business Opportunities Sales Act, MD. BUS. REG. CODE ANN et seq. (2004 Repl. Vol. and 2005 Supp.) (the Business Opportunity Act ), instituted an investigation into the offer and sale of business opportunities by the Respondents Coffee Heaven, LLC and James Jay Cummings (collectively Respondents ); and WHEREAS, based on information presented by the Division, the Maryland Securities Commissioner (the Commissioner ) determined that the Respondents engaged and were about to engage in activities that violate the registration, disclosure and antifraud provisions of the Maryland Business Opportunity Act; and WHEREAS, on July 19, 2006, the Commissioner issued a Summary Order to Cease and Desist (the Summary Order ) against the Respondents ordering them to cease and desist from offering business opportunities in violation of the Business Opportunity Act; and WHEREAS, the Summary Order gave the Respondents notice of the opportunity for a

2 hearing in this matter, if requested in writing within fifteen (15) days of service, and further gave notice that if a Respondent did not request a hearing, the Commissioner would issue a final order: (1) directing that Respondent to cease and desist from violating the Business Opportunity Act; and (2) permanently barring that Respondents from the offer or sale of business opportunities in Maryland; and WHEREAS, the Respondents were served with a copy of the Summary Order on July 24, 2006; and WHEREAS, the Respondents have not filed an answer or requested a hearing in this matter, thereby knowingly waiving their respective rights to a hearing; NOW, THEREFORE, THE COMMISSIONER FINDS AND ORDERS: I. JURISDICTION 1. The Commissioner has jurisdiction in this proceeding and over Respondents under section of the Maryland Business Opportunity Act. II. RESPONDENTS 2. Coffee Heaven, LLC ( Coffee Heaven ) is a Florida limited liability company that offers business opportunities for a speciality office coffee service. 3. James Jay Cummings ( Cummings ) is or was a vice president of Coffee Heaven. At all times relevant to this proceeding, Cummings was engaged in the offer and sale of Coffee Heaven business opportunities in Maryland. III. FINDINGS OF FACT 4. Coffee Heaven offers its business opportunity through a number of Internet websites as well as its own website, 5. On its website and in promotional materials, Coffee Heaven refers to itself as a 2

3 franchise. 6. The Coffee Heaven business opportunity consists of: coffee vending equipment; branded coffee products, including Folgers and Maxwell House coffees; marketing assistance; training; and location services through an independent location company. 7. Coffee Heaven posts on its Internet website a disclosure document and other promotional materials. 8. Included on the Coffee Heaven website is a statement suggesting that one Coffee Heaven vending machine could generate gross profits of $2, a month or gross profits of $27,000 a year. The Coffee Heaven website also includes a statement that buyers can expect between 300% to 700% profit return. 9. According to the Coffee Heaven disclosure document, the estimated initial investment for a Coffee Heaven business opportunity is between $13,795 and $1,333, Coffee Heaven sold a business opportunity to at least one Maryland resident ( Maryland Buyer ) in January The Maryland Buyer paid a total of $30,600 to Coffee Heaven for his Coffee Heaven business opportunity. 11. Before buying the Coffee Heaven business opportunity, the Maryland Buyer spoke to Cummings, who identified himself as a vice president of Coffee Heaven. Cummings told the Maryland Buyer that if he purchased the Coffee Heaven business opportunity, he could expect his cost for a 16 ounce cup of coffee to be between 10 to 11 cents. Cummings sent the Maryland Buyer a spreadsheet indicating that he could sell that same cup of coffee for 50 cents. 12. The spreadsheet that Cummings sent the Maryland Buyer contained representations suggesting that the Maryland Buyer could realize a net income of more than $89,000 per year from his Coffee Heaven business opportunity. 3

4 13. Coffee Heaven referred the Maryland Buyer to a marketing consultant who traveled to Maryland in February 2006 and chose locations for the Maryland Buyer s coffee vending machines. The cost for finding locations was included in the Maryland Buyer s purchase price paid to Coffee Heaven. 14. In March 2006, the Maryland Buyer received a shipment of three Folgers Custom Café coffee vending machines. The machines were placed in locations chosen by the Coffee Heaven marketing consultant. 15. After operating his Coffee Heaven business opportunity for a short time, the Maryland Buyer discovered that his actual cost for one 16 ounce of coffee is approximately double the cost that Cummings estimated. 16. Based on the foregoing, Coffee Heaven offered and sold in Maryland a business opportunity as defined under (b) of the Maryland Business Opportunity Act. 17. Coffee Heaven has never been registered with the Division to offer or sell Coffee Heaven business opportunities in Maryland. 18. The Coffee Heaven disclosure document given to the Maryland Buyer does not contain all of the information required under the Maryland Business Opportunity Act. For example, the disclosure document does not include a financial statement for Coffee Heaven. 19. The Coffee Heaven disclosure document states that it makes no earnings representations or statement of actual, average, projected or forecasted sales, profits or earnings... In fact, Coffee Heaven does make earnings representations on its website, and Cummings made earnings representations to the Maryland Buyer. 20. Neither Coffee Heaven nor Cummings ever included documentation to substantiate the earnings representations made to the Maryland Buyer. 4

5 21. Neither Coffee Heaven nor Cummings ever disclosed to the Maryland Buyer that Coffee Heaven was required to register its business opportunity with the Securities Division. IV. CONCLUSIONS OF LAW The Commissioner concludes that: 22. Respondents Coffee Heaven, LLC and James Jay Cummings offered and sold business opportunities in violation of sections , , and of the Maryland Business Opportunity Act. V. SANCTIONS NOW, THEREFORE, the Commissioner finds it to be in the public interest to issue this Final Order, and IT IS HEREBY ORDERED, THAT: 23. Respondents Coffee Heaven, LLC and James Jay Cummings permanently cease and desist from violating the Business Opportunity Act. 24. Respondents Coffee Heaven, LLC and James Jay Cummings are permanently barred from the offer or sale of business opportunities in Maryland or to any Maryland residents. VI. JURISDICTION RETAINED 25. Jurisdiction is retained by the Commissioner for the purposes of enabling any party to this Final Order to apply for such further orders and directions as may be necessary or appropriate for the construction or enforcement of this Final Order. SO ORDERED: Dated :, 2006 MELANIE SENTER LUBIN SECURITIES COMMISSIONER 5

6 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing Final Order To Cease and Desist by causing a copy to be sent by United States Mail, prepaid, certified delivery, return receipt requested, addressed to: Coffee Heaven, LLC 412 Military Trail Deerfield Beach, FL 33442, and James Jay Cummings c/o Coffee Heaven, LLC 412 Military Trail Deerfield Beach, FL 33442; and by delivering a copy to Melanie Senter Lubin, Securities Commissioner, Maryland Division of Securities, 200 St. Paul Place Twenty-fifth Floor, Baltimore, Maryland Dated:, 2006 Dale E. Cantone Assistant Attorney General Maryland Division of Securities 200 St. Paul Place - 25th Floor Baltimore, Maryland (410)