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Texas Sues James One GP LLC in Web Franchise Case

In October, Texas Attorney General Greg Abbott charged several Texas businesses and one Michigan-based business with defrauding customers. These participants understood that they were buying a home-based internet business. According to the state’s enforcement action, the defendants charged thousands of dollars for low-end laptop computers and failed to provide the professional services that were promised to customers.

The state's enforcement action names Texas-based James One GP, L.L.C., Startup Essentials, L.L.C. and USA Merchant Systems Inc., which together generally operated under the name Startup Essentials. Other defendants include Robert A. Harris, the founder and chief executive officer of all three Texas businesses, and a separate business, A-1 Leasing, L.L.C. of Michigan. The Office of the Attorney General received more than 300 complaints from customers who paid up to $7,000 to join but received neither the training nor the assistance they were promised.

Startup Essentials marketed itself as a recognized leader in the startup industry and purported to have experience helping entrepreneurs launch and grow Internet businesses. According to the state’s enforcement action, the defendants relied upon deceptive and high-pressure telemarking calls to hopeful entrepreneurs who previously indicated they wanted to start an Internet business. The defendants typically suggested they might “invest” in their potential customers’ businesses. Information obtained by the state shows that the defendants offered to make an abundance of entrepreneurial resources available to customers, including experts with the ability to assist with goal-setting, business training and personal development.

The defendants’ sales representatives, who were known as “senior business analysts,” emphasized that the company would guide entrepreneurs through the business startup process and provide one-on-one professional coaching to customers. Startup Essentials also told consumers they would receive the resources necessary to start a business, including a laptop computer. Customers who indicated they already owned a computer were told that the defendants’ laptop came pre-loaded with specialized software, allowing the user to access a virtual terminal that was required to conduct business online. In fact, the laptops provided by Startup Essentials were inexpensive, low-end models that contained no specialized software.

Once Startup Essentials convinced an entrepreneur to enter its program, the defendant worked to convince customers to execute a merchant agreement and a purported “lease” with A-1 Leasing, a company that in most cases was never mentioned to the customer. In many cases, customers were not given a copy of the merchant agreement or the lease prior to being asked to electronically “sign” the documents. Although the defendant indicated it was “backed” by a leading national bank, the state alleges that no such backing exists.

According to state investigators, A-1 Leasing was aware that Startup Essentials deceptively induced its customers to enter business startup assistance agreements. Despite that knowledge, the state’s enforcement action indicates A-1 continued to fund the fraudulently obtained leases.

The Attorney General seeks injunctions to halt these business practices, as well as refunds to consumers were financially harmed. The Attorney General also seeks civil penalties.

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