Request By:
Mr. Lewis Kelly
Administrative Supervisor
Division of Securities
Department of Banking & Securities
911 Leawood Drive
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Ruth H. Baxter, Assistant Attorney General
Your letter of May 30, 1979 to our office requested an Attorney General's Opinion regarding the applicability of KRS 367.801 et seq. the Sale of Business Opportunity Act, to an applicant for registration, Fashion 5th Avenue, Inc. After a review of KRS 367.801(5), it is our opinion that the "Account Specialists" offering by Fashion 5th Avenue, Inc. does constitute a "business opportunity" within the meaning of the Act, and thus, the company must register with your Department.
Our conclusion that this company must register with your Department is based upon the materials Mr. John Boder, a corporate representative of Fashion 5th Avenue, Inc., furnished you in May, 1979. Notably their business opportunity investment requires and incorporates each of the three elements of a "business opportunity" as defined by KRS 367.801(5)(a), (b) and (c). Fashion 5th Avenue, Inc., requires an investment in excess of five hundred ($500) dollars, and represents that the consumer/investor can earn in excess of his investment. See, KRS 367.801(5)(a)(b). The company details at length the expertise afforded an investor by virtue of the extensive experience of Mr. Perry Borrelli, Jr., the company's President, and the "international" reputation Fashion 5th Avenue, Inc. has gained since Borrelli, Inc. was founded in 1961. See, KRS 367.801(5)(c). Accordingly, the company must register under the Act.
It is our understanding that Fashion 5th Avenue, Inc. has taken the position that it is not a "business opportunity" within the meaning of the Kentucky Act, because it does not utilize a "distribution device" which is incorporated in the KRS 367.801(5) definition of a "business opportunity" . However, with the comapny's position, we must disagree. A "distribution device" as defined by KRS 367.801(6), includes in subparagraph (a): "vending machines, electric game machines, racks, display cases and other similar devices for selling goods supplied to the consumer-investor by the offeror." Throughout its promotional material, Fashion 5th Avenue, Inc. describes the use of "display units" to sell its merchandise. This unit is purchased as a part of the investment (see, Contract with "Account Specialists"), and becomes an integral part of the company's "impulse buying" strategy. I noted that the term "display unit" or "merchandising displays" appears no less than sixteen (16) times in the furnished materials. Therefore, it is our conclusion that the use of these "display units" constitutes a "distribution device" under KRS 367.801(6).