Annual Report 1997/98 - Fighting Anti-competitive Activity

Under the Competition Act, the Consumer Packaging and Labelling Act, the Precious Metals Marking Act and the Textile Labelling Act, the Bureau investigates complaints that could potentially lead to prosecutions.

In 1997, the Competition Bureau's Marketing Practices Branch merged with the Consumer Products Directorate to become the Fair Business Practices Branch. The objective of this new branch is to promote fair competition in the Canadian marketplace by discouraging deceptive business practices and by encouraging the provision of accurate and sufficient information to enable consumers to make informed choices.

We are also working on developing sentencing principles and policies concerning the Bureau's position in relation to parties "coming in early" and offering full cooperation in our investigations.

The following are examples of the Bureau's work in the area of enforcement.

Electrical Contractors and Bid-rigging

The electrical contractors bid-rigging case was a major criminal investigation into the corruption of the electrical contracting industry in the metropolitan Toronto area.

On December 19, 1997, four Toronto electrical contractors, 948099 Ontario Inc. (carrying on business as Plan Electric Co.), Ainsworth Inc., Guild Electric Limited and The State Group Limited, pleaded guilty to bid-rigging and were sentenced to pay fines totalling $2.55 million.

The charges covered the period from 1988 to 1993 and were the result of an extensive investigation conducted by the Bureau into a scheme designed to create the illusion of competitive pricing.

Although the majority of the rigged tenders involved electrical contracts for the renovation of commercial space, including certain leasehold improvements at Pearson Airport's Terminal III, some of the companies were also convicted of rigging tenders related to major construction projects, including the SkyDome Hotel and BCE Place — Phase 2 .

Some of the companies charged received favourable treatment for entering early guilty pleas; others received additional consideration for having cooperated with the investigation. All four companies have taken steps to institute internal compliance programs designed to ensure compliance with the Competition Act.

On February 27, 1998, Smith and Long Limited, another electrical contracting firm, pleaded guilty to 10 counts of bid-rigging and was fined $100 000. The Bureau's investigation of this market is ongoing.

Alberta Crown Timber and Bid-rigging

This case involved bid-rigging in a small timber market in Alberta. The inquiry, which included oral examinations, searches and plea negotiations with all but one party, was concluded in less than seven months.

The Attorney General granted favourable treatment to the parties who cooperated with the Bureau's investigation. On February 10, 1998, the court imposed fines ranging from $3000 to $5000, as well as a sentence of community service against some of the accused. Charges against a remaining party are outstanding.

Aban Persian Rugs Inc. and Misleading Advertising

On July 9, 1997, Mr. Hossein Farjami of Aban Persian Rugs Inc. was convicted under the misleading advertising provisions of the Competition Act.

Mr. Farjami was the sole shareholder of Aban Persian Rugs of Markham, Ontario, a company importing and selling carpets in Canada through stores and auctions. Aban Persian Rugs' goods were advertised in newspapers and mailings sent to regular customers.

Both cases involved representations in a Montréal-area newspaper describing the urgent need to auction carpets. The ads included phrases such as "Final sale," "This week only," "Last day," "Last phenomenal auction" and "Everything must go," suggesting a false sense of urgency to liquidate stock.

The investigation determined that, contrary to the claims in the advertisements, the business continued to operate and inventory was regularly brought in from other sources.

Click Modeling and Talent Agency of Canada (c.o.b. as HMI International Model and Talent Agencies) and Shannon Hoehn and Misleading Advertising

On June 9, 1997, Mr. Shannon Hoehn and Click Modeling and Talent Agency of Canada, operating as HMI International Model and Talent Agencies (HMI), pleaded guilty to a total of 15 counts of misleading advertising under the Competition Act.

The illegal conduct involved representations that specific modeling and acting opportunities were available through HMI. The misrepresentations related to approximately 1000 display and classified advertisements placed in daily newspapers and weekly tabloids in Metro Toronto.

The investigation determined that HMI was not in the business of securing modeling or acting jobs for its customers, but of selling courses and photographs.

Fines totalling $200 000 for the company and $4300 for Mr. Hoehn were imposed. The money was used to reimburse victims named in the case.

In addition to the fines, a prohibition order was imposed on both Mr. Hoehn and the company for five years. The terms of the order require, among other things, that Mr. Hoehn and the company comply with the Competition Act by not misrepresenting the nature of modeling and acting opportunities. The order specifically prohibits Mr. Hoehn from incorporating or causing the incorporation of companies for the purpose of continuing or repeating the offence.

The Internet and Deceptive Marketing Practices

In April 1997 the Bureau, the U.S. Federal Trade Commission and members of provincial, territorial and state law enforcement organizations announced that they had collaborated in an initiative to target Internet Web sites that contained potentially misleading descriptions of business opportunities.

This was the first combined sweep to identify potential scams involving false or unsubstantiated earnings claims on the Internet. The sweep was designed to make promoters of business opportunities on the Internet aware of the relevant Canadian and U.S. laws. The Bureau continues to monitor this market.

Integrity Group (Canada) Inc. and Multi-level Marketing

On December 16, 1997, the Integrity Group (Canada) Inc., a national multi-level marketing company, was convicted and fined $150 000 on 11 charges of failing to disclose information in accordance with the multi-level marketing provisions of the Competition Act. The undisclosed information was in relation to compensation actually or likely to be received by a typical participant in the multi-level marketing plan.

This case involved the first conviction under the Competition Act for an offence committed on the Internet.

VH$ Network Inc. and Multi-level Marketing

On March 20, 1998, VH$ Network Inc. pleaded guilty to two offences contrary to the multi-level marketing provisions of the Competition Act and was fined a total of $70 000.

VH$ Network, a Mississauga-based multi-level marketing company, sold various products that were advertised in video cassette catalogues. The charges related to representations made at recruitment meetings, in training manuals, over a fax-on-demand service and in a pre-recorded telephone message with respect to income claims without disclosure of the compensation earned by the majority of participants.

A prohibition order was imposed against the company and its shareholders, including Groupmark Canada Limited, which forbids them from making income claims without disclosing the compensation earned by the majority of participants in the multi-level marketing plan.

GeoForce Inc. and Multi-Level Marketing

On February 12, 1998, GeoForce Inc. of Edmonton, Alberta, pleaded guilty to two offences contrary to the multi-level marketing provisions of the Competition Act. The company, which promotes the sale of herbal supplements through a multi-level marketing distribution system, was fined a total of $50 000. A prohibition order was also imposed against GeoForce, Granite Sphere Advertising Ltd. and the principal shareholders of both companies, Mr. Kevin Boyle and Mr. Brian Boyle.

The charges against GeoForce related to representations made in company literature, at recruitment meetings and through personal meetings, whereby potential earnings were discussed without disclosing the compensation earned by typical participants.

Canadelle Ltd. and Labelling

On September 25, 1997, Canadelle Ltd. was fined a total of $15 000 after pleading guilty to three charges of contravening the Textile Labelling Act.

The charges related to the company's WonderBra brand brassieres, which had been made in Costa Rica and imported for distribution in Canada. The original labels were replaced with labels stating "Made in Canada," constituting a violation under the Act.