Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—C.D. Cal.: Marketers of work-at-home businesses ordered to pay $25M, refrain from selling business opportunities, (Oct 22, 2014)

By Jeffrey May, J.D.

After finding last month that the marketers of the QuickSell “Wealth Building Home Business Plan” violated the FTC Act and the Commission’s Business Opportunity Rule in promoting their work-at-home opportunities, the federal district court in Los Angeles has now permanently banned The Zaken Corp. and its president, Tiran Zaken, from engaging in future marketing of business or work-at-home opportunities. The defendants also were ordered to pay $25,406,781 to be used for consumer redress (U.S. v. Zaken Corp., October 21, 2014, Pregerson, D.).

In 2012, the Department of Justice, on behalf of the FTC, filed a complaint, alleging that the defending marketers misrepresented that consumers could earn substantial income by finding businesses with excess inventory that the defendants could sell to interested buyers. Purchasers of the defendants' products became Associates of QuikSell Liquidations and received a “kit” instructing them on how to locate excess business inventories that might be resold by defendants to interested buyers. The government contended that the defendants misled consumers into believing that they would earn substantial sales commissions by assisting the defendants in acquiring and reselling these excess inventories.

On September 18, 2014, the court granted the government’s motion for summary judgment after finding that the government established that very few purchasers ever earned any income at all. Moreover, the court concluded that it was reasonable for consumers to rely on the misrepresentations and the misrepresentations were material. The defendants' program also was found to fall within the ambit of the Business Opportunity Rule and to violate its terms. The rule requires sellers of business opportunities to provide specific, truthful information to help consumers evaluate a business opportunity prior to purchase. At that time, the court concluded that injunctive and equitable relief was appropriate, and it asked that the government file a proposed judgment and injunction. The final order now confirms the court's decision to award the relief.

Permanent ban, monetary relief. The defendants were permanently banned from directly or indirectly promoting or selling a work-at-home or business opportunities. The injunction extends to providing assistance to others engaged in the marketing or sale of such opportunities. The court also imposed broad injunctive relief that essentially bars the defendants from making material misrepresentations regarding any product or service. In addition to including the $25 million in monetary relief, the order contains various compliance and record-keeping obligations.

Department of Justice, FTC reaction. “This order reflects the Department of Justice’s commitment to protecting consumers from fraud schemes,” said Joyce R. Branda, Acting Assistant Attorney General in charge of the Department of Justice Civil Division, in announcing the order today. “Those who take advantage of Americans searching for an honest day’s work, depriving them of their savings, will be held accountable.”

Jessica Rich, Director of the FTC Bureau of Consumer Protection, concurred. “The court’s order shows there are serious consequences for business opportunity marketers who invent earnings claims and fabricate stories about eager customers,” she said. “As long as scammers keep making false claims, we’ll be working with our law enforcement partners to stop them.”

The case is No. CV 12-09631 DDP (MANx).

Attorneys: Lisa K. Hsiao, U.S. Department of Justice, for United States. William I. Rothbard (Law Office of William I. Rothbard) for Zaken Corp.

Companies: Zaken Corp.

Cases: ConsumerProtection FranchisingDistribution CaliforniaNews FederalTradeCommissionNews