Antitrust Law Daily Wrap Up, TOP STORY: Business Opportunity Marketers Targeted by FTC for Making Allegedly False Claims, (Nov 15, 2012)

By Jeffrey May, J.D.

The FTC on November 15 announced its first six cases brought under the Commission's recently updated Business Opportunity Rule. The amended rule requires business opportunity sellers, including marketers of work-at-home offers such as envelope stuffing businesses, to provide specific information to help consumers evaluate a business opportunity. The agency also alleged that the marketers committed multiple violations of the FTC Act, including misrepresenting how much money people could make through the business opportunities. Temporary restraining orders were issued in a number of the cases.

“The scam artists the FTC shut down lied to people trying to make an honest buck, and robbed them of their money as well as their hopes,” said FTC Bureau of Consumer Protection Director David C. Vladeck. “We brought these cases on behalf of millions of people who wanted to jumpstart their incomes and rebalance their budgets—people who placed their hopes in a business opportunity so they could better provide for their families.”

The FTC filed a complaint against an operation that purportedly offered to help consumers start businesses as mystery shoppers. According to the FTC’s complaint, consumers who agreed to buy were lured into buying another business opportunity—operating a webstore—that involved negative-option programs. The defendants allegedly falsely claimed people could earn an average of $50 per mystery shopping assignment with no limit to the number of assignments (FTC v. Shopper Systems, LLC, USDC SD Fla., Case No. 12-23919-Civ-COOKE/TURNOFF, FTC File No. 112 3176).

Another operation falsely promised that they would set up a profitable credit card processing business for consumers, according to the FTC’s complaint. The defendants in this action allegedly told consumers that, for a fee typically ranging from $295 to $495, they could operate a home-based business selling the defendants’ payment processing services, credit card terminals, and merchant cash advances to merchants in the consumers’ local communities. The defendants allegedly claimed consumers would earn substantial income from this business opportunity (FTC v. American Business Builders, LLC, USDC Ariz., Case No. 2:12-cv-02368-GMS, FTC File No. 122 3191).

In a third action, the FTC targeted marketers that sold consumers a no-risk, money-back guaranteed opportunity to make money via their own website. After buying the programs, consumers purportedly found that they could use their website only if they purchased a domain name and hosting services, but even some consumers who paid the extra money could not get their website to function. The websites that did work did not generate the promised income of up to $15,000 per month or at least up to $15 within seven days, according to the FTC (FTC v. Online Entrepreneur, Inc., USDC MD Fla., Case No. 8:12-cv-2500-T-27MAP, FTC File No. 122 3186).

Marketers of a home-based business opportunity that promised purchasers they could become “Government Insurance Refund Processors” have been charged by the FTC with misrepresenting that consumers could earn up to $38,943 per year just by finding those eligible for refunds of their mortgage loan insurance premiums and charging them a fee to tell them how to get those refunds. According to the agency, the marketers failed to adequately disclose that the Department of Housing and Urban Development offers the same lists for free online (U.S. v. Smart Tools LLC, USDC Ore., Case No. 3:12-cv-02006-HZ, FTC File No. 122 3212).

Another group of business opportunity sellers allegedly claimed that consumers could earn from $200 to more than $1,000 per day by processing applications for rebates or credit cards offered by certain marketers. According to the FTC, the defendants in the court action merely provided information on how to become an affiliate marketer by creating Internet ads for credit card offers. Few, if any, consumers were likely to make the kind of income claimed, the FTC alleged (U.S. v. Sterling, Case No. USDC SD Cal., Case 3:12-cv-02736-JAH-DHB, FTC File No. 122 3279).

The FTC also filed an action against marketers of business opportunities that find buyers for businesses with excess inventory. Consumers were allegedly told that they could earn “finder’s fees” of half the sales price (U.S. v. Zaken Corp., USDC CD Cal., Case No. CV12-09631, FTC File No. 122 3293).

Employment Opportunities

The FTC also announced a seventh action against Career Exams, Inc. and related individuals for conducting a nationwide scheme to sell purported employment goods or services to consumers seeking jobs with the Postal Service. This action alleged a violation of the FTC Act but did not allege a violation of the Business Opportunity Rule (FTC v. Career Exams, Inc., USDC WD Ky., Case No. 1:12-cv-00188-TBR, FTC File No. 122 3256).

Some of the actions were filed by the Department of Justice on behalf of the FTC. The Justice Department separately announced a number of criminal business opportunity fraud cases.

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