The Federal Trade Commission and state attorneys general continue to aggressively investigate and prosecute those that advertise, market, distribute, promote and sell certain kinds of ecommerce management, business coaching, work-from-home and investment programs.
In fact, in 2022 the Federal Trade Commission announced that it was exploring changes to the Business Opportunity Rule in order to broadly expand on the kinds of money-making opportunities that fall within the Business Opportunity Rule.
In a statement, FTC Chairperson Lina Khan states that “[t]he rule had served the public well over the years,” but “several varieties of scams . . . falloutside the scope of the existing rule, [including] certain kinds of business coaching and work-from-home programs, investment programs, and ecommerce opportunities.” Chairperson Khan asserts that “case-by-case enforcement has key limitations—especially after the Supreme Court’s AMG decision” that held that the FTC lacked authority to obtain equitable monetary redress under Section 13(b). See, here for more information.
At present, regardless of the nature of the promotional activity and service being offered, significant potential liability exists for both corporate entities and certain individuals actively involved therewith.
A good example is someone selling a program that purports to teach consumers how to make big profits in their home – risk-free.
Recent regulatory enforcement matters have included, without limitation, a lawsuit against a network of companies that purportedly placed millions of robocalls pitching an affiliate marketing program and falsely claiming to be associated with Amazon. According to the FTC, that with the pandemic, the defendants pivoted to play on consumers’ financial fears and consumers paid for storefront websites the defendants allegedly said would yield thousands of dollars in monthly income. The FTC alleges that the website were defective and the promises never materialized.
Another recent lawsuit involved allegations that a group of defendants marketed investment-related services with deceptive claims that people would make consistent profits and beat the market. With eye-catching representations like “Learn how you could DOUBLE or TRIPLE your account in One Week!” the defendants purportedly claimed that for people trained in their purported technique, the global pandemic “might be the most exciting opportunity in decades!”
A select sampling of other recent lawsuits include: (i) allegations by the FTC the defendants made deceptive money-making claims – for example, “Consumers will earn between $500 and $12,500 per sale,” and “Every time one of our professionals closes a sale on your behalf, we will send you a huge commission check right to your doorstep” – to sell memberships in their purported “program.” According to the complaint, consumers shelled out between $1,000 to $25,000, but the vast majority did not make anything even approaching the advertised earnings while many made nothing at all. This lawsuit alleges violations of the FTC Act and the Business Opportunity Rule; and (ii) an FTC complaint that the defendants falsely claimed that consumers who followed their “proven business model” would earn between $5,000 to $10,000 in just 10 to 14 days, and consistently make money within 60-90 days of buying into the program. According to the FTC, most consumers paid between $2,395 to $22,495 and never earned substantial income. The FTC further alleges that many people lost money, ending up in an even deeper financial hole by taking out loans and racking up credit card debt.
What do digital advertisers and marketers need to know?
Law Enforcers are Committed to Challenging Express and Implied Misleading Money Making Promises.
Whether what is being sold is a “system,” a work-at-home “opportunity,” “coaching” services, or any other variation, there must exist solid, reasonable proof to back up (“substantiate”) express and implied earnings representations before disseminated to consumers.
The FTC is committed to protecting every community from false earnings promises. According to the FTC, empirical data supports its conclusion that the expanding universe of money-making promotions affected different communities at different rates.
In addition to public administrative and judicial actions, online shareable resources provided by the Federal Trade Commission are a decent roadmap for digital advertiser and consumers alike that are interested in learning about compliance red flags and evaluating commerce management, business coaching, work-from-home and investment programs.
Problematic Pandemic Pitches are Likely to Attract Close Scrutiny.
Congress passed the COVID-19 Consumer Protection Act in 2020, making it illegal under the FTC Act to engage in deceptive marketing related to the treatment, cure, prevention, mitigation, or diagnosis of COVID–19, or any government benefit related to COVID-19. The law also authorizes the FTC to seek civil monetary penalties for first-time violations, a remedy not normally available under the FTC Act.
And, the FTC considers consumers’ current COVID-19-related hardships as within regulatory “vulnerable” status, especially when alleged bogus money-making representations or other unsubstantiated claims are made.
In 2021, the FTC filed its first action under the COVID-19 Consumer Protection Act, seeking monetary penalties for the alleged deceptive marketing of purported Vitamin D and Zinc treatments as scientifically proven to treat or prevent COVID-19. Charges also included violating the Federal Trade Commission Act. According to the FTC’s complaint, prior to initiating legal action, the agency sent a warning letter about alleged unsubstantiated COVID-19 efficacy claims – which was purportedly ignored.
The complaint was filed by the U.S. Department of Justice on the FTC’s behalf. The FTC refers a complaint for civil penalties to the DOJ for filing when it has “reason to believe” that the named defendants are violating or are about to violate the law and that a proceeding is in the public interest.
What Can Ecommerce Management, Business Coaching, Work-From-Home and Investment Programs Settlement Terms Look Like?
Stipulated orders for permanent injunction and other relief take many forms and often depend upon the specific facts, applicable legal regulations and the totality of the circumstances. However, there are some general consistencies with respect to what the FTC typically proposes and/or requires when it comes to false and unsubstantiated earnings claims, as well as unlawful telemarketing activities (which also come with civil penalties).
Complaints may also allege that the FTC has previously determined the actions and/or omissions at issue to be unfair or deceptive in connection with the advertising, marketing, distribution and selling of ecommerce management, business coaching, work-from-home and investment programs to consumers throughout the United States.
First, the FTC may provide a defendant with a proposed “consent order” along with a draft of a complaint for permanent injunction, monetary relief, civil penalties, and other relief pursuant to Sections 5(m)(1)(A)-(B), 13(b), and 19 of the Federal Trade Commission Act, 15 U.S.C. §§ 45(m)(1)(A)-(B), 53(b), and 57b, and the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101-6108.
In doing so, the FTC ordinarily provides a defendant with an opportunity to stipulate to the entry of an order for permanent Injunction and other relief to resolve all matters in dispute. Stipulated terms that have recently appeared in ecommerce management, business coaching, work-from-home and investment program-related settlements include, but are not limited to:
- Monetary relief and civil penalties
- A definition of “earnings claims (including, without limitation, statements, claims, success stories, endorsements or testimonials about the performance or profitability of representatives, endorsers, instructors or customers)
- A definition of “investment opportunities”
- Prohibitions concerning “earnings claims”
- An obligation to “clearly and conspicuously” disclose typical customer results, and have written substantiation for such typical results
- An obligation to possess written substantiation for any statements characterizing or qualifying typical results
- An obligation that written substantiation for “earnings claims” be made available upon request to the consumer, potential purchaser and the FTC
- An obligation to be able to establish that any earnings that form the basis for “earnings claims” were achieved in compliance with the law
- A definition of “clear and conspicuous” disclosures – one that also accounts for visual and audio disclosures
- Prohibitions concerning misrepresentations, including but not limited to, the description of the good or service, that past performance referenced in advertising materials is indicative of future results, that testimonials used in advertising reflect the experience that consumers are likely to achieve, that purchasers or users will or are likely to achieve substantial profits or earnings, the risk or earnings potential, the background and skills of any person whose name or likeness is used in promotional materials, the level of consumer experience required, the time or effort required of consumers, that the goods or services will be sold to only a limited number of prospective participants, any material aspect of the nature or terms of a refund or cancellation policy, and/or any other fact material to consumers
- Restrictions and/or prohibitions regarding the use of hyplerlinks
- A definition of “ordinary consumers” when sales practices target a specific audience
- Prohibitions regarding telemarketing
- Mandatory written notice to consumers
- Compliance reporting, monitoring and recordkeeping
Digital advertisers interested in learning more about current FTC policy and enforcement, including strategic compliance methods designed to minimize potential liability exposure should consult with seasoned FTC defense lawyers. This article should be of interest to digital advertisers and in-house counsel interested in current FTC legal regulatory CID investigations, enforcement and stipulated resolution of ecommerce management, business coaching, work-from-home and investment program-related products and service offerings.
Richard B. Newman is an digital advertising practices FTC attorney at Hinch Newman LLP. Follow him on JD Supra at FTC defense lawyer.
Informational purposes only. Not legal advice. May be considered attorney advertising.Bottom of Form
