New FTC Action on Money-Making Opportunities and Earnings Claims Results in Big Civil Penalties
On January 13, 2023, the Federal Trade Commission announced that as a result of a Federal Trade Commission lawsuit, investment advice company WealthPress has agreed to a proposed court order that would require it to refund more than $1.2 million to consumers and pay a $500,000 civil penalty for allegedly deceiving consumers with purportedly “outlandish and false claims about their services.”
The case marks the first time that the FTC has collected civil penalties against a company that received the Notice of Penalty Offenses regarding money-making opportunities sent last October, and the first civil penalties for violations of the Restore Online Shoppers’ Confidence Act. (ROSCA)
“We’ve brought several cases this year against companies making false earnings claims, and we won’t hesitate to bring more,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “WealthPress is now paying the price for deceiving its customers and ignoring our Notice of Penalty Offenses on money-making claims.”
The FTC’s complaint against WealthPress and its owners, Roger Scott and Conor Lynch, alleges that the company used deceptive claims to sell consumers investment advising services—often claiming that the services’ recommendations were based on a specific “system” or “strategy” created by a purported expert. The company charged consumers hundreds or even thousands of dollars for access to these services.
WealthPress sold consumers on their services with purported false claims about the likelihood consumers would make money by following the recommended trades, when in many cases consumers lost substantial sums of money. One claim allegedly noted in the FTC’s complaint, from a promotional video:
- “I’ll show you how you can potentially make $24,840 dollars—or more—every single week. With quick simple … trades that require zero market knowledge or trading experience.”
Other video ads purportedly included Scott implying that profits from the service’s recommendations enabled him to buy a home in Beverly Hills next door to Julia Roberts and Eddie Van Halen, and charter private planes to take him on vacation. Another supposed “expert” allegedly claimed his system allowed him “to do whatever I want, whenever I want,” that it has “granted me ultimate freedom,” and he’ll never have to work again.
The complaint alleges that the company’s videos made it seem as though the supposed “experts” whose trading strategies were being sold to consumers had made numerous successful trades. Allegedly, the trades were often not real, hadn’t been made by the “expert,” and were never sent to consumers.
In addition, the complaint alleges that the company’s disclaimers were often so far removed from the claims the company was making as to be useless to a consumer. The FTC alleges that so many consumers requested refunds or credit card chargebacks that WealthPress was put on a list of problematic merchants by Mastercard.
The FTC’s complaint alleges that by making these and numerous other deceptive claims to consumers, they were in violation of the Notice of Penalty Offenses, which specifically noted claims like these as having been found unlawful by the FTC in prior cases, as well as the Restore Online Shoppers Confidence Act and the FTC Act.
In 2021, the FTC issues a new Enforcement Policy Statement for Negative Option Marketing. There has been significant enforcement, including the WealthPress matter. According to the FTC, this it the first ever case where the agency has obtained civil penalties for violations of ROSCA.
The defendants in the case have agreed to a proposed court order that would require them to:
- Surrender money: WealthPress, Scott and Lynch would turn over more than $1.2 million to the FTC for use in providing refunds to consumers harmed by their actions. In addition, WealthPress would pay a $500,000 civil penalty.
- Back up any earnings claims: The defendants would be prohibited from making any claim about earnings without the evidence to back those claims up in writing.
- Inform consumers about the case: The defendants would be required to give notice to consumers about the case, the court order, and what they should know before buying an investment-related service.
Importantly, in 2022, the FTC announced plans to review its Dot Com Disclosure Guidance because “some companies are wrongly citing the guides to justify practices that mislead consumers online.” In WealthPress, the FTC stated concern about the company’s disclaimers, saying that they were “ineffective” and failed prevent the company’s earnings claims from being misleading and deceptive.
More specifically, the FTC said that, “To find the main disclaimer text on Defendants’ website, a consumer would have to scroll to the very bottom of Defendants’ website’s homepage and find and click a small text link. The link takes the user to a separate page displaying an extremely lengthy disclaimer, in legalistic wording, small print, and grey font.”
Marketers would be wise not wait until the FTC issues new Dot Com Disclosure Guidance.
Commissioner Christine S. Wilson issued an interesting statement.
The FTC has brought several cases recently against companies making false earnings claims, and it will not hesitate to bring more.
Richard B. Newman is an FTC CID lawyer at Hinch Newman LLP. Follow him on National Law Review @ FTC Defense Lawyer.
Informational purposes only. Not legal advice. May be considered attorney advertising.
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