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Financial Services Law Insights and Observations

FTC reaches settlements with affiliate marketers

Federal Issues FTC UDAP Enforcement FTC Act Marketing

Federal Issues

On March 5, the FTC announced settlements with four groups of affiliate marketers that, among other things, allegedly violated the FTC Act by using deceptive marketing tactics and earnings claims to persuade consumers to pay thousands of dollars each for business coaching and investment “mentoring” services. The FTC alleged in the first complaint that certain defendants sold membership packages for an online business coaching scheme, and then, when the business coaching scheme went out of business, created their own branded programs and systems that claimed consumers would be able to start their own online marketing businesses and earn substantial income. The defendants also allegedly encouraged consumers to open multiple credit lines to finance the purchases of these programs. The FTC claimed that the defendants “used straw signers and shell companies and provided banks and payment processors with ‘dummy’ websites to evade scrutiny by bank underwriters and obtain multiple merchant accounts to process credit card payments from consumers.” According to the FTC’s second complaint, the other defendants made deceptive earnings claims in order to recruit consumers into the now-defunct business coaching scheme and earned millions of dollars as a reward. In both complaints, the FTC claimed that most consumers who purchased the products suffered large losses and mounting debts.

Under the terms of the settlements, each of the defendants is permanently banned from selling or marketing any business coaching programs or money-making methods, and must pay judgments of (i) $3.35 million to be paid in full for potential consumer redress (order here); and (ii) monetary judgments totaling $38.1 million, which will be partially suspended due to the defendants’ inability to pay (orders here, here, and here).

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