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On November 17, the FTC announced it is soliciting public comments on possible modifications to the Business Opportunity Rule. According to the FTC’s advance notice of proposed rulemaking (ANPR), the Commission is seeking feedback on the rule’s effectiveness, whether it is necessary, and whether it should be expanded to cover other types of money-making opportunities, such as coaching or mentoring programs, e-commerce opportunities, or investment opportunities. The Business Opportunity Rule prohibits the use of deceptive statements when selling business opportunities, and requires sellers to make several key disclosures to potential buyers, including: (i) the seller’s identifying information; (ii) information supporting claims about possible earnings or profits; (iii) disclosures about whether the seller, its affiliates, or key personnel have been included in certain legal actions; (iv) information on whether the seller has a cancellation or refund policy and any applicable policy terms; and (v) a list covering the past three years of consumers who have purchased the business opportunity. The FTC will also require sellers who conduct business in languages other than English to provide disclosures in the language in which the sale is conducted.
The ANPR also asks commenters to address whether business opportunity practices “disproportionately target or affect certain communities or groups, including but not limited to people living in lower-income communities, communities of color, or other historically underserved communities,” and requests feedback on suggested amendments to address any negative effects. Comments on the ANPR are due 60 days after publication in the Federal Register.
On November 16, the FTC announced an action against a company that markets and sells business opportunities for allegedly pitching deceptive moneymaking schemes promising big returns to consumers. Claims were also brought against the company owners. The FTC alleged in its complaint that the defendants violated the FTC Act, the Business Opportunity Rule, and the Consumer Review Fairness Act by selling business packages and business coaching through an internet retailer under various names that promised consumers they could “generate passive income on autopilot.” However, the FTC claimed the defendants charged consumers between $5,000 and $100,000 for the programs and used fake consumer reviews in their marketing and sales pitches. Few consumers ever made money from these schemes, the FTC said. Additionally, the defendants allegedly charged consumers thousands of dollars to participate in a cryptocurrency investment service, which defendants claimed could generate profits for consumers “while you sleep.” According to the FTC, the defendants harmed consumers by, among other things, (i) deceiving them about potential earnings; (ii) using fake testimonials; (iii) suppressing negative reviews and promising refunds to consumers if they removed their complaints; (iv) threatening to sue dissatisfied consumers and adding language to contracts to prevent consumers from leaving negative reviews; and (v) failing to provide required disclosures when selling their programs.
Under the terms of the proposed stipulated order, the defendants will be prohibited from making deceptive earnings claims and misleading consumers about the nature of their products, including the likelihood of profits. Defendants must also stop engaging in behavior that interferes with consumer reviews and complaints. The defendants will also be required to pay $2.6 million in monetary relief. The proposed order includes nearly $53 million in total monetary judgment, which is partially suspended due to defendants’ inability to pay.
On February 17, the FTC announced that it is mailing checks to 2,031 consumers who lost money as part of a business opportunity scheme that cheated consumers out of more than $7 million. The compensation follows a 2013 complaint filed by the Commission focused on 20 individuals and eight companies who, according to the Commission’s allegations, “falsely claimed consumers would earn up to $3,000 per month by referring small businesses to the defendants to obtain an average loan or cash advance of $20,000, and that they could operate a profitable business from their home.” The defendants were charged with engaging in unlawful conduct by: (i) falsely claiming consumers would earn substantial income; (ii) repeatedly calling consumers who told them not to call, often times using obscenities and threats, as well as calling numbers listed on the National Do Not Call Registry; and (iii) failing “to provide specific information to help consumers evaluate a business opportunity…and making earnings claims without substantiation,” in violation of the FTC’s Business Opportunity Rule.
The FTC obtained judgments and settlements in 2015 totaling over $7.3 million, and banned 18 defendants from similar telemarketing activities.
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