After the cameras stop rolling
Every so often, the FTC announces a law enforcement sweep targeting a particular kind of deceptive practice. Sometimes there’s a press conference featuring federal agencies and state AGs. Blue suits and official seals abound. A typical headline: “More Than 70 Actions Brought By FTC and Its Law Enforcement Partners.” But do you ever wonder what happens after the cameras stop rolling?
Investigating questionable business practices and marshaling the evidence to file multiple lawsuits are just the start. After that, federal and state enforcers really roll up their sleeves and get down to the challenging task of preparing those cases for trial. In some instances — like the FTC’s settlement with work-at-home scheme operators Smart Tools LLC, Kirstin Hegg, and Curtis Dawn — the result is an order that puts provisions in place to protect consumers in the future.
The lawsuit was part of Operation Lost Opportunity, a coordinated effort announced in November 2012 targeting scams that took big bucks from more than two million consumers looking for employment offers or business opportunities. Oregon-based Smart Tools told people they could earn as much as $38,943 per year as “Government Insurance Refund Processors.” All they had to do was find homeowners eligible for refunds of their mortgage loan insurance premiums and charge a fee for telling them how to get their money. The pitch was persuasive: “For every refund you process you may be paid between $300 and $800.”
According to the FTC, after a free trial period, Smart Tools charged people $29.99 a month for some processing software and access to lists of people eligible for refunds. Although the defendants led people to believe this was inside information worth the monthly fee, the lists are publicly available on HUD’s website. One noteworthy aspect of this case: It’s among the first the FTC has filed alleging violations of the revised Business Opportunity Rule, which requires sellers to give consumers a one-page Disclosure Document with key information to help them evaluate the bizopp they’re thinking about buying — things like refund policies, legal actions, any earnings claims, and the names of recent buyers.
To settle the lawsuit, the order imposes a $7.4 million judgment that will be suspended when defendants have paid $234,847. The full judgment will be due immediately if it turns out they misrepresented their financial condition. What about people still getting charged for the service? The defendants have to notify them about the settlement and stop charging them unless the customers tell them in writing they still want the subscription and agree to continue paying.
What’s the message for business opportunity sellers? Honor your obligations under the Business Opportunity Rule:
- Give prospective buyers that one-page Disclosure Document at least 7 days before they sign a contract or pay any money.
- If you make earnings claims, you have to give the prospective buyer a separate document that says across the top EARNINGS CLAIM STATEMENT REQUIRED BY LAW.
- Comply with the Rule’s dos and don’ts about other truth-in-advertising requirements.
Read Selling a Work-at-Home or Other Business Opportunity? Revised Rule May Apply to You for details. This FTC video offers additional guidance.
What can bizopp buyers do to protect themselves?
- Think of that Disclosure Document like the nutritional label on food. Read “the back of the package” carefully.
- Reach out to the recent buyers listed on the form. Ask for specifics about how the program has worked for them.
- Don’t shell out even one thin dime before talking it over with an experienced business person in your family or community. Even mega-moguls have corporate boards they consult before making a move. Follow their example and seek out wise counsel before investing in a business opportunity.
The FTC has more tips to help entrepreneurs evaluate a potential business opportunity, work-at-home offer, or investment.