FTC Sweep Against Internet Business Coaching Model Continues
The Federal Trade Commission has announced that it has charged three individuals and nine businesses with generating more than $100M from thousands of consumers with an alleged fraudulent business education program called “My Online Business Education.”
A federal court halted the scheme and froze the defendants’ assets at the FTC’s request.
According to the Commission, the defendants behind the international operation target U.S. consumers – including service members, veterans and older adults – all consumer classes that regulators take extra precautions to protect. The agency alleges that marketing efforts included online display ads, direct mail and live events.
The FTC alleges that the defendants falsely claim that their business education program will enable registrants to start their own online businesses and earn substantial income. According to the complaint, the defendants tout a “proven” system for making substantial sums of money from online marketing.
As set forth in the complaint, although the initial entry fee for Defendants’ 21-Step System is relatively modest—typically $49 or less—as consumers proceed through the steps, they are bombarded with sales pitches for various membership packages costing thousands of dollars that consumers must buy in order to continue through and complete the 21-Step System.
The FTC also alleges that the vast majority of consumers who join the MOBE program and purchase the costly MOBE memberships lose money. Specifically, in its Motion for a Temporary Restraining Order, the agency states that, contrary to defendants’ claims that consumer who join the MOBE program will make substantial income easily and quickly, the reality is that most consumers make very little to no money in this program.
“The few consumers who are able to earn some commissions rarely earn enough to offset the thousands of dollars they spent on their own memberships. Sadly, many consumers discover too late that they are not going to make money with the MOBE program. Some consumers have lost their entire savings to defendants, while others have incurred substantial debt following Defendants’ “financing” strategy,” the FTC alleges. “For example, after receiving defendants’ assurances that he would quickly make his money back, one consumer victim was left with $80,000 on credit cards that he opened at defendants’ behest to pay for his Diamond membership. Another consumer victim spent close to $60,000 and took money out of her retirement account to pay for the MOBE memberships.”
The FTC alleges that defendants know the truth about how much money consumers will actually make using the MOBE program. It cites to an “inconspicuous” link to a webpage titled “Income Disclosure” that purports to provide data on how much purchasers of MOBE memberships actually earn. The Commission alleges that defendants’ income statement, for the period 2014 to 2015, states in fine print that the “average Consultant, which includes both active and inactive, generates less than $250 per year,”59 which translates to about $21 per month.
The fine print in defendants’ income statement for the period 2016 to 2017, according to the FTC, states that the average Active MOBE Consultant generates less than $700 per year in commissions, and that most registrants are unlikely to see the income data contained in the income disclosure.
Contact an FTC defense lawyer if you or your company are the subject of a regulatory investigation, or if served with process.
Richard B. Newman is a partner with the law firm Hinch Newman LLP. He provides litigation and counseling services, with a focus on advertising law matters and consumer protection. Among other work, he represents clients in advertising substantiation proceedings and investigations conducted by the Federal Trade Commission.
ADVERTISING MATERIAL. Informational purposes only. Not legal advice. Always seek the advice of an attorney. Previous case results do not guarantee similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777.