The FTC filed an action in an Arizona federal court alleging that North America Marketing and Associates LLC (and numerous other defendants) engaged in deceptive marketing practices in violation of the FTC Act and the Telemarketing Sales Rule.
The FTC specifically accused defendants of defrauding consumers into buying a business opportunity that would show consumers how to operate their own Web site business. The court issued a temporary restraining order against defendants.
According to the FTC’s complaint, “Since at least 2006 . . . Defendants have marketed their home-based Internet business opportunities to consumers throughout the United States and Canada. These business opportunities offer consumers a chance to operate their own Internet website, which Defendants represent will earn commission-based income for the website’s owner.” The defendants’ business opportunity was marketed online and through telemarketing as a “turn-key” Internet-based business costing from $100 to $400 that will earn consumers “thousands of dollars” on the Internet and through telemarketing.
As part of its sales pitch, defendants allegedly promised that it would link consumers’ Web sites to major retailers and provide professional business consulting services or a marketing coach at no additional cost. However, according to the FTC, the marketing coach only served to promote an upsell for needless marketing services. These services include an advertising package to promote the consumer’s Web site for an additional $5,000 to $20,000. Defendants allegedly represented that the business would yield monthly profits ranging from $3,000 to $20,000.
With its complaint, the FTC filed, and the court granted, an application for a temporary restraining order against defendants. The federal court found good cause to believe defendants may have violated Section 5 of the FTC Act and the Telemarketing Sales Rule, and if so, consumers would suffer irreparable harm absent such relief. The court also found good cause to appoint a receiver and to freeze defendants’ assets. The TRO prohibits defendants from generally misrepresenting any material facts that would induce consumers to purchase the business opportunity. Specifically, it prohibits them from misrepresenting that consumers will quickly recoup the cost of the advertising package, or that business experts, professionals, or coaches will substantially assist consumers with their online businesses.
To read the FTC’s complaint or the court’s order granting the FTC a TRO, click here.
Why it matters: The FTC’s lawsuit reminds the business community that the promotion or creation of get-rich-quick schemes invites costly enforcement action by the FTC as well as potential civil suits. Businesses should only promote a legitimate business opportunity that will realistically help consumers to earn money. Otherwise, an FTC action seeking injunctive relief and drastic remedies, such as an asset freeze, may result.