This week, the Federal Trade Commission (“FTC”) obtained final judgments against various defendants involved in an elaborate telemarketing operation which the FTC claimed swindled victims out of more than $7 million. The judgments, obtained in the United States District Court for the District of Arizona, imposed monetary sanctions of $7.3 million, as well as bans on selling business or work-at-home opportunities and other misconduct alleged by the FTC to have violated the FTC Act and the Telemarketing Sales Rule, respectively.

What was the scam that drew the FTC’s ire?

Through an elaborate and sophisticated network of interrelated companies, including various telemarketers and payment processors, the defendants contacted consumers to inform them about certain business opportunities which consumers could purchase. The defendants, claiming to work for a group of lenders that made loans to small businesses, sold business opportunities to consumers which falsely offered consumers the chance to earn money by referring businesses to the supposed lenders. Under the terms of this work-at-home program, consumers were obligated to pay an initial sign-up fee of up to $499 and required to create their own limited liability company, at their own additional expense, to participate in the business opportunity. The next stage of the program involved the sale of fake leads to the consumers, which in some instances cost tens of thousands of dollars. At each stage of the operation, consumers were told that they would quickly recoup their investments and that they could earn thousands of the dollars per month. However, the typical consumer did not earn any income from the business opportunity because the entire operation was allegedly a sham, and the vast majority of the victims were elderly people who were often repeatedly called despite being on the Do-Not-Call Registry and who otherwise requested to no longer be contacted by the related telemarketers.

Best Practices to Avoid Telemarketing Lawsuits

As we have previously written, federal authorities and state attorneys general have been increasingly aggressive in investigating and prosecuting companies for deceptive advertising and marketing practices.   Telemarketers continually face a wide range of legal risks, the consequences of which may lead to disastrous results. Though this case highlights companies that may harbor more sinister motivations than the typical telemarketer, the FTC’s actions only serve to reinforce the importance of minimizing one’s risk by engaging knowledgeable legal counsel prior to undertaking a campaign to ensure that marketing practices and procedures are fully compliant with applicable laws and regulations.