Commission Alleges Continuing Violations of Two Injunctive Provisions
Despite collecting millions from consumers over the past five years pitching his "Wall Street Workshop" to investment-minded consumers, financial "guru" Wade Cook and his company, Wade Cook Financial Corporation (WCFC), allegedly have failed to comply with an October 2000 U.S. District Court order. Among other things, they have failed to disclose the current rate of return for their stock trading investments, substantiate all promotional claims, and make redress payments to compensate eligible customers who did not make more money trading stocks than they had paid to attend the workshop. Accordingly, the FTC today announced it is seeking civil contempt against Cook, WCFC, and Stock Market Institute of Learning, Inc. (SMIL), the successor to Wade Cook Seminars, Inc. (WCSI). In addition to asking the court to enforce the original terms of the order, the FTC is requesting that an administrator be appointed to oversee the redress fund, and that the redress program be extended to cover purchasers of stock market investment seminars from October 13, 2000 through the present.
"When the FTC enters into an order settling allegations that a defendant misled or defrauded consumers, it expects the terms of that order to be followed," said J. Howard Beales III, Director of the Commission's Bureau of Consumer Protection. "If an order's provisions are not met, the FTC can and will seek civil contempt charges and appropriate consumer redress. There has been serious consumer injury in this case, and that injury must be addressed by the defendants."
According to the FTC's 2000 complaint, WCFC's advertising and promotional materials contain express or implied false claims that Cook had earned and consumers would earn extremely high rates of return -- returns of 20 percent or more per month -- on their investments using Cook's trading strategies.
The complaint also alleged that the testimonials presented in promotional materials and financial clinics do not reflect the typical or ordinary experience of the Wall Street Workshop graduates, as claimed by the defendants. The complaint further charged that WCFC did not possess and rely upon a reasonable basis to substantiate its claims. Finally, the complaint alleged that, in connection with representations about their success in the stock market, WCFC failed to disclose the actual rate of return earned on its stock market investments, which was far lower than the claimed rate of return.
Concurrent cases were filed by offices of the state attorneys general of Washington, Texas, California, Alaska, Arizona, Idaho, Illinois, Kansas, Missouri, New Mexico, North Carolina, Oregon, Pennsylvania, and Wisconsin. The Washington Department of Financial Institutions provided assistance.
The FTC's Contempt Charges
According to the FTC, since the order was issued in October 2000, WCFC and Cook have been operating in violation of two injunctive provisions: 1) Paragraph I.A., which requires WCFC to disclose the current rate of return from stock trading in all promotions for its stock trading seminars; and 2) Paragraph I.E., which prohibits unsubstantiated promotional claims for its stock trading seminars. The Commission contends that while WCFC has made some required changes to its promotional material, its Financial Clinic speakers continue making success and earnings claims that have no reasonable basis and that they can not substantiate. When WCFC has disclosed rates of return either at the Financial Clinics or in promotional materials, the FTC says, it is typically much higher than what was actually earned.
The Commission further alleges that WCFC and Cook have violated the redress provisions of the order by: 1) failing to comply with the deadlines established for processing consumer claims; and 2) failing to make redress payments owed. The FTC contends that WCFC also has misinterpreted the order's requirements by mailing the redress program notices to consumers using its return address on the envelope instead of that of the FTC Redress Program, causing more than half of the eligible consumers to disregard the Redress Program notices.
Based on these allegations, the FTC is seeking a court order holding WCFC and Cook in contempt for noncompliance with the prior order, and is seeking compensatory sanctions and other relief including: 1) compensation for consumers who were injured by WCFC's and Cook's violations, with both jointly liable for the payment of refunds to post-October 13, 2000 claimants; 2) a requirement that WCFC and Cook obtain a signed and dated rate of return disclosure form containing the correct rate of return from each consumer paying to attend one of the company's seminars; 3) the appointment of a redress administrator to take control of the redress program; 4) the payment by WCFC and Cook of $5 million into a redress fund established and controlled by the administrator, and 5) re-mailing of redress program notices.
The FTC application for a motion for contempt was filed in the Federal District Court for the Western District of Washington on February 20, 2002.
NOTE: The filing of a motion for contempt does not constitute a finding or ruling that the defendant has actually violated the court's order. The determination of whether the defendants have in fact violated the order will be decided by the court.
Copies of the motion for contempt are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. X010014; Civ. Action No. C00-1698Z)
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