FTC Settlement Bars Marketers from Using Deception to Sell Business Opportunities

For Release

The operators of a scheme to market a government insurance refund processing business are permanently prohibited from deceptive sales practices under a settlement with the Federal Trade Commission. The case is one of the first actions the FTC brought under its updated Business Opportunity Rule, which requires business opportunity sellers to provide specific information on a simple, one-page disclosure form to help consumers evaluate a business opportunity.

In November 2012, the FTC charged Smart Tools LLC and Kirstin Hegg with deceptively selling a home-based business opportunity that promised buyers they could earn up to $38,943 per year as “Government Insurance Refund Processors” – by finding persons eligible for refunds of their mortgage loan insurance premiums and charging a fee for telling them how to get the refunds.

Consumers incurred a recurring monthly charge of $29.99 (after a free trial period) for access to lists of refund-eligible persons and some refund-processing software. Although Smart Tools and Hegg led consumers to believe that the lists of those eligible for refunds were not available free of charge, the Department of Housing and Urban Development offers the same lists for free online.

Under the settlement order, the defendants, including newly added defendant, Curtis Dawn, are barred from failing to provide the disclosure form required under the business opportunity rule at least seven days before a contract is signed or a payment is made when selling business and work-at-home opportunities. The form includes information such as the seller’s name, address, phone number, and the salesperson’s name.

The disclosure form includes any earnings claims and must disclose the start and end dates when the earnings were made, and the number and percentage of people who bought the business opportunity and earned at least that amount. The form also must include any legal actions against the seller, or cancellation and refund policies, as well as references for all buyers of the business or work-at-home offer in the past three years, or if there are more than 10 former buyers, the names, states, and phone numbers of at least 10 of them.

The defendants also are prohibited from making any earnings claim directly to a buyer or in general media advertising unless they have a reasonable basis for making the claim and provide written substantiation upon request by a prospective buyer. The order also bars the defendants from misrepresenting material facts about any products and services and failing to comply with the Business Opportunity Rule.

In addition, the order requires the defendants to give the FTC a list of all of their customers, from January 1, 2009, until the date of the order, who have not canceled or are still being charged or billed. They must notify those customers of the order, immediately cancel their subscriptions, and stop charging them unless the consumers notify the defendants, in writing, that they wish to continue their subscriptions with Smart Tools, and agree to pay the ongoing credit or debit card charges. In addition, defendants are prohibited from selling or otherwise benefitting from customers’ personal information, and failing to properly dispose of customer information.  

The order imposes a $7.4 million judgment that will be suspended when defendants have paid $234,847. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.

To help avoid these kinds of scams, visit the FTC’s Business Opportunity Scams and read Bogus Business Opportunities, Government Job Scams, Work-at-Home Businesses, and Mystery Shopper Scams, or go to the FTC’s Telemarketing Scams page.

The Commission vote authorizing the staff to refer the proposed amended complaint and proposed consent judgment to the Department of Justice was 4-0. The DOJ filed the amended complaint and proposed consent judgment on behalf of the Commission in U.S. District Court for the District of Oregon, Portland Division, November 25, 2013.

NOTE:  The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. Consent judgments have the force of law when signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.  To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357).  The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad.  The FTC’s website provides free information on a variety of consumer topics.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

Contact Information

MEDIA CONTACT:
Frank Dorman
Office of Public Affairs
202-326-2674
 
STAFF CONTACT:
Kathryn Decker
FTC Northwest Region, Seattle
206-220-4486