Investment Software Vendors Settle FTC Charges

Ads Promised High Returns and Low Risk

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An investment trading software company that used theoretical past earnings charts to sell a high-priced software program has agreed to settle Federal Trade Commission charges that its claims were deceptive, in violation of federal law. The proposed settlement requires substantiation for any future earnings claims; bars misrepresentations that simulated earnings data represent actual trading results; and requires prominent disclosure of the high-risk nature of stock trading.

In May 2000, the FTC, Commodity Futures Trading Commission, and Securities and Exchange Commission announced a coordinated crackdown on deceptive trading promotions, and halted the claims of 14 online firms that promised to share the secrets of making easy money with little risk, using their trading strategies. This settlement represents a continuation of the FTC's enforcement efforts against these deceptive practices.

The FTC's complaint charges Indigo Investment Systems, Inc., and its CEO, Frank Alphonso, with making false and unsupported claims about the performance of their software. It alleges that ads for the Indigo software system, which sells for $3,000, contained elaborate graphs showing spectacular earnings trading a variety of stocks from 1990 through 1999. Ads also featured consumer endorsements with claims such as, "I have made a 200% profit in about 80 days." Market mailers claimed that ". . . clients have seen their conservative portfolios jump '40 percent annually over the past three years, while most aggressive portfolios with hot internet stocks have gone up several hundred percent.' " Many of these claims were repeated on Indigo's web sites.

The agency alleges that the earnings data described in the ads do not represent trades that were actually made, but were hypothetical trades prepared with the benefit of hindsight using historical data. It also alleges that users of the Indigo trading program cannot expect to trade with little financial risk. Therefore, the ad claims were false or misleading. The agency also charged that Indigo failed to have a reasonable basis for claims that Indigo users could expect annual returns ranging from 40 to several hundred percent; that testimonials in the ads reflect the  typical or ordinary experience of members of the public who use the program; and that users could reasonably expect to achieve substantial profits on a consistent basis. As they had no reasonable basis for these claims, the complaint alleges, they are in violation of federal law.

The consent order with Indigo and Alfonso, would bar unsubstantiated claims about earnings, income, profit or rate of returns or any financial benefit from a trading program. It bars misrepresentations that hypothetical or simulated earnings data are real, and misrepresentations that users can trade with little risk. It bars deceptive use of testimonials. Finally, the settlement would require that any future advertisements contain the disclosure, "STOCK [OR CURRENCY, OPTIONS, ETC., as applicable] TRADING involves high risks and YOU can LOSE a substantial amount of money."

The FTC has a free brochure, "Day Trading Ads: Cutting Through the Bull," available online at that advise consumers:

  • There's no fail-safe way to trade in stocks, commodity futures, options or similar investments without risk.
  • No computerized day trading system or advisory service can accurately predict what the price of a security, stock or bond will be on any particular day.
  • Even trading advisors with long histories of success can suddenly lose a fortune.
  • Extravagant profit claims and glowing testimonials are likely to be exaggerated or totally fabricated.

Your best protection as an investor is to know what you're buying, what the ground rules are when you buy and sell, and what level of risk you're assuming.

The FTC vote to accept the proposed consent agreement was 5-0. An announcement regarding the proposed consent agreements will be published in the Federal Register shortly. It will be subject to public comment for 30 days, until February 26, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint and consent are available from the FTC's web site at 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 online complaint form. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.


Claudia Bourne Farrell

Office of Public Affairs



Janet Evans

Bureau of Consumer Protection



(FTC File No. 002-3015)