The Federal Trade Commission sent Notices of Penalty Offenses to more than 1,100 businesses that advertise money-making opportunities, warning them that if they deceive or mislead consumers about the potential earnings they can achieve, "the FTC won't hesitate to use its authority to target them with large civil penalties."
In announcing the action, the FTC said that, "As the pandemic has left many people in dire financial straits, money-making pitches have proliferated and gained special attention. From multi-level marketing companies offering the dream of owning a business, to investment 'coaches' with promises of secrets on how to beat the odds, to ubiquitous 'gigs' that pitch a steady second income, Americans are bombarded by offers that often prove to be less than advertised."
The FTC's use of Notices of Penalty Offenses is the agency's attempt to try to beef up its enforcement authority after the U.S. Supreme Court, earlier this year, limited the FTC's ability to get financial relief from companies who violate the law. Although the FTC does not ordinarily have the ability to get civil penalties for violations of the FTC Act's prohibition on engaging in "unfair or deceptive acts or practices," the FTC is taking the position -- as yet untested -- that by sending these waves of Notices, it gives the agency the ability to obtain civil penalties of up to $43,792 per violation. Earlier this month, the FTC also sent Notices of Penalty Offenses about fake reviews and endorsements and about claims made by for-profit educational institutions. Whether the FTC's reliance on decades-old decisions, and mass-mailings of these Notices to companies who haven't engaged in the specific conduct in issue in those decisions, will hold up in court, remains to be seen.
The Notice of Penalty Offenses puts marketers on notice that it considers a wide variety of money-making claims to be deceptive, such as:
- Misrepresenting the typical amount that consumers will earn from money-making opportunities;
- Misrepresenting the guaranteed income that consumers will earn;
- Using testimonials touting exceptional results to mislead consumers about the typical earnings that they will earn;
- Misrepresenting that the money-making opportunity will only be made to a limited number of participants;
- Misrepresenting that participants will be screen for suitability;
- Misrepresenting that participants do not need experience in order to earn income;
- Misrepresenting that a prospective participant must act immediately in order to participate; and
- Misrepresenting that the purchase of the money-making opportunity is risk-free.
The Notice also warned recipients about engaging in deceptive conduct related to the use of endorsements and testimonials, including:
- Falsely claiming an endorsement by a third party;
- Misrepresenting that an endorser is an actual user, a current user, or a recent user;
- Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the views presented;
- Misrepresenting that an endorsement represents the experience, views, or opinions of users or purported users;
- Using an endorsement to make deceptive performance claims;
- Failing to disclose an unexpected material connection with an endorser; and
- Misrepresenting that the experience of endorsers represents consumers' typical or ordinary experience.
In a statement, Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said, "Preying on consumers and workers with bogus promises of big earnings should never be profitable. Today's announcement helps ensure that companies that cheat struggling Americans will pay a heavy price."
The FTC sent the Notice to more than 1,100 businesses "that cover a wide range of money-making opportunities, including multi-level marketing, 'gig' employers, investment and business coaching, franchises, business opportunities, and others." Significantly, the fact that the FTC sent a Notice to a company does not mean that the FTC has reviewed the company's advertising or made any determination that the company has engaged in any unlawful conduct.
This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.