Posts Tagged ‘deceptive practices’

FTC Attorney Covers Deceptive Representations at DSA Teleconference

Thursday, April 3rd, 2014

The Direct Selling Association’s recent Code Responsibility teleconference featured a presentation on deceptive representations in earnings claims by FTC attorney Janice Kopec.

An earnings claim is a statement made by a company or its representative about the income an individual can earn from a business opportunity. The FTC requires any earning claims be presented in writing; any claims not supported by written documents are illegal.  According to Ms. Kopec, the Earning Claims Statement must include:

  • The name of the person making the claim and the date
  • The specifics of the claim
  • The start and end date those earnings were achieved
  • The number and percentage of your buyers who got at least that result
  • Any information about the buyers who got those results that might vary from prospective buyers – for example, where they’re located
  • A statement that prospective buyers can get written proof for your earnings claims if they ask for it

Kopec talked about how the FTC examines earnings claims to determine whether they comply with the rule. Aside from the basic criteria – whether a claim is material, whether the proper disclosure statements are provided, etc.  -  the FTC looks at how the typical consumer will perceive the claims. (more…)

FTC Action Under Updated Business Opportunity Rule Leads to Smart Tools LLC Settlement

Monday, December 2nd, 2013

One of the first Federal Trade Commission actions brought under the updated Business Opportunity Rule has led to a settlement that permanently bans the operators of Smart Tools LLC, Kristin Hegg and Curtis Dawn, from deceptive sales practices. The settlement order imposes a $7.4 million judgment that will be suspended when $234,847 has been paid. The full judgment will be due immediately if they are found to have misrepresented their financial condition.

The FTC charged Smart Tools LLC, Hegg and Dawn, with deceptively selling a work-at-home business opportunity that promised buyers earnings up to $38,943 per year as “Government Insurance Refund Processors.”  As processors, the buyers of the program would find people eligible for refunds of their mortgage loan insurance premiums and charge a fee for telling them how to get the refunds. (more…)

Affiliate Network Pays $1 Million to Settle FTC Fake News Charges

Friday, September 14th, 2012

The Coleadium, Inc. affiliate network, also known as “Ads4Dough,” and its owner will pay $1 million to settle a Federal Trade Commission complaint that they used fake news sites to make deceptive claims to promote acai berry supplements and “colon cleansers” as weight-loss products. In addition, the FTC charged that they used “free trial” offers to trick consumers into signing up for additional shipments that were billed monthly.

The products included the acai berry supplements AcaiOptimum, AcaiBurn-Force Max, Acai Tropic, Acai Fit, and Acai Elite Blast; as well as colon cleansers Natura Cleanse, Smart Colon Flush, Advanced Colon Max, and Colo Flush.

The FTC’s complaint alleges that  Coleadium and its owner, Jason Akatiff, acted as intermediaries between online merchants selling the products and affiliate marketers who used fake news Web sites to promote them and funnel consumers to the merchants’ sites. The complaint alleges that through their affiliates, the company and its owner:

  • made false or unsupported claims that use of the acai and colon cleanser products would cause rapid and substantial weight loss;
  • falsely represented that the stories on the fake news sites were objective news reports written by real reporters who conducted independent tests of the products, and that the comments following were those of independent consumers;
  • failed to adequately disclose that the content on the fake news sites was authored by affiliate marketers who, along with the defendants, received payments from the merchants; and
  • failed to adequately disclose that consumers who sign up to receive a trial supply of the advertised products but who do not return the products and cancel quickly will be charged for the products, and will be shipped more products and billed on a recurring basis.

In addition to the $1 million payment, the settlement requires Coleadium and Akatiff to monitor the affiliate marketers in their network to ensure that their statements are truthful and in compliance with federal advertising law. In addition, they are barred from making any material deceptive representations, including deceptive claims about weight loss and health, and about relevant studies, tests and research.

They also are barred from failing to disclose any material connection between themselves or others marketing or selling products, and the endorsers of the products; that the content of a “news” website or other publication was not written by an objective reporter but is an advertisement placed for payment; and that consumers may be subject to recurring charges when they sign up for trial supplies of the products.

Facebook Settles FTC Privacy Complaint

Monday, December 5th, 2011

Facebook has agreed to settle FTC charges that it deceived consumers by telling them they could keep their information on Facebook private, and then repeatedly allowing it to be shared and made public. The eight-count complaint charges that the claims were unfair and deceptive, and violated federal law.

Similar to the recent Google Buzz privacy settlement, the proposed Facebook settlement requires the social networking company to take specific steps to ensure it lives up to its privacy promises, including giving consumers clear and prominent notice and obtaining the user’s express consent before their information is shared beyond the privacy settings the user has established.

Facebook also will be required, for the next 20 years, to obtain independent, third-party audits certifying that it has a privacy program in place that meets or exceeds the requirements of the FTC order, as well as to ensure that the privacy of consumers’ information is protected.

The proposed settlement also

  • bars Facebook from making misrepresentations about the privacy or security of user’s personal information.
  • requires Facebook to obtain a user’s express consent before effecting changes that override their privacy preferences.
  • requires Facebook to prevent anyone from accessing a user’s material more than 30 days after the user has deleted the account.
  • requires Facebook to establish and maintain a comprehensive privacy program designed to address privacy risks associated with the development and management of new and existing products and services, and to protect the privacy and confidentiality of users’ information.
  • requires Facebook within 180 days, and every two years after that for the next 20 years, to obtain independent, third-party audits certifying that it has a privacy program in place that meets or exceeds the requirements of the FTC order, and to ensure that the privacy of consumers’ information is protected.

Among the instances cited in the complaint where allegedly made promises that it did not keep:

  • In December 2009, Facebook made changes that allowed made public certain information that users may have designated as private without warning users of the change or getting their approval in advance.
  • Facebook represented that third-party apps that users’ installed would have access only to user information that they needed to operate. In fact, the apps could access nearly all of users’ personal data – data the apps didn’t need.
  • Facebook told users they could restrict sharing of data to limited audiences – for example with “Friends Only.” In fact, selecting “Friends Only” did not prevent their information from being shared with third-party applications their friends used.
  • Facebook promised users that it would not share their personal information with advertisers when in fact, it did.

FTC Gives Final Approval to Google Buzz Settlement

Monday, November 14th, 2011

The FTC has approved the settlement with Google regarding the FTC complaint that Google used deceptive practices and violated its own privacy policy when it launched Google Buzz.

The settlement bars Google from future privacy misrepresentations, requires it to implement a comprehensive privacy program, and calls for regular, independent privacy audits for the next 20 years. This is the first time an FTC settlement order has required a company to implement a comprehensive privacy program to protect the privacy of consumers’ information.

FTC Charges Deceptive Privacy Practices in Google’s Rollout of Buzz

Thursday, April 7th, 2011

Google Inc. has agreed to settle an FTC complaint that it used deceptive tactics and violated its own privacy policy when it launched the Google Buzz social network last year.  In addition to alleged FTC privacy violations,  this is the first time the FTC has alleged violations of the substantive privacy requirements of the U.S.-EU Safe Harbor Framework, a method for U.S. companies to transfer personal data lawfully from the European Union to the United States.

The settlement agreement bars the Google from future privacy misrepresentations, requires it to implement a comprehensive privacy program and includes regular, independent privacy audits for the next 20 years. This is the first time an FTC settlement order has required a company to implement a comprehensive privacy program to protect the privacy of consumers’ information.

According to the FTC complaint, on the day Buzz was launched through the Gmail service, users got a message announcing the new service and were given two options: “Sweet! Check out Buzz,” and “Nah, go to my inbox.” However, some Gmail users who clicked on “Nah…” were enrolled in certain features of the Google Buzz social network anyway. For those Gmail users who clicked on “Sweet!,” the FTC alleges that they were not adequately informed that the identity of individuals they emailed most frequently would be made public by default. Google also offered a “Turn Off Buzz” option that did not fully remove the user from the social network.

When Google launched Buzz, its privacy policy stated that “When you sign up for a particular service that requires registration, we ask you to provide personal information. If we use this information in a manner different than the purpose for which it was collected, then we will ask for your consent prior to such use.” The FTC complaint charges that Google violated its privacy policies by using information provided for Gmail for another purpose – social networking – without obtaining consumers’ permission in advance.

The agency also alleges that by offering options like “Nah, go to my inbox,” and “Turn Off Buzz,” Google misrepresented that consumers who clicked on these options would not be enrolled in Buzz. In fact, they were enrolled in certain features of Buzz.

The complaint further alleges that a screen that asked consumers enrolling in Buzz, “How do you want to appear to others?” indicated that consumers could exercise control over what personal information would be made public. The FTC charged that Google failed to disclose adequately that consumers’ frequent email contacts would become public by default.

Finally, the agency alleges that Google misrepresented that it was treating personal information from the European Union in accordance with the U.S.-EU Safe Harbor privacy framework. The framework is a voluntary program administered by the U.S. Department of Commerce in consultation with the European Commission. To participate, a company must self-certify annually to the Department of Commerce that it complies with a defined set of privacy principles. The complaint alleges that Google’s assertion that it adhered to the Safe Harbor principles was false because the company failed to give consumers notice and choice before using their information for a purpose different from that for which it was collected.

You can read the settlement agreement, as well as the original complaint and accompanying exhibits on our Web site.

Is Your Compensation Plan Legal?

Tuesday, January 18th, 2011

Not a week goes by that I’m not asked by an MLM marketer if their plan is legal. Sometimes the question is slightly different (“Is my plan a pyramid?”), but those asking still expect an answer based on a review of their compensation plan as it is presented on paper.

This highlights the overwhelming misperception among network marketing executives that they have nothing to worry about so long as their compensation plan is not a pyramid. In fact, regulators rarely initiate actions based on the plan’s structure. In determing if a company is engaging in unfair or deceptive consumer practices, they look first at the  conduct of the company and its sales force.

In the last decade all of the major FTC lawsuits against network marketing companies were initially instituted under the broad umbrella of deceptive trade practices.

Continue reading about how to identify and avoid conduct commonly practiced by network marketers that regulators attack as deceptive or unfair practices.