The Federal Trade Commission halted the allegedly deceptive practices of two schemes that targeted consumers hoping to succeed through home-based businesses. The defendants behind both operations have agreed to settlements that will prohibit future misconduct, and in the Tax Club case, they will surrender assets valued at more than $15 million.
The FTC cases against The Tax Club and American Business Builders are part of a federal-state crackdown on scams that falsely promise jobs and opportunities to “be your own boss.” In the Tax Club case, brought by the FTC and the New York and Florida Attorneys General, operators sold services they allegedly falsely claimed would help consumers’ home-based businesses succeed. The operators of American Business Builders allegedly sold a home-based business opportunity where consumers could earn income offering payment processing services, credit card terminals, and merchant cash advances to small businesses.
“Before you put money into a work-at-home business opportunity, ask questions to determine if it is legitimate,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, adding, “We encourage consumers to read our consumer information to learn how to recognize schemes that promise more than they deliver.”
The Tax Club
According to the complaint filed in January 2013, The Tax Club called consumers and falsely claimed to be affiliated with companies that consumers had already bought services or products from. The complaint alleges that the defendants’ telemarketers pitched business development services such as business coaching services, corporate formation services, and credit development services, falsely claiming the services were essential to the success of consumers’ businesses. The complaint further alleges that after an initial sale, they called consumers numerous times to sell more “essential” services, typically for several thousand dollars per service, with a large initial fee and recurring smaller monthly “membership” payments. Many of the services offered by the defendants were neither essential nor provided as promised, according to the complaint.
Under settlement orders announced today, the settling defendants are required to surrender assets valued at more than $15 million, and they are banned from selling business coaching services and work-at-home opportunities, subject to certain exemptions. They are also permanently prohibited from misrepresenting material facts about any product or service, selling or otherwise benefitting from consumers’ personal information, violating the Telemarketing Sales Rule, and failing to clearly disclose the seller’s identity, that the purpose of a call is to sell a good or service, and the nature of the good or service.
The order against Edward B. Johnson also bans him from selling credit development, business planning, and merchant account processing services, and imposes a $115 million judgment that will be suspended upon surrender of certain assets valued at approximately $2.6 million. The assets to be turned over include bank and brokerage accounts, and proceeds from the sale of real and personal property. The full judgment will become due immediately if Johnson is found to have misrepresented his financial condition.
Under a separate settlement order, Brendon A. Pack, Michael M. Savage and all but one of the corporate defendants named in the complaint are also banned from selling credit development services. They are also prohibited from outbound telemarketing unless they have a consumer’s express written agreement to receive calls or they are fulfilling or providing services previously purchased by the consumer. The order imposes a $140 million judgment that will be suspended upon surrender of assets valued at approximately $13 million, including investment accounts and proceeds from the sale of numerous real properties. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.
“As a result of this settlement, former Tax Club executives will be giving up a substantial chunk of their personal assets,” said New York Attorney General Eric Schneiderman. “Before turning over your hard-earned money to telemarketers, it’s important to make sure they have a reputation for delivering what they promise.” Florida Attorney General Pam Bondi concurred, stating, “While work-at-home careers are an attractive opportunity for many people, it is imperative that Florida consumers do their research and report any possible scams to my office.”
The Commission vote authorizing the staff to file the proposed stipulated final orders was
5-0. The orders were entered by the U.S. District Court for the Southern District of New York on June 2, 2014.
American Business Builders
According to an FTC complaint filed in November 2012, the American Business Builders defendants falsely claimed that, for a fee ranging from $295 to $495, consumers could make substantial income in several ways, including earning commissions on terminals sold or leased to merchants in consumers’ communities. They also sold sales leads and promised to conduct telemarketing campaigns that would generate customers and income. The defendants charged $10 per lead, with some consumers paying up to $40,000, but they failed to provide the promised customer leads for the consumers, and the consumers did not earn any income. The court subsequently halted the operation, froze its assets, and put the companies into receivership.
The orders impose a judgment of more than $5.4 million, which will be suspended upon surrender of certain bank accounts and real and personal property, including a 2013 Cadillac Escalade ESV. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.
The Commission vote authorizing the staff to file the proposed stipulated final orders was 5-0. The orders were entered by the U.S. District Court for the District of Arizona on May 19, 2014.
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 , follow us on , and subscribe to press releases for the latest FTC news and resources.