FTC Returning Almost $25 Million to Consumers for Sweepstakes Law Violations - Klein Moynihan Turco LLP

FTC Returning Almost $25 Million to Consumers for Sweepstakes Law Violations

Running a successful sweepstakes contest is a proven, effective way to expand and retain your customer base. In order for the contest to be successful, the entire promotion must be prepared and executed according to applicable regulations, down to the issuing of prizes. Failing to adhere to sweepstakes laws will serve to invalidate the contest at the very least and expose promotors to liability and monetary penalties at the worst. Unfortunately, there are scheming contest promoters out there who not only fail to follow applicable regulations, but even use scam techniques to dupe vulnerable consumers.

An Example of Why You Need to Follow Sweepstakes Laws

The Federal Trade Commission’s (“FTC’s”) complaint against Next-Gen, Inc., and related individuals (and corporations under their control), alleged that defendants sent tens of millions of deceptive personalized mailers to consumers throughout the world. According to the FTC’s press release, these mailers “falsely told recipients they had won or were likely to win a substantial cash prize, as much as $2 million, in exchange for a fee ranging from $9.00 to $139.99.” This is a clear violation of sweepstakes laws. Why? Because every sweepstakes contest must provide a free alternative means of entry (“AMOE”). In addition, requiring a contestant to pay any amount of money to win or collect a prize is illegal. 

What Happens When You Fail to Comply with Sweepstakes Law?

In the Next Gen case, Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, pointed out that the defendants “tricked millions of people – many of them older adults – into paying money to collect prizes that never materialized.” After filing the complaint, the FTC worked with the Missouri Attorney General’s Office and reached a settlement with defendants. The FTC is now sending reimbursement payments to 244,745 consumers in the United States and throughout the world. In total, the FTC is returning virtually $25 million to customers affected by this alleged scam, for what appears to be clear violations of applicable sweepstakes laws, rules and regulations.  

How to set up a Contest that Comports with Sweepstakes Laws

At a minimum, sweepstakes contests must include the following provisions: the promotion’s duration, entry eligibility, winner selection process, prize amounts, number of available prizes and, as mentioned above, a free alternative means of entry. To ensure that a contest comports with applicable sweepstakes law and regulations, it’s important that you contact an experienced promotional law attorney with in-depth industry-specific knowledge. 

If you are interested in learning more about this topic or require assistance with drafting sweepstakes contest rules, please email us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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Photo by Michael on Unsplash

Related Blog Posts:

Why Sweepstakes Contest Rules Matter

DOJ Announces International Telemarketing Sweepstakes Fraud Scheme

Why Sponsors Must Adhere To Sweepstakes Regulations


David Klein

David Klein is one of the most recognized attorneys in the technology, Internet marketing, sweepstakes, and telecommunications fields. Skilled at counseling clients on a broad range of technology-related matters, David Klein has substantial experience in negotiating and drafting complex licensing, marketing and Internet agreements.

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