December 21, 2017
The Federal Trade Commission (“FTC”) announced that it recently settled a work at home lawsuit against a group of defendants that offered consumers business opportunities to earn money from working at home. The FTC alleged that defendants Bob Robinson, LLC, Mega Export 2005 Inc., Mega Export USA Inc., Netcore Solutions, LLC, and their representative principals (collectively “Defendants”) violated Section 5 of the FTC Act and the FTC’s Business Opportunity Rule by: (1) making false, misleading, and/or unsubstantiated claims regarding earnings that consumers could make working while at home; and (2) failing to provide required disclosure documents to consumers who purchased Defendants’ work at home opportunities. As part of the settlement, Defendants agreed not to offer business opportunities or business coaching services in the future.
What is the Business Opportunity Rule and how did Defendants violate it?
Don’t Quit Your Day Job – FTC’s Work at Home Lawsuit
Working from home for legitimate employers has exploded in recent years as 24 percent of employed people did some or all of their work from home in 2015. However, business opportunities that appear on the Internet or in your email inbox promising earnings of hundreds or thousands of dollars per month while you work from home often are too good to be true. The Business Opportunity Rule (the “Rule”) governs how work at home business opportunities can be marketed to the public. In particular, the Rule requires business opportunity sellers to provide prospective consumers with certain “disclosure documents” and, among other things, for sellers to be able to substantiate earnings claims with written documentation.
According to the settled FTC work at home complaint, dating back to 2011, Defendants advertised, marketed, distributed, promoted, or sold work at home opportunities to consumers over the Internet through certain brand names, including Work At Home Ecademy, Work At Home EDU, Work At Home Institute, Work At Home Program, Work At Home Revenue, and Work At Home University. The FTC claimed that Defendants used “native” advertising to lure consumers into purchasing their work at home opportunities. “Native” advertising is online content that matches the form and style of the host platform on which it appears. For example, in the instant matter, Defendants’ placed a link to one of its brands at the end of an article featured on Forbes.com that discussed work at home opportunities. The FTC claimed that Defendants misled consumers into purchasing their work-at-home opportunities, in violation of the FTC Act and the Rule, by making false, misleading, and/or unsubstantiated “earnings claims” promising consumers a level of earnings per month that they were unlikely to achieve, such as:
- “Texas Mom Makes Extra $8000/Month,”
- “earn[] hundreds of dollars per hour from home,”
- “start making up to $379 per day,” and
- “a few hundred to tens of thousands of dollars per month.”
In fact, according to the FTC, “[m]ost, if not all, enrolled consumers do not earn any income whatsoever with Defendants’ work-at-home opportunities.” In addition, the FTC claimed that the Defendants’ “paid member area” on one of its websites further induced consumers into purchasing bonus offers, upgrades, and “business coaching” services through false and/or unsubstantiated “earnings claims.” According to the FTC, business coaching services often cost consumers thousands of dollars and Defendants, in some instances, received up to 35% of the sales generated from consumers.
Settlement Agreement and Payment
The work at home settlement order was entered by the United States District Court for the Southern District of Texas on December 7, 2017. The Defendants agreed to turn over money and assets valued at $1.5 million and to a suspended judgment of $35.1 million. In addition, the Defendants are permanently restrained and enjoined from: (1) advertising or offering any Business Opportunity or Business Coaching Program; (2) making earnings claims unless they are compliant with the Rule; and (3) misrepresenting any material fact to consumers concerning any product or service.
A “Million” Reasons to Follow the Rules
The majority of the violations alleged by the FTC in this lawsuit stem from Defendants failure to follow the basic principles of the Business Opportunity Rule—provide required disclosures and have written proof to substantiate all earnings claims, among other things. To help avoid a work at home lawsuit or other regulatory investigation, businesses that offer work at home opportunities should carefully review the FTC’s Rules and consult with experienced counsel.
If you are interested in learning more about this topic, or if you have been served with legal process relating to false or misleading advertising, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for information 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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