Markets Wired

The Federal Trade Commission won a court judgment against the marketers of three get-rich-quick systems who deceived nearly a million consumers. As part of its ongoing efforts to stop scams that prey upon financially distressed consumers, the FTC is seeking more than $450 million in monetary relief.

On April 20, 2012, Federal District Judge Jacqueline H. Nguyen, of the U.S. District Court for the Central District of California, granted the FTC’s request for summary judgment and asked the agency and defendants to submit arguments on the appropriate remedy for the violations. The marketers are behind the infomercials for “John Beck’s Free & Clear Real Estate System,” “John Alexander’s Real Estate Riches in 14 Days,” and “Jeff Paul’s Shortcuts to Internet Millions.” The court found that the infomercials misled consumers in violation of the FTC Act, and that despite the marketers’ easy-money claims for the systems, which cost $39.95 each, nearly all the consumers who bought them lost money.

Regarding the John Beck system, the court found that the defendants falsely represented that consumers could purchase homes at tax sales in their own area for pennies on the dollar and that they could make money easily with little financial investment. The court found that the earnings claims in the John Alexander infomercial were false, and that the Jeff Paul infomercial misled consumers by creating an overall impression that “a typical consumer can easily, quickly, and ‘magically’ earn thousands of dollars per week simply by purchasing and using” the system. In contrast to the infomercials’ easy-money claims, the court found that less than one percent of consumers who purchased the systems made any profit whatsoever.

Consumers who purchased the systems were automatically enrolled in continuity programs that charged recurring fees and cost an extra $39.95 per month. The court found that the defendants failed to adequately disclose that consumers who purchased the systems would be enrolled in the continuity plans and submitted consumers’ payment information without their express informed consent, in violation of the FTC Act and the Telemarketing Sales Rule (TSR).

In addition, the defendants offered personal coaching services, which cost up to $14,995, to consumers who purchased any of the three systems. The court found that, contrary to the defendants’ claims that consumers would quickly and easily earn back the cost of the coaching program and that the coaching would substantially enhance consumers’ chances of making money, almost all consumers who purchased coaching programs lost money. The telemarketers also violated the TSR by repeatedly calling consumers who previously asked the defendants not to contact them.

The court found John Beck Amazing Profits LLC, John Alexander LLC, Jeff Paul LLC, Family Products LLC, and Mentoring of America LLC liable for the misrepresentations in the infomercials and those made by the defendants’ telemarketers. Gary Hewitt and Douglas Gravink were found to have controlled each of the corporate defendants and to be liable for injunctive and monetary relief. In addition, Beck, Alexander, and Paul were found liable for the misrepresentations concerning their own systems because they participated directly in the deceptive advertising, knew that the infomercials made material misrepresentations, “or at least were recklessly indifferent to the truth or falsity of the infomercials.”

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 Facebook and follow us on Twitter.

(John Beck)