FTC Enforcement Update:  Two Recent Noteworthy FTC Enforcement Actions

legal imageFTC Piles on in Alleged Pyramid Scheme Matter

In September 2020, the Federal Trade Commission announced that it added new charges and defendants to an ongoing case against the operators of multiple alleged pyramid schemes.

The case first filed in January 2020 alleged that a corporate entity and its executives were operating an “instant coffee” pyramid scheme that used false promises of wealth and income to entice thousands of consumers to join.

The amended complaint alleges that the defendants were operating an additional pyramid scheme known as VOZ Travel. According to the amended complaint, the defendants sold consumers “memberships” for at least $1,000 each. In exchange, they allegedly promised consumers access to a discount travel booking platform and the ability to earn rewards for recruiting other consumers to buy memberships. The complaint alleges that the defendants told consumers that some members would be “making $1.53 [million] per year.”

The amended complaint alleges the booking platform was never launched and had no imminent launch date as of the time the FTC filed its case. In addition, the complaint adds two additional corporate defendants.

The FTC alleges violations of Section 5(a) of the FTC Act which prohibits “unfair or deceptive acts or practices in or affecting commerce,” illegal pyramid schemes, income misrepresentations, the provision of means and instrumentalities for commission of deceptive acts and practices, violation of the Merchandise Rule, failure to offer customers the opportunity to consent to a delay in shipping or to cancel their order, failure to provide cancellation or refund, violation of the Cooling-Off Rule, and failure to notify consumers of cancellation rights.

FTC Halts Alleged Scheme Involving Unlimited Inmate Calling Plan Offers

In October 2020, at the request of the FTC, a federal court issued a temporary restraining order against two individuals and two companies they operate. In the complaint, the FTC alleges that the operators advertised and marketed calling plans for unlimited minutes, which they did not provide.

Prison and jail calls are provided by specialized service providers, which have contracts with correctional facilities and charge for calls at predetermined per-minute rates. Specialized service providers have not and do not currently offer unlimited calling plans.

This is the first case the FTC has brought involving inmate calling plans.

The FTC alleges that the operators of the scheme preyed on inmates’ families and friends who rely on phone calls to stay in touch with their incarcerated loved ones—particularly during the COVID-19 pandemic when in-person visitation has been suspended at prisons—and may be looking for cheaper calling options given the high cost of per-minute calls.

“These defendants ripped off families with loved ones in prison, selling them fake calling plans that were supposed to allow unlimited calls with those inmates,” said FTC attorney Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “Especially with COVID-19 restrictions now in place, the phone is a lifeline for these families, who shouldn’t have to deal with this kind of exploitation.”

According to the complaint, prices ranging from $29.97 for one month of purported “unlimited” service to $49.97 for three months, and $89.97 for a year where charged.

After consumers paid for their chosen plan through the website, they were alleged told they would still have to open and fund a separate, prepaid account with the specialized service provider approved by their correctional facility. The FTC alleges that the scheme’s operators also made it difficult for consumers to reach the company and receive refunds, generating hundreds of complaints.

The FTC alleges violations of the FTC Act.

Contact an experienced FTC defense lawyers if you are the subject of an FTC investigation (CID) or have been named in an enforcement action.

Richard B. Newman is an advertising practices attorney at Hinch Newman LLP. Follow him at National Law Review at FTC defense attorneys and on Twitter @FTC Defense Attorney.

Informational purposes only. Not legal advice. May be considered attorney advertising.