FTC Settles Charges Against Online Trading Academy Requiring Principals to Turn Over Millions in Cash and Assets

As previously blogged about here, providers of online training and business coaching programs have increasingly found themselves on the receiving end of unwanted Federal Trade Commission scrutiny.  A recently announced settlement with Online Training Academy requiring its principals to turn over millions of dollars in cash and assets further illustrates the dangers of operating such programs out of compliance.

According to the FTC, Online Trading Academy will be required to offer debt forgiveness to thousands of consumers who purchased its “training programs,” while the company’s founder and other individuals will together pay between $5 and $9.1 million and turn over assets under the terms of a settlement with the Federal Trade Commission that is expected to result in more than $10 million to benefit injured consumers.

In February, the FTC brought a lawsuit alleging that OTA had deceived consumers for years with claims that purchasers of OTA’s investment training were likely to generate significant income.  OTA claimed that anyone could learn to use its strategy, and filled its sales pitch with testimonials and hypothetical trades showing significant profits.

The FTC alleged that OTA had no evidence that purchasers were likely to realize the advertised profits, and that the company’s own surveys and third party trading data showed that most purchasers made little to no money.

As alleged by the FTC, OTA also claimed that its instructors and salespeople were active, successful traders, pointing consumers to their supposed success as evidence the strategy worked.  But the FTC alleged those claims were false or unsubstantiated, and that several high-profile OTA pitchmen admitted they did not make significant money trading.

The FTC also alleged that when consumers realized the truth and asked for their money back, OTA illegally used form contracts to prevent them from telling the government or other consumers about OTA’s deception.

“OTA pitched a get-rich-quick investment strategy using fake or unrepresentative testimonials, depictions of wealth, and implied promises of profits,” said FTC attorney Andrew Smith, the Director of the FTC’s Bureau of Consumer Protection. “OTA had no support for its lavish earnings claims, and that’s illegal.”

Under the terms of the settlement, the defendants will be prohibited from making claims about potential earnings unless the claims are truthful and the defendants have written documentation to support them.  They will also be prohibited from making claims without adequate support about how quickly consumers can become proficient in the defendants’ trading “strategy” or the amount of time or money needed to generate significant income.

In addition, the defendants will be prohibited from calling their salespeople “education counselors,” and from misrepresenting that instructors are active or successful traders.

The settlement also prohibits the defendants from using contracts that prevent their customers from interacting with law enforcement or posting reviews about the defendants online. It also requires the defendants to notify consumers of their right to post honest reviews and file complaints.

The settlement includes a monetary judgment of $362 million, which is partially suspended due to the defendants’ inability to pay.  If the defendants are found to have misrepresented their financial status, the full amount of the judgment would become due immediately.

The settlement also requires one individual to pay $8.3 million and surrender a number of luxury vehicles to the FTC.  Another individual must pay $736,300 and surrender a vehicle.  While another individual must pay $158,000.

The cash and the proceeds of the vehicle sales will be used to provide refunds to affected consumers.

In addition, the settlement will require OTA to offer debt forgiveness to consumers who have debt owed to OTA for its training.  The company will be required to give these consumers notice of the offer of debt forgiveness and consumers will have 45 days to request forgiveness. Consumers who elect forgiveness will lose access to any OTA courses they have purchased.

This article should be of interest to providers of online training and business coaching programs that are interested in implementing preventative compliance measures, or that have been targeted in an FTC lawsuit of civil investigative demand (CID).

Richard B. Newman is a leading FTC defense lawyer at Hinch Newman LLP.  Follow him on National Law Review @ FTC Defense Lawyer.

Informational purposes only. Not legal advice or a complete analysis of issues pertaining the the relevant subject matter. May be considered attorney advertising.