Stay ADvised: What's New This Week, October 21
FTC Settlement Halts Sham Job Placement SchemeLast week, the Federal Trade Commission (FTC) entered into a settlement terminating the operations of a company it accused of running a job placement scam that robbed consumers of millions of dollars by making false promises of employment in lucrative finance jobs. Operating under names such as "Seven Figure Careers" and "Creating Job Opportunity," the company charged unsuspecting consumers upwards of $2,500 for its services.
Craig N. Chrest ran Worldwide Executive Job Search Solutions and PrivateEquityHeadhunters.com as well as resume repair and job placement companies, ostensibly specializing in placing candidates in high-paying finance jobs.
In reality, the jobs and connections the company hyped were fabricated to lure job seekers into paying high fees for the company’s job placement services, taking advantage of consumers eager for better job opportunities.
The FTC’s complaint alleged these actions violated the FTC Act and the Telemarketing Sales Rule (TSR). Specifically, the complaint alleged the defendants made false promises about nonexistent job opportunities and touted made up relationships with private equity and venture capital firms. The complaint further alleged the defendants misrepresented the efficacy of their services – guaranteeing 100 percent interview rates and grand promises of job placement at rates almost as high.
The settlement permanently bars the defendants from offering employment services in the future. Further, defendants may neither make any material misrepresentations about any product or service nor prohibit consumers from writing online reviews of the company. The court assessed a judgment of almost $2 million dollars, but, due to the defendants’ inability to pay, the court suspended all but $18,000 of the judgment.
"This settlement puts an end to a scam that tricked consumers into paying thousands of dollars to line up fake job interviews," said Andrew Smith, director of the FTC’s Bureau of Consumer Protection. Smith had this advice for job seekers: "If a recruiter asks you to pay for access to job listings or interviews, you should be on your guard. Research the firm, or ask someone you trust, to make sure the recruiter has a track record in the industry."
The FTC historically pursues cases against scammers targeting vulnerable consumers searching for a better life and this case is no exception. The FTC used this case as an opportunity to remind consumers to be "wary about paying money for a job opportunity."
Another lesson for job seekers: If it sounds too good to be true, it usually is. The lesson for advertisers is clear as well: Do not misrepresent the efficacy of your services, or risk FTC enforcement.
New York AG Wins $30 Million Judgment Against Tech Start Up Accused of Defrauding InvestorsNew York State Attorney General Letitia James has obtained a default judgment against a company alleged to have defrauded investors out of millions of dollars using false promises and deceptive marketing in connection with a dubious initial public offering (IPO).
Cardis was a Long Island-based technology startup that claimed to be developing a "patented and proprietary technology" to make "low value" credit card transactions less expensive for merchants who are often burdened with high credit card fees on small transactions. This may be good in concept, but based on the state’s allegations, the now-defunct startup company failed to deliver.
Instead, Cardis made a number of false representations to investors in order to raise capital. The company told investors it was close to monetizing its technology when it was not. It also falsely represented that it was gearing up for an IPO. Investors ate it up; the company raised tens of millions of dollars via share purchases and loans from investors due to these misrepresentations.
Following an investigation triggered by investor complaints, Attorney General James filed a complaint that painted a much different reality than the one marketed by Cardis. For starters, talk of an IPO was bogus, and, in fact, many of the company’s discussions with potential partners did not advance beyond the initial stages. Moreover, the company did not "maintain basic books or records," making an IPO technically impossible given due diligence requirements.
The complaint also alleged that with the help of his attorney, principal Aaron Fischman diverted some of the company’s startup funds for his own use as well as his family’s. The state charged Fischman and company principals Stephen Brown, Steven Hoffman, and Seth Rosenblatt with "participating in the fraudulent marketing of Cardis to investors."
Attorney General James secured a default judgment against Cardis and a number of related entities controlled by Fischman as well as against many of Fischman’s immediate family members, who according to the allegations, were "personally enriched" by Cardis’ fraud. The case remains ongoing against several defendants.
Prior to the suit’s filing, Attorney General James obtained an assurance of discontinuance from then CEO Jonathan Nierenberg. In exchange for a $100,000 penalty and a five-year bar from the securities industry, Nierenberg agreed to cease Cardis’ business operations.
"Individuals who sell false promises and commit fraud will be held responsible for their misdeeds," said Attorney General James. "We will continue to seek justice for small business proprietors who fall victim to the greed of those intent on breaking the law. New Yorkers can rest assured that my office will always fight to hold companies that aim to defraud investors and tarnish the name of honest businesses accountable for their lies and deceitful actions."
This case demonstrates how seemingly reputable companies may use deceptive marketing tactics to defraud investors out of large sums of money. Once again, the matter highlights how deceptive marketing is not only the domain of used car dealerships and pyramid schemes, but can target small businesses and serious investors as well.
NAD Recommends Bayer Discontinue Claims Touting Aleve Pain Fighting Superiority
Sometimes you win, sometimes you lose. This may be a cliché, but it rang true for Bayer AG, as it recently found itself on the losing side of a battle at the National Advertising Division (NAD), the self-policing arm of the advertising industry, regarding superiority claims made over competing pain reliever Tylenol. The decision comes fresh on the heels of Bayer’s successful outcome before NAD when it challenged the maker of Advil for making significantly similar claims.
The challenge brought before NAD concerned certain broad claims made by Bayer about its pain reliever Aleve in comparison to Tylenol, specifically that Aleve is "Proven Better on Pain than Tylenol Extra Strength" and that it is "Proven Better on Pain than Tylenol." NAD recommended that these claims be discontinued on the grounds that they were unsupported.
Appearing in TV, print and online advertisements, Bayer’s claims regarding Aleve and Tylenol concerned two of the three most widely known over-the-counter pain-fighting medications on the market (alongside Advil). In support of its claims, Bayer provided the results of several pain studies comparing Aleve to Tylenol.
NAD noted that Bayer’s studies had many indicators of reliability, but ultimately determined they were not a good fit to support its claims because the studies compared different dosage regiments as if they were the same. NAD determined Bayer’s claim – that Aleve is "Proven Better on Pain" – conveyed a "broad and unqualified message about the superior efficacy of its product as a pain reliever" which was unsupported by the provided studies.
Further, NAD noted, to support the "broad claim" that Aleve is "Proven Better on Pain than Tylenol," Bayer had to prove Aleve is indeed "better on pain" than all Tylenol products and for all types and durations of pain encompassed by the claim. NAD found Bayer failed to meet this requirement since the data from the studies it provided only examined specific types and durations of pain.
Unsatisfied with NAD’s recommendation, Bayer is expected to appeal NAD’s decision to the National Advertising Review Board (NARB). Bayer said it "relied on robust and methodologically sound clinical testing in support of its claims" and was therefore "highly disappointed with and strongly disagrees with NAD’s decision, which misapprehends the scientific evidence."
Advertisers making broad comparative statements about competitor products – commonly referred to as "line" claims – should possess and be prepared to offer concrete evidence supporting such broad claims in the face of challenge.
EU Court Takes a Stand Against (Ad Tech) Cookies
The decision was issued in a case against German lottery website Planet49. Planet49 required users to consent to data tracking via cookies in order to play a promotional game. Users were presented with a pre-checked box approving cookie use.
In a press release following the judgment, the court emphasized "that consent must be specific so that the fact that a user selects the button to participate in a promotional lottery is not sufficient for it to be concluded that the user validly gave his or her consent to the storage of cookies."
Even though the decision predates the European Union’s (EU) General Data Protection Regulation (GDPR), it is significant because it provides clear guidance to companies as to what constitutes obtaining sufficient user consent to cookie storage.
According to EU privacy experts, with this standard the ruling opens the door to new cases against advertisers under the GDPR for non-compliance. The court also held that companies must inform users about the duration of stored cookies and whether any third parties have access to the cookies.
One London privacy expert couched the significance of the decision for companies as follows:
"We now have clear, unambiguous guidance about how you have to put in place a cookie banner. All of the businesses that have just felt, ‘Well, everyone else is doing it this way,’ are going to have to rethink this. It will be very difficult for them to continue the way they have without taking a significant risk."
Another privacy expert put the likely advertiser reaction to the decision succinctly: "Safe to say, there will be some long faces in the ad industry today."
Given the court’s specific guidance, and considering the hefty fee assessed for violations, many advertisers will need to quickly change the way they collect cookies in order to comply with the law.
By clarifying how advertisers may obtain user consent in order to store cookies, the European Union has made it much harder for companies to obtain user consent to track online activity. Conversely, it has made it easier for users to obtain information about the exact nature of the information companies collect and store. The decision does leave unaddressed the important question of whether companies may condition website use on the acceptance of cookies.
Florida Class Action Claims Company Lied About Product CBD Content
A Miami woman has filed a class action suit alleging a Florida company misrepresented the amount of CBD contained in its products. Plaintiff’s complaint, filed in a Miami federal court, alleges that Diamond CBD, parent company Potnetwork Holdings, and First Capital Venture Co. misled consumers about the CBD content of their products by marketing "materially inaccurate" amounts of the cannabinoid.
Plaintiff Kathryn Potter alleges causes of action for unjust enrichment and violation of the Florida Deceptive and Unfair Trade Practices Act. The complaint seeks to bring the action on behalf of two separate classes of plaintiffs based on individuals affected in Florida and nationwide, respectively.
According to the complaint, Diamond is a market leader in the sale of CBD, a non-psychoactive chemical compound derived from the cannabis sativa plant, including products such as "CBD Oil," "CBD Edibles," "CBD Capsules," and "CBD Drinks."
Plaintiff alleges that defendants "fueled" their success by "misrepresenting the levels of CBD contained in the products" on product labeling, packaging, and on their website, "therefore cheating every customer who buys the products" because of the supposed amount of CBD they contain.
"Defendants’ unfair and/or deceptive acts were likely to deceive reasonable consumers, such as plaintiff and members of the Florida subclass, regarding the true nature of the products, which defendants manufacture, distribute and sell," notes the complaint.
For her part, plaintiff Potter says she bought about $120 worth of Diamond CBD products based on the information contained on product packaging and other marketing materials. She further alleges that she bought the products in reliance on the company’s promises about CBD amounts.
"Had those products not displayed the promises that they contained the specified amount of CBD, plaintiff either would not have made her purchase of the products or would not have been willing to pay a premium for her purchase," notes the complaint.
The complaint seeks damages, restitution and injunctive relief.
The complaint compares the CBD market to the "Wild West," saying it is "ripe for exploitation by unscrupulous businesses" due to minimal regulation. Indeed, some have even called into question whether CBD is effective at all.
Cases like this one will affect how companies selling CBD products will be regulated. Citing Florida’s recently enacted State Hemp Program, the plaintiff’s complaint highlights the "importance of accurate labeling of CBD products:" "[h]emp extract may only be distributed and sold in the state if the product… [i]s distributed or sold in packaging that includes… [a] scannable barcode or quick response code linked to the certificate of analysis of the hemp extract by an independent testing laboratory."