June 5, 2013

Deceptive Money-Making Scheme

Sometimes the FTC brings enforcement actions targeting misleading earnings claims.

With the May 15, 2023 settlement with Nudge, LLC (and other related entities and individuals), the FTC and the Utah Attorney General went a significant step further: they went after an elaborate, deceptive money-making scheme.

The Scheme

The scheme: defendants pitched a “proven formula” on how to make substantial money investing in real estate.

FTC allegation: the Nudge defendants used false claims to entice consumers to enroll in increasingly expensive training programs.

The false earnings claims included:

• Consumers would be able to find properties and deeply-discounted prices.
• Nudge will make funding available to consumers to avoid putting down their own money.
• Nudge will show consumers how to gain access to individual investors who will purchase properties from them.

The reality: Nudge did not teach anything of value but instead enticed consumers to purchase additional training at high prices.

Nudge Revenue: Nudge defendants took in over $400 million from U.S. and overseas consumers, according to the FTC.

FTC Settlement

Settlement: $5 million monetary relief against all Nudge defendants (jointly and severally), plus the following:

• Compliance reporting and recordkeeping for ten years.
• Compliance monitoring.
• A permanent injunction (ban on wealth creation products and services).

Celebrity Endorsements: Nudge defendants used real estate investing “celebrities” to attract prospects to attend so-called “Preview Events” that were actually pitch fests rather than previews of how to make money in real estate.

Takeaway

The false earnings claims were part of an overall deceptive money-making scheme that the Nudge defendants used to entice consumers.

What's new in this case is the addition of real estate "celebrity" endorsers to pitch the overall deceptive scheme.

The FTC is currently aggressively using its Rulemaking authority to create updated and new specific violations for earnings claims, money-making schemes, and business opportunities.