The FTC continues to prioritize the investigation of online business coaching and mentoring programs, particularly business coaching scams that promise guaranteed income, large returns, “proven systems,” free or low-cost “systems,” and promises to increase a business’s success.
What Are Some Online Business Coaching Offer Red Flags?
Online business coaching offers are a Federal Trade Commission and state attorney general favorite. Here, the promoters often claim that someone can make big money with little or no experience. Or, they represent that their “experts” will teach a “proven method” for building a successful business on the Internet. Sometimes, there are suggestions that the promoter is affiliated with well-known online sellers when it is not true, or say other things like:
- “You can make 5-6 figures if you follow our system.” But that does not happen.
- “Learn from the experts how to generate income.” But that is a false promise.
- “You can be making money now. Guaranteed!” Guarantees that someone will make money in business are heavily scrutinized.
- “Our students make between 50% to 100% return on their investment in the first year." But these are unsubstantiated figures.
When a promoter makes it sound like it is easy to set up an online business and make money, and say that, for a fee, they can show you how to do it, a regulatory agency (or plaintiff’s attorney) may be keenly interested in the legality of the express and implied representations, even more so when consumers that pay for business coaching services are left them with lost investments and debt. Program promoters should consult with a seasoned FTC CID lawyer to discuss strategies developed to minimize regulatory scrutiny.
Are Investment Opportunity and Pyramid Schemes Also Heavily Regulated?
Similar considerations exist with respect to investment coaching programs. Here, promoters have found themselves in legal trouble for, without limitation, luring consumers in with free live or online seminars where purported “experts” talk up their impressive track record and the success of their “students.”
Sometimes, these promotions use fabricating “stories” and statistics, claim a guaranteed return on investment, and attempt to rush a potential enrollee into making a quick decision to purchase.
Pyramid schemes are another type of promotion that attracts regulatory scrutiny. For example, attempts to recruit consumers with pitches about what they will earn with promises about life changing money and requirements to sell a product and get others to join the enterprise. However, if the true focus is on recruiting others, not on selling a company's products, a regulator may suspect that the offer is a scam. Pyramid schemes are set up to encourage recruitment to keep a constant stream of new distributors — and their money — flowing into the business.
Pyramid schemes can look remarkably like legitimate multi-level marketing business opportunities. However, if a consumer becomes a distributor for a pyramid scheme, he/she could be involved in a scam that can cost them and their recruits substantial time and money.
What Are Common Mistakes That Business Coaching Promoters Make?
Without limitation and in addition to the examples illustrated above, the following are some common mistakes that promoters of online business coaching programs made that result in the issuance of an FTC civil investigative demand or the initiation of an enforcement action.
- Failing to comply with the FTC Endorsement Guidelines and the FTC Final Rule on the Use of Consumer Reviews and Testimonials.
- Failing to obtain “coach” certification.
- Attempts to upsell.
- Using high-pressure sales tactics or creating a false sense of urgency.
- Failing to possess a “reasonable basis” for express and implied claims.
- Making false, unsubstantiated or unfounded earnings claims (express or implied). Claims of those that achieved exceptional, or even above average results, are a regulatory enforcement favorite.
- Failing to possess pre-dissemination claim substantiation.
- Failing to possess proof that an endorser’s earnings claims represent what consumers will generally achieve using the program.
- Failing to make clear what the generally expected results are.
- Failing to disclose that the vast majority of enrollees do not make any money, and many lose money on top of the money they pay the promoter
- Failing to disclose typical operational costs that will be incurred by enrollees.
- Claiming that a program can be used to generate substantial income.
- Using photos to depict a lavish lifestyle.
- Expressly or impliedly representing that earnings can be achieved quickly, by anyone, regardless of education and/or regardless of experience.
- Charing high prices.
- Failing to offer anything of legitimate value.
- Making misleading representations about the background of instructors.
- Making misleading representations about the scope and nature of products and services.
- Requiring consumers not to post negative reviews.
- Failing to provide disclosures required by the FTC’s Business Opportunity Rule.
- Failing to comply with applicable state legal regulations.
- Using unlawful telemarketing practices.
- Making deceptive money-back guarantee and refund claims.
- Failing to monitor third-party affiliate marketers and lead generators.
Takeaway: Online business coaching program providers should consult with an experienced FTC defense lawyer to design and implement liability limiting measures focused upon minimizing the chances of a regulatory investigation or enforcement action.
