Know Your Vendors; Know Your Customers; Know Your Partners
by Jamie Rubin
I suppose this is a bit of a gift for those, who like us at InfoLawGroup, are in the business of helping clients navigate consumer protection laws. On Friday, 1/29/2021 (yes, a weekend gift), the FTC announced an enforcement action against a company that was allegedly in cahoots with some other bad actors to deceive consumers in a way that resulted in real financial injury. The ingredients to this apparent mess start out with a familiar target for the FTC – companies offering get rich quick schemes – but the takeaway applies all around.
Here, a group of companies allegedly offered bogus training programs to people interested in starting a business, investing in real estate, etc. Many of the interested individuals did not have the money to pay for the training courses or to start a business. Unfortunately, it seems, the training companies had a funding source to recommend: Seed Consulting, LLC. The suit alleges that Seed Consulting would charge individuals a fee (upwards of $3000) to apply for funds to various credit card companies on behalf of the interested individual. Seed is also alleged to have inflated income numbers on the credit card applications, by $100,000 in some instances. Once the lines of credit were open, Seed would allegedly report back to the training companies, at which point the training companies would offer more and more expensive training programs to the interested individuals. In some instances, these people maxed out their new lines of credit to pay the tuition. The FTC’s complaint alleges that most people did not earn substantial money (as promised by the training companies) and were therefore left with substantial debt and poor credit scores. If this is accurate as alleged, it is quite an elaborate scheme. The complaint also alleges that there was a strategy in place to squash negative reviews associated with these companies by, for example, making refunds for the training programs contingent on the customer agreeing to a non-disparagement contract. That type of activity is already prohibited by the Consumer Review Fairness Act. The proposed settlement includes a $2.1 million financial remedy along with other ongoing requirements to hold Seed accountable not only for its own actions, but for the alleged bogus training courses offered by the training companies.
Okay, so where’s the gift? This enforcement action reminds us, at a very important time in history – where a number of businesses are trying to pivot and partner with new vendors and customers at light speed – that regulators will hold companies responsible for deception caused by others; where they participated in, knew of or should have known of the deception. We previously wrote about another similar situation HERE. Indeed, the announcement of the Seed Consulting action provided the FTC with an opportunity to publish a roundup of recent cases where it has held multiple parties liable for the same deception. Check out the round up HERE.
What’s the takeaway? Know your vendors. Know your customers. Know your partners. You may be held accountable for their actions. Knowing a vendor or customer is doing something wrong and turning a blind eye to it can result in the same problem; even worse if you profit from the wrongdoing. The keys are due diligence, proper contracts, monitoring and auditing, and requiring all in the chain to do the same.
Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.