False Advertising Claims - FTC v. Lurn Inc.

Table of Contents

1. Introduction
2. The Nature of the Claims – FTC v. Lurn Inc.
3. The Law on False Ad Claims
4. A Warning Unheeded for the False Advertising Claims
5. Proposed Settlement Stipulations
6. FAQ: False Advertising Claims Consequences

Introduction

Between 2019 and May of 2022, a company called Lurn sold business opportunity programs to consumers which purported to instruct them on various methods to generate significant online income. However, in a recently filed Federal Trade Commission (FTC) enforcement action is any indication, the only one generating a significant online income in this affair was Lurn, which extracted approximately $65 million from consumers during the specified time period. According to the FTC, this colossal sum was generated in large part through deceptive and false advertising claims.

The Nature of the Claims – FTC v. Lurn Inc.

The FTC's Complaint against Lurn and its individual officers was triggered by allegedly false, misleading, and unsupported claims pertaining to the efficacy of Lurn's income-generating programs.

For example, one campaign claimed that a participant could become a "stay-at-home millionaire," and that they could "fail 98% of the time and still make $11,453 per month" regardless of their experience, knowledge, or investment. According to the FTC, these claims were false and unsubstantiated, as the defendants never tracked their customers' earnings and thus had no idea how much (or how little) any of them actually made.

Another nail in the defendants' collective coffin stems from the specific claims made by one of defendants, who claimed to have generated over $250,000,000 in sales, and made $16 million in one ten-month period as the principal of six different companies with a combined revenue of $30,000,000, none of which were even remotely true. He also claimed to be a best-selling author, though his three books only sold a little over a thousand copies and grossed less than $10,000 in revenue.

Other allegedly false claims concerned the number of people allowed to purchase Lurn's products. For example, during a webinar presentation, a company spokesman claimed that because Lurn staff worked directly with customers on a daily basis, the company did not have the capacity to sell its programs to everyone who wanted to purchase them, and only had room for an additional 75 customers, urging attendees to move quickly to claim their spots. However, the webinars in which these claims were made were prerecorded and replayed for months at a time regardless of how many customers enrolled at a particular time.

To make matters worse, the company allegedly engaged in telemarketing campaigns directed to existing customers in an effort to sell them additional "coaching" services, some of which were priced as high as $10,000 that featured a high-pressure script that included similar false, misleading, and unsubstantiated claims, which the FTC alleged violated the FTC Act and the Telemarketing Sales Rule.

The Law on False Ad Claims

The FTC has determined that it is an unfair or deceptive trade practice in violation of the FTC Act to make false, misleading, or deceptive representations concerning the profits or earnings that may be anticipated by a participant in a money-making opportunity.

In an effort to cover themselves, the webinars included a disclaimer slide that was presented after 20 minutes of false earnings claims that informed viewers that the presenter could not guarantee that they would make "$13,700+ per day like I do - or even $1 because the presenter did not know the viewer's "life and work habits."

However, disclaimers that directly contradict false earnings claims that were repeatedly made throughout the presentation were insufficient to offset the falsity of the claims themselves.

A Warning Unheeded for the False Advertising Claims

While engaging in the underhanded tactics described in the Complaint was bad enough, Lurn apparently made matters far worse for itself because the FTC actually warned them about it ahead of time.

In October of 2021, FTC staff sent a letter to the company outlining its many unfair and deceptive trade practices, and warned its officers of their potential liability for civil penalties the following acts:

• Making false, misleading or deceptive representations concerning the profits or earnings that may be anticipated by a participant in a money-making opportunity;
• Representing, explicitly or implicitly, the earnings which may be secured by participants, when the representation is made without knowledge, or with only limited knowledge, of the actual profits or earnings usually and ordinarily received by participants; and
• Misrepresenting, explicitly or implicitly, that sales of a money-making opportunity will be made to only a limited number of prospective participants. . . when sales will be made to any person who is willing and able to pay."

Apparently, the company and its officers willfully ignored the warning and continued engaging in the practices outlined in the FTC's letter, which resulted in the issuance of a Civil Investigative Demand in May of 2022, which in turn led to the filing of the Complaint.

Proposed Settlement Stipulations

The defendants in the case have agreed to court orders that will require them to stop their unlawful practices and to turn over $2.5 million to the FTC to be used to refund money to consumers they harmed. In addition, the company is also required to notify all customers who purchased its products since May of 2019 of the FTC’s action.

The Order also imposes a total monetary judgment of $14,077,121.00 against Lurn and its owner, which was partially suspended due to their professed inability to remit the full amount. Should it be discovered that they have misrepresented their financial status to the FTC, the entirety of the judgment would be immediately due and payable.

FAQ: False Advertising Claims Consequences

1. What constitutes false advertising?
   
   False advertising refers to the use of misleading, deceptive, or untruthful statements in promotional materials to attract consumers. This can include exaggerations, omissions, or false comparisons with competitors’ products.
   
2. What are the consequences of false advertising claims?
   
   Consequences can range from monetary fines, legal actions, and damage to the company’s reputation. In severe cases, businesses may face injunctions, class-action lawsuits, or be required to compensate affected consumers.
   
3. How does the FTC regulate false advertising?
   
   The Federal Trade Commission (FTC) enforces laws against false advertising to protect consumers. It investigates complaints, takes legal action against violators, and provides guidelines for businesses to ensure compliance.
   
4. Can consumers take action against false advertising?
   
   Yes, consumers can file complaints with the FTC or in some cases, initiate private lawsuits against companies engaged in false advertising. They may also join class-action lawsuits if they suffer damages as a result of deceptive practices.
   
5. How can businesses avoid false advertising claims?
   
   Businesses should adhere to advertising laws and FTC guidelines, substantiate all claims made in advertisements, and promptly address any consumer complaints or concerns. Seeking legal advice and being transparent and honest in advertising practices are also crucial.
   
6. What is the process for reporting false advertising?
   
   Consumers can report false advertising to the FTC through their official website. It’s important to provide detailed information about the deceptive ad, including where and when it was seen, and why it is considered false or misleading.
   
7. Are there different types of false advertising?
   
   Yes, false advertising can take many forms, including bait-and-switch tactics, mislabeling, hidden fees, and false endorsements or testimonials. Each type has specific legal definitions and consequences.