FTC Once Again Focuses on Earnings Claims

Reflecting its continued concerns about unsubstantiated and atypical earnings claims, the Federal Trade Commission (“FTC”) has initiated a process that, if finalized, would allow it to recover monies for affected consumers and seek substantial penalties from entities that deceptively promote money-making opportunities.  In addition, the FTC announced a settlement of a lawsuit against an online stock trading site.  The settlement includes enhanced restrictions on earnings claims and other restrictions relating to the marketing of its programs.

The FTC has long pursued enforcement action against companies it believes are making deceptive or unfair/atypical earnings claims.  Recent actions include the 1,100 warning letters the agency sent in October 2021 to businesses that the agency asserts may be making improper earnings claims.  More recently, the FTC announced a $2.425 million settlement with RagingBull.com, resolving a December 2020 lawsuit. Among other claims, the FTC alleged that RagingBull.com advertised subscriptions that they claimed gave subscribers access to the company’s investment “gurus” who could “double or triple” their trading accounts in a week. In addition to the monetary settlement, the order will prohibit the defendants from making claims about potential earnings without having written evidence that those claims are typical for customers, and from making claims that misrepresent the potential success of purchasers regardless of experience, amount of investment, or amount of time spent trading.

In addition to these enforcement efforts, the FTC is now seeking to promulgate a rule related to earnings claims.  This rulemaking is set forth in an Advanced Notice of Proposed Rulemaking (“ANPR”), published in the Federal Register.  The FTC makes clear in the ANPR that a strong driving force behind its initiation of this process is its ability to recover monetary damages in the wake of the Supreme Court’s decision in AMG Capital Mgmt., LLC v. FTC. As we have discussed previously, the Supreme Court ruled in this case that the FTC could no longer go directly to federal court to recover monetary damages from defendants who have committed deceptive trade acts. Specifically, the Court found that Section 13(b) of the FTC Act does not permit the FTC to obtain court-ordered monetary relief, but rather limits the FTC to injunctive relief. An earnings claim rule would enable the FTC to recover civil penalties against companies who violate the rule, pursuant to Section 5 of the FTC Act.

In its ANPR, the FTC states that it and other government agencies have alleged that misleading earnings claims have been used in a variety of contexts, including “coaching or mentoring, education, work-from-home, ‘gig’ work, and other job opportunities, multi-level marketing opportunities, franchise, e-commerce or other business opportunities, chain referral schemes, and other investment opportunities.” The FTC is seeking comment as to the prevalence of such earnings claims in these contexts, as well as any others.

Further, the FTC includes a detailed list of information it is seeking from commenters, including with respect to the use of disclaimers to correct misleading earnings claims, what substantiation should be required to support an earnings claim, and whether and how lifestyle claims, such as expensive vacations, quitting jobs, or purchasing a luxury car, should be addressed in a proposed rule.

Takeaway:  The FTC’s recent actions regarding earnings claims makes clear that the agency is focused on challenging earnings claims, particularly those that are atypical.  Marketers making earnings claims should carefully review these recent actions and monitor the rulemaking process.

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