For the first time, the Federal Trade Commission has charged a consumer with providing a false testimonial to help promote what it says is a get-rich-quick business program.
The case against Marsha Kellogg of Ohio is significant because the FTC moved aggressively not just against a business promoter that it alleges is defrauding customers but also a customer who it claims, in several infomercials, inflated how much the promoted business helped her earn.
The FTC, joined by Colorado Attorney General John W. Suthers, filed a complaint recently in U.S. District Court against Russell Dalbey, the CEO and founder of the entrepreneurial marketing program Winning in the Cash Flow Business.
Dalbey, his wife and his company, the Dalbey Education Institute, are charged with defrauding consumers by making false and unsubstantiated marketing claims that customers could earn fast and easy money by finding, brokering and earning commissions on promissory notes or cash flow notes. The notes are basically IOUs in which one party agrees to pay another party a sum of money over time.
Consumers spent $40 to $160 each on Dalbey's initial cash flow program and were later encouraged to spend hundreds or thousands of dollars more for seminars, coaching sessions and lists that would help them find promissory note holders, the FTC said.
In one of Dalbey's infomercials, hosted by TV personality Gary Collins, 14 people are seated with Dalbey sharing how they made amazing amounts of money, in some cases in as little as a few hours. One gentleman says he made more than $23,000 in a short period of time, spending just two hours a week. A man identified as Garland says he made $128,000.
What people might have missed is the tiny captions that read: "Extraordinary results. Individual results will vary and depend on using the materials, effort and other factors. Testimonial purchased additional products."
Among all the testimonies, the FTC and the state of Colorado focused on that of Kellogg, who is identified as Marsha B. from Ohio (the B stood for her maiden name). The complaint against Kellogg contends that she falsely represented earning $79,975.01 from one promissory note transaction using Dalbey's cash flow program. Her actual take was $50,000 less.
The FTC centered on Kellogg because her earning claims were "clearly false," said Mary Engle, director of the FTC's division of advertising practices.
The agency also went after Kellogg because her embellished earnings claims went to the heart of the agency's case against Dalbey, Engle said.
In 2009, the FTC announced it was issuing revised guidelines for companies using endorsements by consumers, experts and celebrities. Under the revised guidelines, when people testify about their experiences with a product or service, the company has to disclose the results that consumers can generally expect to achieve. In the past, advertisers relied on disclaimers such as "results not typical." The revised guidelines clarify that such disclaimers are inadequate.
Kellogg, without admitting guilt, settled the FTC's claim. She agreed to no longer promote any investment or business programs, according to the order she signed with the FTC. Kellogg also agreed to cooperate with officials in their case against Dalbey.
"One of the reasons these ads are so compelling is the testimonials," Engle said. "It's very important that the testimonials be truthful and not misleading."
Andrew Shoemaker, an attorney representing the Dalbey Education Institute, said the company was "unaware of any overstatement described by the government in terms of statements made by Ms. Kellogg."
Shoemaker also said the company denies that it misleads customers. "We are going to fight the lawsuit," he said.
Hopefully, the recent legal action by the FTC will curtail the pumped-up claims by customers testifying on behalf of companies hawking what seem to be get-rich-quick schemes.