MLM Attorneys Grimes & Reese: FTC Action Under Updated Business Opportunity Rule Leads to Smart Tools LLC Settlement

One of the first Federal Trade Commission actions brought under the updated Business Opportunity Rule has led to a settlement that permanently bans the operators of Smart Tools LLC, Kristin Hegg and Curtis Dawn, from deceptive sales practices. The settlement order imposes a $7.4 million judgment that will be suspended when $234,847 has been paid. The full judgment will be due immediately if they are found to have misrepresented their financial condition.

The FTC charged Smart Tools LLC, Hegg and Dawn, with deceptively selling a work-at-home business opportunity that promised buyers earnings up to $38,943 per year as “Government Insurance Refund Processors.”  As processors, the buyers of the program would find people eligible for refunds of their mortgage loan insurance premiums and charge a fee for telling them how to get the refunds.

For a recurring monthly charge of $29.99, after a free trial period, buyers would gain access to lists of people eligible for refunds, along with refund-processing software. According to the FTC, Smart Tools LLC led consumers to believe that the lists of those eligible for refunds were not available free of charge, even though the Department of Housing and Urban Development offers the same lists online for free.

In addition to the financial judgment, the settlement requires Smart Tools LLC, Hegg and Dawn to provide the disclosure form required under the Business Opportunity Rule at least seven days before a contract is signed or a payment is made when selling business and work-at-home opportunities. The form includes information such as the seller’s name, address, phone number, and the salesperson’s name, any legal actions against the seller, cancellation and refund policies, and references for all buyers of the business or work-at-home offer in the past three years, or, if there are more than 10 former buyers, the names, states, and phone numbers of at least 10 of them.

The settlement also requires them to give the FTC a list of all of their customers from January 1, 2009, until the date of the order, who have not canceled or are still being charged or billed. They must notify those customers of the order, immediately cancel their subscriptions, and stop charging them unless the consumers notify the defendants, in writing, that they wish to continue their subscriptions with Smart Tools, and agree to pay the ongoing credit or debit card charges.

Smart Tools LLC, Hegg and Dawn also are prohibited from making any earnings claim directly to a buyer or in general media advertising unless they have a reasonable basis for making the claim and provide written substantiation upon request by a prospective buyer. The order also bars the defendants from misrepresenting material facts about any products and services and failing to comply with the Business Opportunity Rule.