On March 8, the FTC settled with the operators of an online stock trading platform over allegations that the operators fraudulently marketed investment-related services that they claimed would enable consumers to make consistent profits and beat the market. FTC alleged that the consumers were misled and those who subscribed to the operators’ stock and option trading services were trapped into hard-to-cancel subscription plans with costly charges.
According to the complaint, the operators violated the FTC Act over false earning claims misrepresentations regarding the platforms services. Many of the platform’s marketing materials involve their instructors highlighting selected winning trades that earned huge percentages, often over 100% per trade and as high as 1600%. However, the FTC claims that such trades were atypical, and neither the instructors nor their consumers make market-beating returns on a week-after-week basis. Many consumers complained of losing money when trying to follow the trade recommendations. The complaint also alleges violations of the Restore Online Shoppers’ Confidence Act (ROSCA) for charging consumers for services through a negative option feature while failing to provide simple mechanisms for consumers to stop recurring charges from being placed on their credit card, debit card, bank account, or other financial account.
Under the terms of a proposed settlement order, the operators, among other requirements, (i) must pay $2.425 million to the FTC; (ii) are prohibited from making any claims about potential earnings without having written evidence that those claims are typical for consumers; (iii) are prohibited from making claims misrepresenting that purchasers can be successful in trading regardless of their experience, the amount of capital they have to invest, or the amount of time they spend trading; and (iv) are required to provide consumers with an easy method to cancel their subscriptions and require them to get express, informed consent from consumers before signing them up for a recurring subscription plan.
Putting it Into Practice: This action was taken as part of an initiative called “Operation Income Illusion,” which encompasses more than 50 enforcement actions against alleged scams targeting consumers with false promises of income and financial independence. Companies offering financial products and services online should be wary as the FTC remains committed to its use of ROSCA to assess hefty monetary penalties (we previously discussed the FTC’s application of ROSCA in previous Consumer Finance and FinTech blog posts here and here).