United States: Online investing site settles with FTC, $2.4 million fine
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On March 8, the FTC reached a settlement with the operators of an online stock trading platform over allegations that the operators were fraudulently marketing investment-related services that they claim would consumers to make consistent profits and beat the market. The FTC alleged that consumers were misled and those who subscribed to the operators’ stock and options trading services were trapped into hard-to-cancel subscription plans with costly fees.
According to the complaint, the operators violated the FTC law on false tax reporting regarding platform services. Many of the platform’s marketing materials involve their instructors highlighting select winning trades that have returned huge percentages, often over 100% per trade and as high as 1600%. However, the FTC says these trades were atypical and that neither the instructors nor their consumers are earning above-market returns week after week. Many consumers have complained about losing money trying to follow trade recommendations. The complaint also alleges violations of the Restoring the Confidence of Online Shoppers Act (ROSCA) for charging consumers for services through a negative option feature while failing to provide simple mechanisms for consumers to prevent recurring charges to be placed on their credit card, debit card, bank account or other financial account.
Under a proposed settlement order, the operators, among other requirements, (i) must pay $2.425 million to the FTC; (ii) it is prohibited to make claims about potential earnings without having written proof that these claims are typical for consumers; (iii) claims that misrepresent that Buyers can be successful in trading regardless of their experience, the amount of capital they need to invest, or the time they spend trading are prohibited; and (iv) are required to provide consumers with an easy method to cancel their subscriptions and require them to obtain consumers’ express and informed consent before enrolling them in a recurring subscription plan.
Put into practice : The action was taken as part of an initiative called “Operation Income Illusion,” which includes 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 beware, as the FTC remains determined to use ROSCA to impose heavy monetary penalties (we have already discussed the FTC’s enforcement of ROSCA in previous Consumer Finance blog posts and FinTech here and here).
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