Facts

The United States, acting on behalf of the Federal Trade Commission, filed a complaint against Smart Tools LLC and Kirstin Hegg, alleging violation of the Federal Trade Commission Act. Smart Tools marketed and sold a work-at-home business opportunity to process mortgage insurance refunds to consumers. Hegg was an officer of the company. The U.S. sought an injunction and other equitable relief.

PLAINTIFF'S CONTENTIONS:
Plaintiff alleged Smart Tools required consumers to purchase a $29.99 monthly subscription for software and other services, and claimed consumers could make between $300 and $800 for every refund processed and be paid up to $38,943 per year working full or part-time. Smart Tool then provided a list of people who were owed refunds by the government, and inconspicuously disclosed that the list was also available online for free.

Plaintiff claimed that defendants made false statements in their marketing materials, including postcards, website, and recorded messages. Moreover, plaintiff claimed that defendants failed to provide the required disclosures, including the basic information about the company, litigation involving the seller, cancellation and refund policies. Defendants also didn't provide information supporting its earnings claims.

Plaintiff claimed defendants violated the Business Opportunity Rule and the FTC Act.

DEFENDANTS' CONTENTIONS:
Smart Tools denied that it made false statements in its marketing materials. Defendants contended that it had substantiation for its "up to $38,943" per year earnings claim, which it had discontinued well before the lawsuit was filed.

Smart Tools claimed that the Business Opportunity Rule and its various disclosure requirements didn't apply to its business. Defendants contended they settled in order to avoid expensive, protracted litigation.

Result

The parties entered into a consent decree. Defendants were required to cancel the consumers' subscriptions and stop charging them unless the consumer specifically notifies defendants in writing that they wished to continue their subscription with Smart Tools. Defendants were also permanently enjoined from disclosing, selling or benefiting from customer information obtained in connection with the business or work-at-home opportunity they marketed and sold. Defendants were found liable for $7,425,051 as "equitable monetary relief for consumer injury," however the judgment was suspended due to defendants' inability to pay. Defendants agreed to pay $234,847.