Federal Trade Commission FTC

The Federal Trade Commission has put an end to a multi-million dollar scheme that told consumers they could get rich with internet businesses and then sold them thousands of dollars’ worth of coaching and other materials.

Apply Knowledge bilked millions from consumers

The U.S. District Court for the District of Utah issued a temporary restraining order against Apply Knowledge; froze the defendants’ assets, which were held under many different businesses including YES International, Coaching Department, and many others along with Apply Knowledge; and put the companies into receivership.

“This case halts a massive scam that bilked consumers out of millions for useless work-at-home kits and business coaching services,” said Bureau of Consumer Protection director Jessica Rich. “The defendants duped consumers into thinking they could earn thousands working from home. Protecting consumers from such pernicious schemes remains a top priority.”

The scheme was standardized, going through three different phases. First, a basic kit was sold online for less than $100 which promised to explain how to setup an online business, but instead just offered more expensive products and services at substantially higher costs, which the customers were encouraged to put on their credit cards. Finally, Apply Knowledge offered expensive coaching services for as long as the customer was able to pay.

The FTC says that most people who did business with Apply Knowledge ended up without a functional online business, but with plenty of credit card debt.

Implications for the Herbalife short

While it’s always nice to see a fraudulent company get shut down, many are drawing comparisons with the practices of some Herbalife Ltd. (NYSE:HLF) recruiters who tell prospective distributors that they can make enormous amounts of money by joining the company and selling goods from home.

Bill Ackman has been Herbalife’s most vocal critic and has maintained a large short on the company saying that he’ll never relent on his position. Even though he is apparently close to breaking even on the short already, in order to expedite matters he has started profiling many of Herbalife’s top recruiters, highlighting how their marketing materials showcase the kind of rags-to-riches stories that can give people unrealistic expectations.

At its core, Apply Knowledge is a lead generation/marketing system similar to those used by Herbalife Ltd. (NYSE:HLF) recruiters like Shawn Dahl, and the case shows that the FTC may be paying more attention to multi-level marketing businesses.

But even if Ackman isn’t any closer to getting the regulatory action that he wants, it seems that he is at least getting under some people’s skin – Herbalife Ltd. (NYSE:HLF) CEO Michael Johnson went on a minor rant about Ackman at his most recent conference call with investors.