FTC Shuts Down Fraudulent Net Company Apply Knowledge

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.

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About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

8 Comments on "FTC Shuts Down Fraudulent Net Company Apply Knowledge"

  1. Rene E Porcile | Mar 8, 2014, 2:22 pm at 2:22 pm |

    Recruiting someone makes a business a pyramid? All businesses recruit and all businesses, churches, military, girl scouts, etc have a pyramid organizational shape. You have NO clue on what is a legal MLM. Peace to you and good luck in your growth towards a better life.

  2. Rene E Porcile | Mar 8, 2014, 2:15 pm at 2:15 pm |

    What is rich to you may not the same to someone else. Rich is certainly… A healthy body mind & spirit, right?
    There are NO guarantees in a capitalist system only opportunities. HLF offers an opportunity, its not a welfare program – develop your talents and abilities to allow for greater success.

  3. Sandra Carillo | Mar 1, 2014, 3:31 am at 3:31 am |

    I hope Ackman doesn’t give up! Look at New Mexico, just one of the many poverty states that has been fooled into thinking this will make you rich.

  4. Sandra Carillo | Mar 1, 2014, 3:27 am at 3:27 am |

    Then why is it that so many shops open and end up closing within a year. It’s because they sell the product or at least try to but don’t recruit members. If you don’t recruit you don’t make it! I should know! It’s a pyramid scheme plain and simple!

  5. “Apply Knowledge” didn’t have a product – HLF has an awesome consumable product with millions of satisfied customers!
    Less than 1% of Herbalife members use “Leader Generation Systems” – which has been banned by HLF about a year ago.

  6. FACTS: In 2013, Herbalife had $7.5 BILLION in adjusted retail sales, $4.8 BILLION in net sales, Grew by 8%, Over 280,000 new members…

    Does Herbalife have a physical, consumable product that matters to people?
    Products that people enjoy and derive benefits from? Of course they do! That’s why the FTC will NOT open a case!

    Ackman has LOST over $500 million, so far and will lose over 1 Billion!

    With project growth in 2014, its a no brainer that the share is going to
    hit beyond $134 or more. LBO would jump price to 90+ over nite

  7. These companies operate very similar to Amway, the world’s largest MLM scam – google “stop the amway tool scam wordpress”

  8. I love capitalism and feel the free market can set wages, prices, etc. This kind of company, however, isn’t what I consider of value – I want companies to produce something and not just trick people. I don’t think New York should set rent prices or cap the number of taxis, or that public sector unions should be able to rob taxpayers, but I’m glad to see this shut down.

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