Financial Education Services fails to dismiss FTC fraud case
Financial Education Services’ Motion to Dismiss FTC proceedings against it has been denied.
The FTC filed suit against FES last June, alleging FES was a $467 million pyramid scheme.
As part of those proceedings, FES filed a Motion to Dismiss on July 25th.
In its February 13th order denying FES’ motion, the court noted that FES didn’t
contest whether the (FTC’s) complaint sufficiently alleges that the (FES) Business Entities violated … (the law).
They instead maintain the FTC fails to plausibly assert whether the Individual Toloff Defendants
(1) possessed the authority necessary to control the Business Entities, and
(2) knew or should have known about the Business Entities’ purported deceptive practices.
The Court disagrees.
Citing the FTC’s complaint, the court went on to detail FES executives’ direct involvement and control over the alleged fraud.
Read together, the FTC’s allegations
(1) raise a plausible inference that the Individual Toloff Defendants have the authority to control the (FES) Business Entities and
(2) plausibly demonstrate that they possess, at the most basic level, “an awareness of a high probability of deceptiveness and intentionally avoided learning of the truth.”
The complaint’s factual allegations are, therefore, adequate to notify the Individual Toloff Defendants “as to what claims are alleged” and contain “sufficient factual matter to render” those claims “plausible.”
The next argument raised by FES was that the FTC’s
complaint exclusively targets their alleged past conduct, which falls outside the prospective scope of the FTC Act’s permanent injunctive remedies.
The court again disagreed.
The Toloff Defendants misconstrue the nature of the FTC’s allegations.
The complaint often resorts to the present or present-perfect tenses to describe how the Toloff Defendants marketed their credit repair services deceptively.
So the present and ongoing nature of the alleged deceptive practices is apparent from the complaint.
The court also found that FES executives “resigned their controlling positions”, didn’t “insulate them” from the FTC’s sought injunctive relief.
With respect to the AMG Supreme Court decision, which currently bars the FTC from seeking monetary relief under section 13(b) of the FTC Act, the court found;
The Toloff Defendants overlook an important facet to this case though. The FTC invokes both sections 13(b) and 19 to the FTC Act to prosecute its claims.
Here, the FTC sued the Toloff Defendants for violating the Credit Repair Organizations Act (“CROA”) and the Telemarketing Sales Rule (“TSR”).
Since both the CROA and TSR qualify as rules promulgated under the FTC Act “respecting unfair or deceptive acts or practices,” the FTC may petition this Court for monetary relief to “redress” the consumer injuries stemming from the Toloff Defendants’ alleged violations.
As a result of these findings, the court “ORDERED that the Toloff Defendants’ motion to dismiss the complaint is denied.”
Having had its motion to dismiss denied, FES filed its answer to the FTC’s complaint on February 27th.
Looking forward, the court has scheduled a bench trial for May 14th, 2024.
Having been denied a preliminary injunction, FES continues to operate under oversight of a court-appointed Monitor.
A November 2022 report from the Monitor suggested that, while FES has taken steps to address compliance, top earners appear continue to flout rules.
A visit to Financial Education Services’ previously accessible website domain now redirects to United Wealth Education.
United Wealth Education operates from the domain “myuwe.net”, privately registered in February 2021.
SimilarWeb tracked ~17,000 visits to United Wealth Education’s website domain in January 2023, with the majority of those visits originating from the US.
Update 19th October 2023 – The FTC v. FES trial is now a jury trial, delayed until September 17th, 2024.