Promoters of Stock Market Investment Seminars Agree to Settle FTC Charges of Misrepresenting Earnings Potential

Seattle, Washington-based Wade Cook Financial Corporation and Wade Cook Seminars, Inc. (collectively, "WCFC"), marketers and promoters of stock market investment seminars, have agreed to affirmatively disclose in future advertising and promotional materials their actual trading record for all of their investments, and will fund a redress program to reimburse eligible consumers, under the terms of a settlement with the Federal Trade Commission. Marketed and promoted through advertisements and promotional materials, and nominally-priced or free financial "clinics," WCFC urged consumers to spend between $3000 and $5000 to attend a two or three-day seminar, titled the "Wall Street Workshop." The FTC charged that WCFC misrepresented how much money former cab driver Wade Cook made in the stock market, and misrepresented that workshop instructors and former workshop students had become wealthy using the techniques developed by Wade Cook. Cook is not named individually in the complaint and settlement, but he is bound by the terms of the settlement and is liable for any required redress defendants fail to pay.

According to the FTC complaint, WCFC's advertising and promotional materials contain express or implied false claims that Wade Cook had earned and consumers would earn extremely high rates of return - returns of 20% or more per month - on their investments using Cook's trading strategies.

The complaint also alleges that the testimonials presented in promotional materials and financial clinics do not reflect the typical or ordinary experience of the Wall Street Workshop graduates as claimed by defendants. The complaint further charges that WCFC did not possess and rely upon a reasonable basis to substantiate its claims. Finally, the complaint alleges that, in connection with representations about their success in the stock market, WCFC failed to disclose the actual rates of return earned by WCFC on their stock market investments, which were lower than the claimed rates of return.

The proposed settlement agreement is designed to prohibit unsupported claims of success and to provide prospective WCFC seminar attendees with reliable, up-to-date information about WCFC's actual trading record. The proposed settlement would prohibit defendants from making any representation concerning an investment seminar or program that is not substantiated by a reasonable basis. Further, if WCFC makes any representation that it has attained success trading in stocks using Cook's strategies, or that consumers will attain success trading in stocks using Cook's strategies if they attend the Wall Street Workshop, WCFC would be required to clearly and prominently disclose its rate of return from trading in stocks during the previous 12 months, along with a disclaimer that future results may vary. The proposed settlement also would require WCFC to provide historical rate of return data covering a three-year period on its Web site.

The proposed settlement requires defendants to establish a redress program for certain consumers who purchased The Wall Street Workshop. WCFC has agreed to give full refunds to all consumers who paid to attend a Wall Street Workshop, and then did not attend. WCFC has also agreed to provide redress to all other qualifying eligible consumers. Eligible consumers are those who paid to attend a Wall Street Workshop during calendar years 1997-1999, attended the workshop, did not subsequently pay to attend any other WCFC seminar, and did not previously receive a refund of Wall Street Workshop tuition. Eligible consumers (who qualify for redress based on their responses to questions in Proof of Claim forms to be mailed by the defendants over the next year) will receive a refund of the Wall Street Workshop tuition, less any amount they made during the 12 months following the workshop using the stock trading strategies taught at the workshop.

The proposed settlement further requires that, whenever an actual or hypothetical stock transaction is used by WCFC to illustrate a particular trading technique, WCFC must advise consumers that the results obtained in the illustrative trade do not reflect the rate of return actually earned by WCFC in the previous 12 months, unless such is the case.

In addition, the proposed settlement would prohibit claims that testimonials or endorsements of the seminars or programs represent the typical or ordinary experience of members of the public who attended, unless WCFC clearly discloses that the testimonials reflect only one person's experience, and that consumers who attend the seminar should not expect to achieve the same level of success.

The proposed consent decree would also prohibit WCFC from failing to disclose all the terms of its refund policy (or the nonexistence of refunds) before accepting payment from any consumer.

Further, the proposed settlement would prohibit WCFC from violating the Cooling-Off Rule, which gives consumers three days in which to cancel -- and receive a full refund on -- purchases of $25.00 or more when made in the consumer's home or at certain locations away from the seller's normal place of business.

The proposed settlement also would require that WCFC take reasonable steps to monitor and ensure that all of its employees, agents, consultants and independent contractors, engaged in sales or other customer service functions or as seminar instructors or speakers at promotional seminars, comply with the injunctive provisions of the settlement.

Finally, the proposed settlement contains a number of record keeping and reporting requirements to assist the FTC in monitoring the defendants' compliance with the order.

The FTC filed its complaint and proposed consent decree settling the charges in the U.S. District Court for the Western District of Washington, in Seattle on October 5, 2000. The Commission vote authorizing the staff to file the complaint and settlement was 5-0, with Commissioners Orson Swindle and Thomas B. Leary issuing a concurring statement.

Although they supported the "tough relief" in the settlement agreement with WCFC, Commissioners Swindle and Leary concurred to emphasize that the Commission "should have gone further and named Wade Cook, the majority owner and CEO of WCFC," because "he is WCFC." The concurring Commissioners explained that "[i]f the Commission had named Mr. Cook, he could not disclaim responsibility for conduct that likely caused millions of dollars in injury to consumers -- an important sanction because his reputation is likely to be pivotal in his future book sales and other business ventures." Because Mr. Cook has not been named, however, "he can in the future truthfully represent that the Commission never alleged that he did anything illegal in connection with WCFC." Commissioners Swindle and Leary concluded that "potential consumers of Mr. Cook's products and services would be better served if they had more information about his role in the deceptive conduct pleaded here."

This matter was handled by the FTC's Northwest Region, in Seattle, with assistance from the following offices of state attorneys general: Washington, Texas, California, Alaska, Arizona, Idaho, Illinois, Kansas, Missouri, New Mexico, North Carolina, Oregon, Pennsylvania, and Wisconsin, and from the Washington Department of Financial Institutions.

NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.

Copies of the complaint and consent decree are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(Civil Action No.: C00-1698Z)
(FTC File No.: 992 3104)