Firm to Pay FTC $250,000 to Settle Charges That It Used Misleading Online "Consumer" and "Independent" Reviews

A company selling a popular series of guitar-lesson DVDs will pay $250,000 to settle Federal Trade Commission charges that it deceptively advertised its products through online affiliate marketers who falsely posed as ordinary consumers or independent reviewers.

The FTC complaint against Nashville, Tennessee-based Legacy Learning Systems Inc. and its owner, Lester Gabriel Smith, is part of FTC efforts to make sure that advertising to American consumers is truthful and not deceptive, whether the advertisements appear in traditional or newer forms of media.

The Learn and Master Guitar program promoted by Legacy Learning and Smith is sold as a way to learn the guitar at home using DVDs and written materials.  According to the FTC’s complaint, Legacy Learning advertised using an online affiliate program, through which it recruited “Review Ad” affiliates to promote its courses through endorsements in articles, blog posts, and other online editorial material, with the endorsements appearing close to hyperlinks to Legacy’s website.  Affiliates received in exchange for substantial commissions on the sale of each product resulting from referrals.  According to the FTC, such endorsements generated more than $5 million in sales of Legacy’s courses.

The FTC charged that Legacy Learning and Smith disseminated deceptive advertisements by representing that online endorsements written by affiliates reflected the views of ordinary consumers or “independent” reviewers, without clearly disclosing that the affiliates were paid for every sale they generated.

The FTC’s revised guidelines on endorsements and testimonials, issued in 2009, explain in general terms when the agency may find endorsements or testimonials unfair or deceptive.  Under the guidelines, a positive review by a person connected to the seller – or someone who receives cash or in-kind payment to review a product or service – should disclose the material connection between the reviewer and the seller of the product or service.

“Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection.  “Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising.”

Under the proposed administrative settlement, Legacy Learning and Smith will pay $250,000.  In addition, they have to monitor and submit monthly reports about their top 50 revenue-generating affiliate marketers, and make sure that they are disclosing that they earn commissions for sales and are not misrepresenting themselves as independent users or ordinary consumers.  Legacy Learning and Smith also must monitor a random sampling of another 50 of their affiliate marketers, and submit monthly reports to the FTC about the same criteria.

The Commission vote to approve the administrative complaint and proposed consent agreement was 5-0.  The FTC will publish a description of the consent agreement package in the Federal Register shortly.  The agreement will be subject to public comment for 30 days, beginning today and continuing through April 15, 2011, after which the Commission will decide whether to make it final.  Interested parties can submit written comments electronically or in paper form by following the instructions in the Invitation To Comment part of the “Supplementary Information” section.  Comments in electronic form should be submitted using the following Web link: ftcpublic.commentworks.com/ftc/legacylearningsystems and following the instructions on the web-based form.  Comments in paper form should be mailed or delivered to:  Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580.  The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the respondent has actually violated the law.  The issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an Administrative Law Judge. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated.  When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.  Each violation of such an order may result in a civil penalty of up to $16,000.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. 1023055)
(Legacy NR)