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Financial Education Service – Scam Review Part 2

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The FTC’s request to stop Financial Education Services from doing bad things has been turned down.

The decision makes it more likely that the $467 million pyramid scheme will not be regulated.The Financial Education Services preliminary injunction hearing took place on June 30, which is written in the case docket.

Minute Entry for a hearing before District Judge Bernard A. Friedman in person: On June 30, 2022, a show-cause hearing was held. The court will make a decision and give an order.

The FTC’s request for a preliminary injunction was turned down by that order, which came out on July 17.

The FTC’s request for a preliminary injunction is denied for the reasons that were given at the hearing on June 30, 2022 and are written down in the record.

We still don’t know what happened at the June 30th hearing, which is a shame.

The only information the court has made public about the June 30 hearing is the case docket quote above. This means that the preliminary injunction you asked for was turned down, but I can’t tell you why.

It doesn’t look good for consumers to not know why an injunction against a nearly $500 million pyramid scheme wasn’t granted.

In October, the public will be able to read a transcript of the hearing from June 30.

While we wait,

The Financial Education Services TRO has been taken away, the Temporary Receivership has been turned into a Monitor, and the company’s assets have been unfrozen.
There are some restrictions in place when it comes to money. The FES Defendants are not allowed to

“get rid of any important assets outside of normal sales and related transactions,” “move assets worth less than $500,000 without telling the Monitor,” or “send assets overseas without telling the Monitor.”
If the Monitor doesn’t agree with any of the above proposed ways to get rid of assets, the Monitored Entities won’t do it until the Court says it’s okay.

What makes a Receivership different from a Monitor is pretty much what it sounds like. The FES Monitor will keep an eye on and look over business activities, such as:

marketing (written and in-person events), training materials, policies and procedures, document retention and preservation policies (including financial records and transactions), and conducting interviews with FES staff and related entities.
The FES Defendants have been told to work with the Monitor and not get in the way of what the court has ordered them to do.

The fact that FES will pay for the Monitorship is a win for consumers;

The Corporate Defendants must keep at least $500,000 in the corporate receivership account set up by the previously appointed Receiver under the TRO. This money will be used to pay any fees, costs, or other expenses that the Court approves.

Just like with Receiverships, the Monitor will give the court regular reports. This usually happens every three months, unless something important comes up.

The FES Defendants tried to get the FTC’s case thrown out on July 25. They seemed to feel more confident after their win against the FTC.

When it comes to how the FTC regulates MLM companies, it goes without saying that this is new territory.

First, I wanted to thank the Supreme Court again for letting consumers get hurt and add $467 million to the total amount of money consumers have lost since AMG.

But since the case is still going on and the Temporary Receivership is now a Monitorship, I don’t know how this will turn out.

I’m hoping that the June 30th transcript will help me understand why the court let a pyramid scheme go on.

The court agreed with what the FTC said and gave a TRO. This is not a final decision, but it gives a good idea of how the case will go.

BehindMLM talked about some of the details of the FTC’s case against FES, which are pretty bad. In 2021, Georgia will fine FES… for running a pyramid scheme.

If FES stops running a pyramid scheme, the company will no longer be in business. If there isn’t a preliminary injunction and asset freeze in place, it only hurts the consumer.

Cases with the FTC can take years to settle. When it becomes clear that FES is not a legal business, the money will go away.

There’s also the Monitor. A Receiver’s job is to look over the business and figure out if it can be run legally and make money. Most pyramid schemes fail this test, which is why receiverships decide to stop doing business.

The alleged pyramid scheme benefits the FES Defendants financially, so where does that leave the Monitor? Running out of court every five minutes to report the same fraud that the FTC described in their complaint? How does that make sense?

I think the idea here, without seeing the transcript, is to give FES some breathing room while the FTC’s case plays out. When your illegal business is shut down and you can’t get to the money you’re accused of getting from it, it’s much harder to start a defense than when it’s the other way around.

The problem is that these good intentions don’t work out in the real world when it comes to doing something illegal, especially if it costs close to half a billion dollars. Customers only end up getting ripped off.

And this is a result of the Supreme Court’s decision to put scammers’ needs before those of consumers.

I’ve set August 8 as the date for our next case docket check.

9 August 2022 Update – The FTC has answered FES’s motion to throw out the case.

The FTC took this action to stop the Toloff Defendants and their co-defendants from continuing a bad credit repair and pyramid scheme that scammed consumers across the country out of hundreds of millions of dollars.

Defendants often fail to fix their customers’ credit or raise their credit scores, even though they make promises and sometimes charge illegal advance fees of hundreds of dollars.

Also, Defendants often take advance fees that are against the law and don’t make the required CROA disclosures or give written contracts.

Defendants also advertise an opportunity to make money by asking people to become sales agents (“FES Agents”) and get other people to buy their credit repair services and become FES Agents.

By doing this, the Defendants make false claims that people who become FES Agents will make a lot of money.

In reality, though, Defendants are running an illegal pyramid scheme, and only a small number of customers ever make as much as they were promised.

The policies and procedures and compensation plan of the defendants show that they are more interested in getting new FES Agents than in selling credit repair services.

The FTC says this about FES’s use of AMG:

The Toloff Defendants say that Section 13(b) of the FTC Act says that the FTC can’t get money relief.

They don’t care, though, that the FTC is bringing this case under both Section 13(b) and Section 19 of the FTC Act.

Section 19(b) of the FTC Act (15 U.S.C. 57b(b)) says that courts can give “any relief the court finds necessary” for violations of the CROA8 and the TSR9, including “the refund of money or return of property.”

When the court rules on the motion, I’ll write a separate article about it.

I got the dates wrong on the preliminary injunction hearing transcript. The deadline for redaction submissions was August 8. The public won’t be able to see the transcript until October.

If it’s still important, I might look it up, but if not, I’ll just keep up with what’s going on.

Changes on September 6, 2022 – There is no news about FES’s Motion to Dismiss. But we do have a court date.

The court set the FTC v. FES trial for October 24, 2023, on September 1.

Before putting out a new article, we are waiting for a decision on FES’s Motion to Dismiss.

Change on November 15, 2022 – The FES Monitor has turned in his first report, which describes FES’s ongoing efforts to follow the law.

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