Frank Kern FTC Scandal

Frank Kern FTC

OK, so what’s it like to get sued by the FTC? Well, first off, IT BLOWS. …As if that needed saying, right? But seriously …not a good time. I’ll get to the gory details in a sec, but first some important things you should consider.
1: For the love of God, do NOT take anything I say here (or anywhere) as legal advice.
2: Everything I say here is my opinion and is for entertainment purposes only.

How to ruin your business in one easy step!

I’m guessing you probably already know that I was sued by the FTC back in 2003. After all, I talk about it publicly. But there’s probably a lot you don’t know about that whole story as well. So here’s the dirt.
Let’s talk about the dumb shit I did that got me in trouble in the first place.
Back in August of 2001, I created a product called Instant Internet Empires. I remember this well because I got the idea to create the product while I was sitting in a real estate licensing class.
Why was I sitting in a real estate licensing class you ask? Because I had temporarily been overcome with insanity and thought it might be a good idea for me to get a Realtor’s license.
Anyway, the class was boring as hell so my mind started to wander and I got to thinking about all the Internet Marketing products I’d purchased.
…And I noticed a common theme that was really popular back in the day: MASTER RE-PRINT RIGHTS.
Now, the term “Master Reprint Rights” simply means that you have the rights to re-sell a product and keep all the money …and you also have the rights to transfer that ability to others if you so desire.
It was all the rage back in 2001 and not only had I bought a ton of e-Books with Master Reprint Rights, I’d also noticed they were selling like crazy in the Internet Marketing community.

Jenius Strikes!

Each of the ebooks that I saw on the market were selling for around $20-$30.
So I figured, “Hey! Why not buy a bunch of these, bundle ’em up into a separate product, and sell them all at a discount?”
So that’s exactly what I did when I created Instant Internet Empires.
I took several of these ebooks and bundled them up into one package …and sold it for $47. (If purchased separately, it would have cost around $80 …so the customer was getting a discount.)
I also included a bunch of screencam video tutorials I created that showed people how to FTP, edit web pages, accept credit cards, and so forth.
And you might be wondering, “What’s so bad about that?”
Well, I haven’t yet told you about the

Super Jenius Part!

See, here’s what I haven’t told you yet.
I also offered re-print rights to the Instant Empires collection.
So if you bought Instant Internet Empires from me for $47, you could:
A: Read all the ebooks, watch the videos, and learn some stuff.
B: Set up separate websites that sold each of the ebooks individually, keeping 100% of the money (using the included website templates that came with the ebooks or by creating your own).
C: Set up a separate website that sold Instant internet Empires as a bundled package and keep all the money from each sale.
Now, if this was a multiple choice quiz and I asked you “Which one of the above activities got ol’ Frankie in hot water with the Feds?”, which would you choose?
Here, I’ll just tell you: THE ANSWER IS “C”.

Here’s Why “C” Was So Damn Stupid

When someone bought Instant Internet Empires, I foolishly gave them the rights to re-print, use, and re-sell the very sales letter I’d written for it. The same sales letter that had my name in it, as well as my bank statement photo and my earnings information.
And this led to all kinds of bad stuff happening, such as:
Bad Stuff Part One: Within a few months, there were a gazillion websites doing business as “Frank Kern” …but only one of them was mine. (There are still a bunch of Instant Internet Empires websites out there with my name on them …NONE of them are mine. Dammit!)
Bad Stuff Part Two: Some people started sending SPAM using my name …and promoting their Instant Internet Empires website that also had (you guessed it) my name on it.
Yay!

But Here’s Where It Gets REALLY Awesome!

One of these companies proceeded to call their customers and tell them they either were me, worked for me, or were my partners. (None of those statements were true.)
….And then they’d kindly sell them $4,000 “coaching” packages (with “mentors” and everything!)
That really pissed me off because people would email me saying “your sales staff called me and they were rude!”. And since I didn’t have a telemarketing staff (never have, don’t plan on ever doing so either), I got a little freaked out.
So I finally figured out who these nice folks were and I got an attorney to send them the ol’ “cease and desist” letter.
They got it, I talked to their head dipshit on the phone, and they promised to stop using my name.
All of this happened within months of my creating the Instant Internet Empires product and by the time Spring of 2002 rolled around, it had all died down.

Fast Forward To May, 2003

That was when I got sued by the FTC. I’ll never forget this moment.
I worked from my house in Macon, Ga back then and I was pacing around in my driveway while talking on the phone.
I looked up and noticed a man in a white golf shirt getting out of a burgundy ford ranger pickup truck. He walked right up to me and said, “Are you Frank Kern?”.
“Yes.”
“This is for you.” – and he handed me SEVEN POUNDS of paperwork.
…Then he left. The poor guy actually looked apologetic when he handed me this stuff. (He was simply a process server. Contrary to popular belief, the FTC never “raided” my offices or anything weird like that.)
Anyway, I hung up the phone, walked into my home office, and started reading what he handed me.

Here’s What It Said

(This is a very rough translation)
“Dear Mr. Kern. YOU ARE SCREWED. Sincerely, the FTC.”
…They were a lot more eloquent than that though. They basically told me that Instant Internet Empires as a pyramid scheme (what??) and that they’d frozen my assets …and that they were going to take all my money.
I damn near had a heart attack.
I mean …a pyramid scheme?? We’re talking about a $47 bundle of ebooks here. There was no “downline” or anything even remotely like that.
Turns out that doesn’t matter.
See, their argument was that the product didn’t have any value other than the fact that it could be re-sold. And that due to the way I had worded my sales letter, it would be physically impossible for anyone to achieve the results I’d experienced by simply re-selling the product.
Damn.

Here’s What Happened Next

Over the course of six months, I borrowed over $100K against my home, got really stressed out, and eventually settled out of court.
I never attempted to fight them because it would have taken forever and I probably would have lost anyway.
Plus, I don’t want to make enemies with any government agency. That’s stupid.
I’m pretty sure I could have just called them and said “I want to settle immediately.” And they’d have been like, “OK. Give us all your money.”
But my damn lawyers in Atlanta wanted to get their cut so we did a bunch of useless paperwork stuff (to the tune of $100K in legal bills) and then I gave the FTC all my money.
Speaking of lawyers, here’s something that’ll amaze you.
Long before I got sued by the FTC, I had an attorney review my website to make sure everything was cool.
For some reason, I was worried about getting into trouble (duh!).
Anyway, he said, “Looks fine to me, Frank” and I went about my merry way.
Here’s what a dumb ass I was back then.
That guy was my family’s TAX LAWYER. He knew NOTHING about FTC regulations. I was so naive that I thought all lawyers were created equal.
DUMB.

Here’s What I Learned

1: You don’t have to be a star, baby, to be in my show.
During my $100K round of useless paperwork, we actually did get something of value. My lawyers asked the FTC for copies of all consumer complaints filed about Instant Internet Empires.
And remember that company I told you about? The one where they would call the customers and say they were me?
Well, almost ALL OF THE COMPLAINTS were actually about that company. …Not me!
They even listed that company’s name on the complaints and everything!
When I discovered this, I thought my troubles were over because:
A: I have absolutely no connection to those guys.
B: I had copies of the cease and desist letter I’d sent them long before the FTC ever entered the picture!
C: That other company had a lot more money than I did and would make for a much better “target” than me … a 31 year old guy in Georgia working out of his house.
When I excitedly called my lawyers about this, here’s what one of them told me: “It doesn’t matter. You created the product in the first place …and more importantly, they’ve already issued a press release about you and they’ve convinced a federal judge to freeze your assets. There’s no way they’re going to go back and say they went after the wrong guy.”
Out of all the stuff that happened, that’s what shocked me the most. My guess is they got a gazillion complaints against “Dipshit, Inc.” for selling Instant Internet Empires and simply assumed that I was the guy in charge …mainly because my name was on a ton of websites. From the outside, it probably looked like I was the “Kingpin” behind a major spam operation which then called customers and sold them bogus coaching products. Why they never shut down the guys who actually were hosing people will always be a mystery. (Those guys are still hosing people to this day.)
But here’s the point: IT DOESN’T MATTER. I believe that once the FTC even thinks you’re a bad guy, you’re screwed. You can technically even be “right” and still get into trouble.
Here’s what I mean: out of all the consumer complaints we received, only EIGHT mentioned my company. The worst complaint was “I didn’t like the product”. No kidding. And because I’m totally OCD when it comes to customer records, I was able to show that all eight of the people who actually did business with me had received full refunds …and one of them even thanked me for having good customer service.
And guess what? THAT DOESN’T MATTER.
The FTC is the FTC. Your best course of action is to try to be obnoxiously compliant with their regulations. If you get on their bad side, YOU WILL NOT WIN.
2: Disclaimers Don’t Matter
A popular misconception about my FTC lawsuit is that I didn’t have the correct disclaimers on my website.
While I probably didn’t have the right disclaimers on my website, having the “right” ones wouldn’t have mattered much.
In fact, since all that stuff happened, I’ve actually become friends with a former FTC lawyer and here’s what he told me.

“The FTC pretty much thinks that if you have to have a disclaimer in the first place, you’re probably doing something wrong.”
Here’s what this means to you.
You can’t have a website that says “You’ll get rich if you buy this product.” …and then hope your disclaimer that says “not really” will keep you out of trouble.
It won’t.
3: The FTC is Complaint Driven
I asked my friend (who used to work for the FTC) how someone even ends up on their radar in the first place.
He told me that most of their actions are driven by consumer complaints.
This means that YOU NEED TO TREAT YOUR CUSTOMERS LIKE GOLD.
And by the way, simply giving refunds is not NEARLY enough.
You need to make sure that what you’re selling exceeds their expectations.
After all, satisfied raving fans aren’t going to file complaints about you.
4: If you’re worried that what you’re doing might get you into trouble, it probably will.
The “problem” with the FTC is that you can’t just call them up and ask them if what you’re doing is OK.
…And their rules are pretty ambiguous.
So my advice to you is that if you’re even remotely concerned that what you’re doing might get you into trouble, then stop doing it. It’ll probably get you into trouble.
Hire an experienced FTC attorney to look over your stuff and then DO WHAT HE SAYS.
5: If “everyone else” is doing it …and “they’re a lot worse than you” …you can still get into trouble.
When I look back on it, my ad copy for Instant Internet Empires was hypey as hell.
Granted, everyone in the Internet Marketing Community was writing super hypey stuff back then. Many of them worse than me. (Hell, my customers liked me for crying out loud!)
But the fact is, if everyone else is doing it too …you’re still likely to get into trouble.
In fact, if a lot of people are doing it …you’re probably going to get into more trouble because the FTC likely to be really sick of hearing complaints against “your type” of stuff …and they’ll be looking to make an example out of someone.
Remember a few months back when everyone was doing those fake blogs selling weight loss crap and scammy biz opps?
Look what happened. FTC came in and kicked major ass.
I’ll bet the guys that got sued were thinking, “Wait! Why us? Everyone else is doing it!”
…Doesn’t matter.
The FTC is no joke. Don’t press your luck.
6: For Christ’s Sake, Get A Good Lawyer!
Remember when I told you that I’d had my Instant Internet Empires website reviewed long before I got sued?
And remember when I told you I had it reviewed by my TAX ATTORNEY??
Well learn from my idiotic mistake. If I’d have had any clue that what I was doing could get me into trouble, I’d have stopped immediately.
I’m sure you would too.
But the only way to know is to get qualified legal advice.
I recommend you have an attorney who is familiar with FTC regulations review your stuff.
DO NOT use your family’s tax attorney.
DO NOT use your buddy who just got out of law school.
And DO NOT hire an attorney and ask “How do I get away with this?”
Instead, ask “How can I make absolutely sure I’m being 100% compliant with the law?”

While All That Sucked Really Bad, It Was Also Kind Of Cool

I realize that’s a crazy thing to say but hear me out.
I learned a lot of lessons during that experience and I’m grateful for it. (Don’t want to go through it again, however…)
The biggest lesson is that if you treat people right, they will stick by you.
The FTC made me email a copy of their lawsuit against me to something like 18,000 customers.
I thought I would be ripped to shreds once that went out …but the opposite happened.
Many customers wrote me telling me that they liked Instant Internet Empires and that they’d learned a lot from the videos I’d included and so forth.
And most of the Internet Marketing Community stood by me and gave me encouragement to keep plugging away.
That was cool and I haven’t forgotten it.
It’s part of the reason I include good free stuff for everyone on this blog. Friends stick together.
Another thing I learned is that when the shit hits the fan and everything goes to hell, you CAN get back up again and come back better than ever.
It’s hard, it takes a while, but it’s worth it.
And finally, I learned that in the end, everything will turn out fine.
Always has, always will.

FTC Cracks Down on Internet Scams

The U.S. Federal Trade Commission and its law enforcement partners announced settlements with 10 people and five corporations the FTC had accused of Internet-related scams, the agency announced Thursday.
Those court settlements include a variety of "deceptive schemes and illegal scams," according to the FTC, including Internet auction fraud, bogus business opportunities, deceptive money-making scams, and phony credit offers.
Since October 1, the FTC and its law enforcement partners have taken action on more than 285 criminal and civil indictments, convictions, and searches targeting Internet scams and deceptive spam, not including the settlements announced Thursday.
Following is a list of some of the court settlements reached through the FTC and its partners, including the U.S. Federal Bureau of Investigation and the U.S. Postal Inspection Service.

Ill-Gotten Gains

The FTC announced a settlement with GM Funding, of Irvine, California, Global Mortgage Funding, and Robert D. and Damian R. Kutzner. The settlement bans them from sending spam and requires them to pay a fine of $60,500 for what the FTC called "ill-gotten gains."
A related settlement, with Universal IT Solutions and Anthony Tamras, bars them from making spam-related misrepresentations, or assisting and facilitating others in making misrepresentations, and contains a suspended judgment of $60,500.
The FTC accused GM Funding and the other defendants of using deceptive spam, including the unauthorized use of logos of well-known financial institutions, to induce victims to disclose sensitive financial information such as income, mortgage balances, and home values. According to the FTC, the spammers purported to offer consumers competitive financing and refinancing loans.
The FTC charged the defendants with unfair and deceptive practices, violations of the FTC Act, and with posing as an entity they were not in order to get sensitive financial information--a violation of the Gramm-Leach-Bliley Act.

Envelope Stuffing Scheme

The FTC charged that five defendants used fictitious names to promote a fraudulent envelope-stuffing, work-at-home scheme. The defendants used deceptive spam and Web sites that claimed that for a $50 fee, consumers would receive envelopes and pamphlets. The promoters claimed that they would pay consumers $1 apiece for stuffing the envelopes and claimed that consumers could make $500 to $1500 a week. Some of the unsolicited e-mail promised that consumers' payments were fully refundable.
Instead of receiving envelopes and pamphlets, consumers received a booklet containing instructions on how to market the defendants' deceptive credit repair manual to other consumers. No consumers made the promised earnings, and consumers did not receive refunds.
The settlements with David and Irene Herrera and James and Vincent Zezula permanently bar them from sending spam, from making deceptive representations, and from providing others with the means to commit deception. Based on their financial statements, the defendants will be required to pay $7000 back to victims. The FTC estimated that the group had a total of $536,412 in ill-gotten gains, but only $7000 was left in their bank accounts. Their operations were based in Los Angeles.
"On the blood and turnip theory, we settled for the $7000," said FTC spokesperson Claudia Bourne Farrell. "But should we find out they were lying, we'll demand the entire amount."

Instant Internet Empires

Instant Internet Empires, based in Macon, Georgia, touted the money-making potential of five pre-packaged Internet businesses, promising that buyers could make more than $115,000 a year using the product. For their $47.77 investment, consumers received the right to reproduce the defendants' Web site and the right to try to resell its contents to other consumers, according to the FTC.
To achieve the promised $115,000 in earnings, consumers each would have to sell the product to 2400 additional consumers, who would each need to sell to 2400 additional consumers to achieve the same earnings, according to the FTC. By the third generation of the scheme, participants would need to make more than 13.8 billion sales, more than twice the earth's population, for each of them to achieve the advertised earnings.
The stipulated final judgment and order with Instant Internet Empires and Irwin F. Kern IV, also known as Frank Kern, bars them from making false or misleading income claims, from participating in chain marketing schemes, and from providing others with the means and instrumentalities to violate federal laws. Based on their financial statements, defendants will have to pay back $247,000 to the victims. Should the defendant's financial reports be found to be inaccurate, the total of their ill-gotten gains, $634,222, will become due.

Auction Fraud

The FTC charged that Eric Stetzel, a resident of Nevada, offered computers, computer-related equipment, and other merchandise for sale on Internet auction sites. Consumers who tried to buy the merchandise never received it. The FTC charged Stetzel with violating the FTC Act and the Mail Order Rule. A default judgment prohibits violations of FTC Act and the Mail Order Rule and orders restitution in the amount of $9723.66.