FTC denied Financial Education Services preliminary injunction

The FTC has been denied a preliminary injunction against Financial Education Services.

The decision puts regulation of the suspected $467 million dollar pyramid scheme in jeopardy.

As reflected on the case docket, the Financial Education Services preliminary injunction hearing was held on June 30th.

Minute Entry for in-person proceedings before District Judge Bernard A. Friedman: Show Cause Hearing held on 6/30/2022 Disposition: Court will issue an order.

That order came through on July 17th, denying the FTC’s motion for a preliminary injunction.

The FTC’s motion for preliminary\injunction is hereby denied for the reasons stated on the record at the June 30, 2022 hearing.

Unfortunately, we still don’t even know what happened at the June 30th hearing.

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

Consumers being in the dark about why an injunction against an almost half billion dollar alleged pyramid scheme wasn’t granted, isn’t a good look.

A transcript of the June 30th hearing is scheduled to be made public on August 8th. Hopefully we get some answers then.

In the meantime,

  • the previously granted Financial Education Services TRO has been vacated;
  • the Temporary Receivership has been converted into a Monitor; and
  • Financial Education Services assets have been unfrozen.

With respect to finances, there are some caveat restrictions in place. The FES Defendants aren’t allowed to

  1. “dispose of any material assets beyond ordinary course sales and related transactions”;
  2. move less than $500,000 worth of assets without informing the Monitor; and
  3. transfer assets overseas without informing the Monitor.

If the Monitor objects to any proposed asset disposition set forth above, the Monitored Entities will not proceed with such disposition until approved by the Court.

As to the difference between a Receivership and a Monitor, it’s pretty much what it sounds like. The FES Monitor will “monitor and review” business activities, including:

  • marketing (both written and active in-person events);
  • training materials;
  • policies and procedures;
  • document retention and preservation policies (including financial records and transactions);
  • conducting interviews with FES staff and related entities;

The FES Defendants have been ordered to fully cooperate with the Monitor, and not interfere in court-appointed duties.

One win for consumers is that FES will be funding the Monitorship;

The Corporate Defendants shall maintain a minimum balance of Five Hundred Thousand Dollars ($500,000) in the corporate receivership account established by the previously appointed Receiver under the TRO for the payment of any fees, costs, or other expenses approved by the Court.

As with Receiverships, the Monitor will file a periodic report with the court. This is typically quarterly, unless something urgent comes up.

Seemingly emboldened by their win against the FTC, the FES Defendants moved to dismiss the FTC’s case on July 25th.

Needless to say, with respect to the FTC’s regulation of MLM companies, this is uncharted territory.

My initial response was to thank the Supreme Court again for enabling harm to consumers, and add $467 million to the running tally of post-AMG consumer damages.

With the case proceeding however, and the Temporary Receivership being converted into a Monitorship, I’m not sure how this is yet to play out.

One thing I’m hoping the June 30th transcript sheds light on is the court’s logic in allowing a pyramid scheme to operate.

The court accepted the FTC’s evidence and granted a TRO. This isn’t a judgment but it’s a good indication of how the case will play out.

BehindMLM covered some of the details in the FTC’s FES case and it’s pretty damning. There’s Georgia fining FES in 2021… for running a pyramid scheme.

If FES stops running a pyramid scheme, the business is over. All not having a preliminary injunction and asset freeze in place does is screw consumers over.

FTC cases can take years to resolve. Watch the money disappear when it becomes apparent FES is not a legally viable business.

And then there’s the Monitor. One of the tasks a Receiver does is go over the business and establish whether it can be run legally and profitably. Pyramid schemes routinely fail this analysis, with Receivership’s opting to cease business operations.

It’s in the FES Defendants’ financial interests to keep the alleged pyramid scheme going, so where does that leave the Monitor? Running off the court every five minutes to report the same fraud the FTC detailed in their complaint? How is that going to work?

Without seeing the transcript I think the idea here is to give FES some breathing room as the FTC’s case plays out. It is far more difficult to launch a defense when your illegal business is shut down and you don’t have access to alleged ill-gotten gains, then it is in reverse.

The problem is, when it comes to illegal conduct, especially approaching half a billion dollar’s worth, these intentions don’t translate into the real world. All that happens is consumers get screwed.

And this is the continued fallout of the Supreme Court putting scammer’s interests ahead of consumers.

I’ve scheduled our next case docket check for August 8th.

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