Legacy Learning Systems, producer of a DVD series featuring guitar lessons, and its owner Lester Gabriel Smith has settled with the Federal Trade Commission over charges that it deceptively promoted its products using online affiliate marketers. These affiliates posed as ordinary consumers and posted positive reviews and endorsements about Legacy Learning. Sound familiar?
Legacy Learning is settling for $250,000. According to the FTC’s press release, “such endorsements generated more than $5 million in sales.”
The company will also have to send reports to the FTC about its “50 revenue-generating affiliate marketers” each month.
FTC guidelines state that any “material connection” between a product and the person reviewing it must be disclosed. This settlement announcement goes a step further than previous ones because of the reference to the affiliate marketers, says Tom Chernaik, CEO of CMP.LY, a social media compliance company.
“It’s not any different from what they’ve said all along, but it further defines material connections,” he said, emphasizing that these relationships must be disclosed if they “wouldn’t be reasonably expected by consumers.”
Moreover, Chernaik notes that there’s no minimum threshold established here. So even a few bucks paid to undisclosed advocates could stir trouble with the FTC that could result in hundreds of thousands of dollars in penalties or settlement fees.