FTC Goes After Secondary Scam

The government has accused two companies and their owners of deceiving consumers by making false claims that they could earn $10,000 monthly in their spare time buying and selling mortgages.

Consumers were charged as much as $5,000 to $8,000 for the The Stefanchik Program, which purports to teach how to quickly make large amounts of money by buying and selling privately held mortgages, but virtually no consumers have made any money using the program, according to a civil suit recently filed in a Seattle federal court by the Federal Trade Commission (FTC).

The lawsuit accuses John Stefanchik, his Seattle, Wash.-based company, Beringer Corp., and also Scott Christensen and his Salt Lake City, Utah-based company Atlas Marketing Inc., which both do business as the Stefanchik Organization.

The defendants generate consumer traffic for their program through Internet and direct mail pieces that advertise a book with a price under $20 called “Wealth Without Boundaries,” which details Stefanchik’s method for building wealth in the “paper business,” according to the lawsuit.

Once consumers respond to the advertisements and buy the book, the defendants’ telemarketers call and offer additional products such in-person workshops, videotaped and audiotaped seminars, and course materials. The telemarketers also offer the services of a personal coach who is experienced in mortgage paper transactions and is readily available through telephone to help consumers find and complete paper transactions, the FTC said.

Consumers are enticed to purchase the additional products and services — which range from $5,000 to $8,000, depending on the package purchased — through representations that the overall program will help them earn $10,000 a month in their spare time, “with no money to start . . . no selling,” the lawsuit said.

Another of the various representations listed in the lawsuit read: “It’s a very simple business where you don’t have any responsibilities except to go to the mailbox and get your checks. You can make $100,000 or $200,000 a year just playing around with this method.”

The representations, however, are contrary to the FTC’s findings.

“Those who buy and sell paper tend to be experienced investors, very experienced in real estate,” Nadine Samter, the lead FTC attorney in the case, told MortgageDaily.com. Stefanchik’s claims “suggest that anybody can do this, and the reality is very few, if any, can do it.

“Our evidence shows there isn’t a market for these types of consumers — you can’t do this in your spare time and make the amount of money represented routinely. Sometimes a person in the program may get lucky and do one good deal here and there, but nobody is making the money that is represented,” she added.

Samter said the FTC hired a consultant to analyze the extent to which the program’s consumers made money. Of the approximate 7,000 consumers the program had in 2003, survey letters were sent to a randomly picked sample of 1,000. Based on the responses received, “about 90% did not make any money and pretty much everyone was dissatisfied with the program.”

The defendants are accused of violating the FTC Act and the Telemarketing Sales Rule. Contrary to the defendants’ claims, the FTC said consumers who purchase The Stefanchik Program additional products and services do not make large amounts of money in their spare time and many do not make money at all. Also, the personal “coaches” reportedly do not have substantial experience in the paper or real estate business and are not readily available to assist consumers in finding and completing paper transactions.

The FTC said it is seeking preliminary and permanent injunctive relief and consumer redress.

Stefanchik’s attorney could not be reached before press time, and Christensen’s attorney did not return a call for comment before then.