Federal regulators are suing a host of Utah-based companies — including a campaign donor to now-resigned Attorney General John Swallow — alleging the operations "preyed on consumers" with false assurances they could build successful online businesses.
Consumers instead ended up with little or no money and heavily in debt to credit card companies, according to a complaint unsealed Thursday in Salt Lake City’s federal court.
The Federal Trade Commission filed the 42-page lawsuit against 14 companies and nine individuals. It alleges the defendants operated as a single enterprise that enticed consumers with emails and websites to buy relatively inexpensive work-at-home kits.
Telemarketers then pitched those purchasers more expensive "coaching services" and related goods that were promoted as an opportunity to build profitable online businesses.
Finally, telemarketers urged consumers to purchase other pricey business offerings such as website design, accounting and tax-filing services in a practice known as "up-sells."
"In truth and in fact, consumers rarely, if ever, end up with profitable online business," the complaint says, "and defendants’ scheme continues either until consumers realize that they are victims of a scam or until they reach the limits of their credit cards."
Among those named in the complaint was Orem resident Ken Sonnenberg, the owner of Apply Knowledge and eVertex. Apply Knowledge donated $2,000 in 2012 to the Swallow campaign for attorney general.
That donation was among a large percentage of campaign contributions to Swallow and his predecessor, former Attorney General Mark Shurtleff, that came from individuals or companies in industries prone to consumer complaints, such as online and telemarketing, financial coaching and payday loans.
Swallow stepped down in early December in the midst of several investigations of his campaign finances and other questionable activities.
Sonnenberg’s attorney, Jonathan Hafen, declined comment Friday. A phone message at one of Sonnenberg’s businesses, the Coaching Department, said: "Due to unforeseen events, we have suspended operations and hope to be open again very soon."
The Utah Division of Consumer Protection launched the investigation into the companies’ practices and turned it over to federal authorities when the scope became apparent, a spokeswoman said.
"We hope this case sends a strong message to all businesses that the law requires you to tell consumers the truth when doing business," Francine A. Giani, executive director of the Utah Department of Commerce, said in a statement.
In a declaration filed with the lawsuit, Michael Palumbo, the chief investigator for Consumer Protection, said the probe began after the division fielded a number of consumer complaints about telemarketing calls.
Companies named in the complaint were Apply Knowledge Institute and the Coaching Department, of Orem; Dahm International, of Salt Lake City; Dominion of Virgo Investments, of Herriman; Ecommerce Support, of Eagle, Idaho; Essent Media, of Lehi; EVI, of Orem; and Nemrow Consulting, of Pleasant Grove.
Also named were Novus North, of Lehi; Purple Buffalo, of St. George; Supplier Source, of Provo; 365DailyFit, of American Fork; Vensure International, of Lehi; and VI Education, of Lehi.
Other individuals named in the lawsuit were David Gregory Bevan, of Eagle, Idaho; Jessica Bjarnson and Phillip Edward Gannuscia, of South Jordan; Chad Huntsman, of South Jordan; Scott Nemrow, of Lehi; Jeffrey Nicol, of Draper; and Thomas J. Riskas III, of Orem. Also named was Babata Sonnenberg, wife of Ken Sonnenberg.
U.S. District Judge Dee Benson issued a temporary restraining order Feb. 11, while the case was sealed from public view. It freezes the assets of the entities and individuals named in the case and appoints a temporary receiver.
The lawsuit asks the court to award refunds to consumers and order those involved to turn over allegedly "ill-gotten gains."
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