FTC Obtains Injunction Against Funding Procurement Company Barring Contact with Small Business Clients Over Fraud Allegations

Recently, the U.S. District Court for the Central District of California granted the FTC’s motion for a preliminary injunction against a national Company and its founder who provide consulting services and funding procurement for small businesses.  The injunction prevents the Company from contacting any small business owners whose information the Company obtained before February 20, 2025, in connection with allegations that the Company had engaged in a scheme to defraud the small business owners.

According to the underlying complaint, filed November 4, 2024, the Company operated a business finance scheme in violation of the FTC Act, Telemarketing and Consumer Fraud and Abuse Prevention Act, Telemarketing Sales Rule, and Consumer Review Fairness Act of 2016.  The complaint alleges that the Company advertised itself as providing small business loans enabling these companies to cover operating costs, such as payroll and other expenses.  When small business owners contacted the Company, the Company engaged in high pressure sales tactics to persuade business owners to sign engagement contracts.  Once signed, the Company would apply for credit cards in the name of the small business owners without their knowledge and charge the business owners for 10% of the credit amount of the credit card, rather than provide loans.  Owners were unaware of these credit card applications, until they received alerts regarding drops in their credit scores.  Beyond submitting these unauthorized credit card applications, the Company would withhold funding from business owners until they submitted five-star online reviews of the Company.  If the owners sought to terminate their agreements with the Company, they would be subject to a $995 “termination fee.”

Although the Company agreed in part to the preliminary injunction, it objected to the prohibition on contact with past or current clients as being overbroad and likely to put them out of business.  The FTC provided evidence that the Company continued collecting invoices issued to customers originating from the Company’s deceptive practices.  The court was persuaded that the expansive preliminary injunction was necessary to prevent further injury to small business owners, pending trial.