FTC settles for $12M with scammers operating $213M pyramid scheme

The US Federal Trade Commission (FTC) has reached a settlement with “scammers behind a sprawling credit repair pyramid scheme,” who bilked consumers out of at least $213 million. They now “will end practices” and pay $12 million, a fraction of their ill-gotten gains.

According to the FTC’s initial complaint, revenues from the operation, run by Financial Education Services (FES) and its owners, Parimal Naik, Michael Toloff, Christopher Toloff, Gerald Thompson, and several related companies, were even higher.

In 2022, the FTC estimated that the defendants' gross revenues were approximately $467 million as a result of their unlawful practices.

The FTC alleged that the company preyed on consumers with low credit scores and lured them with false promises of easy fixes. The customers were then recruited to join the pyramid scheme and sell the credit repair services to others.

The defendants allegedly deceived consumers about their credit repair products and charged them upfront for the service. The FTC mentioned that the pyramid scheme made overinflated income claims that consumers could make tens of thousands of dollars recruiting others into FES.

The proposed settlements with the alleged scammers impose restrictions and will result in “more than $12 million being turned over to the FTC for use in providing refunds to affected consumers.”

Defendant Parimal Naik and his associated companies must pay $5.5 million. They are prohibited from engaging in unlawful activities related to credit repair services and pyramid schemes and will be required to establish a compliance monitoring system.

Other defendants are permanently banned from credit repair services and multi-level marketing, and they face financial penalties ranging from $215,000 to $1.7 million in cash and assets, such as “numerous cars, a boat, and multiple real estate properties, totaling millions of dollars.”

“These companies promised to clean up people’s credit but failed to deliver,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC is committed to stopping deceptive credit repair tactics and shutting down illegal pyramid schemes that prey on struggling consumers.”

Two years ago, Levine said the defendants “collected millions in junk fees as part of a pyramid scheme that peddled phony credit repair products.”

Consumers allegedly were charged $99 upfront and then paid recurring monthly fees as high as $89 for the ineffective services. Agents made outlandish claims that they could earn money back, more than $1,000 weekly in the scheme, and earn bonuses of tens of thousands of dollars.

“If you have a 400-675 credit score and want a 700-800 credit score, David can LEGALLY erase negative items…repos, foreclosures, late payments, medical, student loans, evictions, and more,” one of the ads about the service claimed.

Other defendants’ deceptive claims included promises to improve credit scores significantly, by 100-200 points, within 30-90 days, often in the form of dubious testimonials, build a positive payment history, and obtain credit-building products, such as secured credit cards.

Fix credit yourself

In another blog post, the FTC warns that “only scammers say they'll remove all negative information from your credit report.”

“Don’t believe ads that promise an easy fix. There are ways to fix mistakes on your credit report, but you can’t legally remove information that’s correct and up to date – and no one else can either, no matter what their ads promise,” the FTC said.

So-called credit repair companies must explain legal rights and total costs before they start to work, and it's illegal for them to charge users upfront before they help them.

The FTC said, “You can do the same things a credit repair company can legally do, and it will cost you little or nothing,” and it provided some guidance.

Users can get free credit reports from AnnualCreditReport.com. Equifax, Experian, and TransUnion offer free weekly reports online. If they find a mistake, they can use a sample dispute letter to write to the credit bureau and the business that reported the information.

To improve credit over time, the FTC recommends paying bills on time, paying off debt, and not taking out new debt.