The Tricks Behind Infomercial Get-Rich Pitches

As an impulse buy, you might plunk down a few bucks for a Shamwow, an Aluma Wallet or a Shake Weight. But would a TV infomercial persuade you to part with thousands of dollars on a get-rich-quick scheme?

There are many thousands who would and do. If there were no suckers, there wouldn’t be so many get-rich ads on TV.

The persuasiveness of infomercials works on multiple levels. They often appear on reputable financial news channels, giving them an air of respectability and, perhaps, giving naive viewers a sense they are either regular programming or geared to the “insiders.”

At a time many Americans are out of work and overextended by debt, the prospect of a streamlined path to wealth can be an easy sell. The offerings promise lucrative earnings and back up those testimonials with satisfied customers bragging of stellar successes.

As is so often a rule to live by: If it sounds too good to be true, it probably isn’t. No amount of celebrity endorsements or alleged success stories can change that when it comes to infomercials.

Broadly speaking, this subset of infomercials creeps along the fine line between common advertising hyperbole and outright misrepresentation. For the most part, these are not fly-by-night con artists or overseas spammers. Many of the familiar faces in infomercials have been at it for years. There really are books, charts, DVDs and mentoring services, as promised; the catch is that you won’t always get them by calling a phone number or attending a free seminar. The deal you see on TV is typically no more than a means to hook you into buying added materials that can cost hundreds or thousands of dollars over time.

And as for those promised results, echoed in rose-colored testimonials, they are often either exaggerations, aberrations or outright lies.

Last month, the Federal Trade Commission went after one prominent infomercial king and joined forces with Colorado Attorney General John Suthers to take the uncommon step of going after a woman who offered a testimonial.

Russell Dalbey, CEO and founder of the company behind the “wealth-building” program “Winning in the Cash Flow Business” is charged by the FTC with defrauding consumers with what were described as “phony claims that they could make large amounts of money quickly.”

“When someone is selling a program designed to help people make money, they have to accurately describe how much consumers can expect to make and be truthful about how quickly they will be able to do so,” says David Vladeck, director of the FTC‘s Bureau of Consumer Protection. “None of that happened in this case, and people who bought the program paid the price.”

According to the FTC, “millions of consumers nationwide” saw infomercials for Winning in the Cash Flow Business hosted by TV personality Gary Collins. The program claimed to teach customers how to find, broker and earn commissions on seller-financed promissory notes — privately held mortgages or notes often secured by the home or land that is the subject of the loan.

“You’ll be amazed at just how easy it is to generate a stream of extra income every month. Build financial freedom and a better quality of life in just minutes a day. Or even retire earlier than you ever dreamed possible. Order now and you’ll be ready to profit in minutes,” one of the infomercials claimed.

The complaint says consumers spent approximately $40 to $160 on the initial program and were later encouraged to spend hundreds or thousands of dollars more on additional products and services.

Promoting the “system” were testimonials from consumers who claimed to have made “$1.2 million in 30 days,” “$79,000 in a few hours” and “$262,216 part time.”

The FTC and Colorado’s AG charged Marsha Kellogg with falsely claiming she earned $79,975.01 from one transaction using Dalbey’s program, and that her total earnings were more than $134,000. The complaint alleges she earned $50,000 less than what she claimed.

The charges faced by Dalbey come as no surprise to Suzann Bacon, vice president of operations for the Better Business Bureau’s Denver office.

“We’ve been working with this particular case since 2003. It has been a long time,” she says. “It is not just the infomercials, it is the whole business model in this particular case. It is a really small handful of folks who made money with what they are selling.”

The BBB did initially accredit Dalbey’s company in 2003, but revoked that seal of approval within a year.

Bacon’s office has collected 170 complaints related to infomercials in the past three years, most about service, sales practices and false advertising.

A common tactic the BBB looks for in its reviews are fraudulent claims that may not relate directly to the content of what is offered — claiming something is a “limited time offer” or a “$100 value,” for instance, even though the promotion is constant and the pricing arbitrary.

“In an economy of today, when people are looking for jobs and everything is so slow, people are looking for something that is too good to be true,” Bacon says.

Dalbey is not the only infomercial star to face legal woes.

In 2008, Utah residents Linda Woolf and David Gengler were charged in connection to the “Teach Me to Trade” stock-picking system. Customers paid between $3,000 to $40,000 to learn the system, even though the duo were, in the words of the Securities and Exchange Commission, “unsuccessful traders.” Combined, they earned more than $6 million selling the product.

An SEC complaint alleges that at their workshop presentations between 2003-06, Woolf and Gengler made false and misleading statements to sell TMTT packages of personal mentoring, software and classes, often targeting retirees. In his workshops, Gengler urged investors to borrow against their retirement accounts to buy these products, the SEC says.

This month a federal judge in Texas sentenced Eric Rulack Farrington, another infomercial star, to 11 years in prison for “orchestrating a multimillion-dollar mortgage fraud scheme in the Dallas area.” He was also ordered to pay approximately $1.6 in restitution and forfeit approximately $1.2 million to the U.S.

Author Kevin Trudeau’s infomercial for “Free Money — They Don’t Want You to Know About” is a variation of the infomercials once made popular by Martin Lesko (known for wearing a Riddler-like suit adorned with question marks).

Trudeau, perhaps trying to appeal to a tea party sensibility even as he espouses how to collect no-strings-attached money from the government, spends much of the infomercial promoting these secrets as though they were divined from the “Da Vinci Code.” The government wants him taken down, you see, because the information he espouses is dangerous. In reality, it appears to be a revisited list of various government programs, most of which can be easily found with an Internet search.

The consumer news and advocacy site ConsumerAffairs.com, however, has logged numerous complaints that ordering Trudeau’s books has led to pushy upsells and being charged for additional, unwanted products.

Real estate, in particular, is a ripe category for infomercials, with many offering tips on how to buy and flip distressed property. It’s a theme many may have first seen via the late-1980s infomercials featuring Tom Vu, a Vietnamese immigrant who claimed to have amassed a fortune by flipping property.

Dean Graziosi’s “Real Estate & Foreclosure Profits” program is a near constant presence on late-night TV.

Graziosi, a self-proclaimed real estate mogul who rose to that status after a poverty-ridden childhood, seeks to inform those who buy his system of how the current housing downturn can be tapped.

He claims various methods allow users to buy property for as little as a few hundred bucks, and that the housing market has already bottomed out and is ready to soar once again. For $19.95 you can order a copy of Graziosi’s book and learn his secrets. One can be assured, though, that the disclaimer that “Some students may have purchased optional support program. Results not typical” means buyers will get still more sales calls promoting more expensive materials. To Graziosi’s credit, the majority of complaints logged with the Better Business Bureau in his home base of Arizona were “resolved,” and he retain a sizable Internet following.

Armando Montelongo parlayed exposure as former host of the A&E network’s “Flip This House” into a national slate of free seminars promoting the tactics needed to buy and fix up run-down property for profit. His infomercial boasts that he is “America’s No. 1 and top real estate investing expert.”

An investigation by a Nashville TV station WTVF, Channel 5, however, found that the seminar was little more than a pitch to buy a follow-up event for $1,500. Despite infomercial claims Montelongo would be present at the seminars (free or paid), he failed to appear.

The reporters learned that Montelongo had 30 seminars that week across the nation and didn’t go to any. Actual face time, they said (citing complaints received by the Texas Attorney General’s Office) would set you back upward of $20,000.

The news team also uncovered that one of the star pupils in the infomercial faced eviction and multiple foreclosures in Nevada. Another claimed to have made $110,000 in eight months, despite the reality of having declared bankruptcy and not having earned more than $17,000 a year.

Also, while it may be possible to buy distressed properties and flip them when the economy improves, do you have the means to travel to where the properties are, assess them and the surrounding neighboring, buy them, fix them up and maintain them, pay the taxes on each and sell them for a profit possibly years later when the time comes? if you have a job already, the answer is almost certainly not.

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