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The court-appointed Monitor (previously Receiver) of Financial Education Services has issued his first report.

Overall, FES has taken attempts to improve compliance, although high earners appear to be breaking the laws.

Following the refusal of a preliminary injunction in July, the FES Receivership was changed into a Monitorship.

The FTC contends that FES is a $467 million dollar pyramid scheme, and the case is set for trial in October 2023.

FES has been given permission to function till then under the supervision of the Monitor.

The November 10th report from the Monitor focuses mainly on FES’s compliance activities.

Mr. Naik reported the creation of a “new compliance strategy” for the Company that would be available “this week” at the July 26, 2022 meeting with the Monitor and members of the Monitor Team.

“Mr. “Naik” refers to FES co-founder Parimal Naik.

The following compliance modifications are documented in the Monitor’s report:

Before paying any fees, prospective clients must go through a “initial consultation.”
Customers must opt-in to FES’ Protection Plan, which has a six-month time limit.
complete disclosure of “anticipated costs” throughout the first six months of Protection Plan membership
Customers should be informed and reminded that they can “cancel at any moment.”
The majority of FES subscribers cancel “within two to three months of joining.”

FES calls its distributors “Agents.” FES bought FieldWatch to better monitor Agent compliance.

FieldWatch monitors social media platforms, blogs, websites, news sites, and private online forums for non-compliant postings by the Monitored Entities’ agents using search keywords given by the Company.

The program then delivers results based on the relevant search phrases, which are subsequently examined by the Company for instances of non-compliance.

While FieldWatch can monitor live broadcasts and uploaded footage, FES has not chosen that membership tier as of November 10th, 2022.

This shortcoming provides a potentially significant gap in monitoring agent activity.

While the expense of obtaining the improved search capability is not negligible, the Company appears to have delayed employing more staff to strengthen its online compliance monitoring in large part due to the efficiencies provided by the FieldWatch technology.

Naik also told the court in July that he would “establish a new five-person Compliance Department.”

In August, the Monitor enquired about the condition of the Compliance Department, and just two personnel names were supplied.

FES has a seven-person support team, however they are unable to address compliance concerns.

Javier Canales works in the Compliance Department.

Kevin Thompson, an attorney who advises the Company on multi-level marketing legal compliance, reportedly brought Mr. Canales to the Company.

Mr. Canales was questioned by a member of the Monitor Team. Mr. Canales is a resident of Las Vegas, Nevada. Mr. Canales claims to have been active in the multi-level marketing sector since around 2009, and to have acted in a legal compliance function in the industry for around 10 to 12 years.

Mr. Canales, on the other hand, appears to have had no official training in legal compliance problems pertaining to the direct selling sector, but rather has acquired the function “on the job.”

The Monitor is concerned about Canales’ lack of formal training. He continues by stating that he is “not confidence” in FES’ Compliance Department’s ability to manage Credit Repair Organizations Act regulations (CROA).

The Monitor advises FES to place its Compliance Department, which includes Javier Canales.

comprehensive and complete compliance training offered by a skilled attorney concentrating on CROA and associated state laws, and/or (b) officially incorporate independent legal advice more regularly and on a regular basis to assess particular CROA-related compliance concerns

Although the FES has hired two legal firms, Greenspoon and Thompson Burton, the Monitor feels “more can be done.”

The Monitored Entities’ inability to regularly retain competent external compliance legal counsel in the past is likely to have contributed to many of the challenges the Company is presently facing in connection with the FTC’s complaint.

To ensure that all materials (including PowerPoint presentations) are reviewed and approved by external legal counsel with expertise in such matters, the Company should develop new and improved marketing materials, possibly with agent input, and in close collaboration with external compliance legal counsel.

Moving on to Agent compliance, the Compliance Department informed the Monitor that “presentations” will be held “in order to improve compliance as part of the Company’s culture.”

As of October 15, 2022, the Monitor is unable to confirm whether such a presentation took place.

The cited “Compliance Reports,” which are generated on a weekly basis, found a relatively “low number of breaches.”

FES Agents are now permitted four crimes before being dismissed.

Indeed, despite the fact that the Company has specifically barred agents from utilizing marketing materials that were not generated by the Company, agents regularly utilize their own self-developed marketing materials in contravention of company policy.

The Compliance Reports reveal that the infractions were remedied in certain cases. However, in many cases, it is unclear if the wrongful activity was eventually reversed.

One compliance stumbling block is “in-person events” (PBRs) held by Agents to market FES and its goods.

The Monitor Team requested a schedule of all PBRs that the Company is presently conducting or is aware of.

The Company had not reported any in-person events held by agents (i.e., PBR) to the Monitor Team as of October 15, 2022.

Agents do not appear to disclose planned PBRs to the Company.

Another blind spot is failing to follow up on Field Agent reports.

In one case, a FES Agent was flagged by FieldWatch for a non-compliant social media post.

The Monitor Team confirmed that the offending post had been removed, but they discovered many more instances of noncompliance.

According to the aforementioned report, (Agent) violated “income claims,” which the Monitor Team was unable to uncover proof of online.

However, according to the Monitor Team’s investigation of social media, (Agent) did post images with the following statements: “If your credit score begins with a 3, 4, 5, or 6 DM me,” and “Your credit score has improved!” +201,” with the remark, “This may be you the next in our program to achieve what you’ve always wanted to do, repair your credit.”

Such a posting is likely against Company policy, although it was not mentioned in the report.

As a result, while the Company instructs agents not to post client credit score increases and conducts a review of (Agent’s) account, noting a “income claims” marketing violation, the agent also had other posts that violated Company policy, which do not appear to have been addressed or removed from such agent’s profile.

On a first infraction, FES’ stated corporate policy is to shut down an affiliate’s marketing website (unless the offense is addressed).

According to a FieldWatch report for October 3rd, no Agents’ marketing websites were taken down as a result of the twelve breaches noted.

According to a subsequent October 7th report, websites were not blocked until Agents had received three or four infraction warnings.

Agents are intended to be removed after four compliance warnings.

FES’s inactivity, according to the Monitor, “does not correlate with the action notes made in response to marketing offenses.”

Inaction on the part of FES’ top earners looks to be a big element of the problem.

As instances, Alisa Barnes and Daniella Crevecoeur’s social media posts are presented.

The Monitor Team discovered non-compliant social media posts made by high-earning agents Alisa Barnes and Daniella Crevecoeur.

Alisa Barnes, an agent, posted on Instagram.

“Client Results!!! Congratulations! Your Credit Score Increased. +49 Points. This is the perfect week to arrange your complimentary Detailed Credit Analysis.”

Alisa Barnes is one of the Company’s highest-paid agents, earning around [redacted] in commissions according to the 2021-2022 Commission Report.

Agent Daniella Crevecoeur shared photos of credit score rises on Instagram, with captions such as “Your credit score has improved! +344”, “Your credit score has improved! +197”, “Your credit score has improved! +267”, “My score went up 178 points”, and “Your credit score has improved! +46”.

Such posts did not appear to have been identified by FieldWatch or the Company’s compliance professionals, based on their absence from the Company’s violation report.

Ms. Crevecoeur is likewise a high-earning agent, earning around [redacted] in commissions according to the 2021-2022 Commission Report.

FES top-earning Agents include Alfred Nickson, Morgan Hardman (Nickson’s wife), and Michal Bien-Aime Burgos.

The Monitor suggests based on easily discovered compliance infractions from FES’s top earners;

To ensure compliance, the Company should pay extra attention to its higher-earning agents. In this sense, the Company could consider narrowing its FieldWatch searches to its top selling agents in order to detect and address possible compliance issues.

Despite an increase in the number of reported social media infractions and the Company’s attempts to educate agents on compliance procedures, the Monitor Team quickly identified non-compliant posts by select high-earning agents.

Finally, the Monitor expressed worry that the FES’ Greenspoon counsel was interfering with the Monitor’s duties.

Greenspoon attorney Richard Epstein addressed the August 6, 2022 Super Saturday Event from a legal aspect, reassured the audience that “no one should be frightened, since this is common and routine in the industry,” and that he and his company had been engaged in numerous similar FTC complaints.

Mr. Epstein stated that the Company was making various beneficial enhancements and modifications in order to better meet industry standards, regulations, and laws.

Mr. Epstein mentioned the Company is under monitorship and told the audience of agents:

“One thing I feel obligated to inform you is that some of you may receive a call from Mr. Miles or his staff.”

The Company is required to gladly participate with Mr. Miles’ function as the Monitor.

We can request that you do the same. But, as you know, each of you is an independent businessperson, and you must evaluate your own roles in this, but the Company is certainly cooperating and being as transparent as it can be with Mr. Miles and his team, and we only ask you to be mindful, you know, that what you say and do reflects on the Company as well as you.”

While Epstein did not say anything improper, it does appear to be a bit *winkwink, nudge nudge*.

The Monitor was concerned about these comments because, in the Monitor’s opinion, the only obvious reason to mention agents as “independent business people” in such a context is to imply that agents do not need to cooperate with the Monitor because they are legally separate from the Monitored Entities.

Furthermore, urging the agents to “be wary” of what they say to the Monitor in conjunction with working with the Monitor looked to be an attempt to prevent full and open disclosures by agents to the Monitor.

The Monitor quietly expressed such concerns to Mr. Epstein shortly after his remarks.

Overall, FES has made an attempt to address compliance. Whether this justifies the court returning the firm to its owners to potentially continue scamming people is debatable.

Personally, I believe this will come down to FES failing to rein in its top earnings and the Monitor needing to keep calling this out.

I believe top earners are neglecting compliance since FES as an MLM business is not otherwise viable.

This is consistent with the Monitor’s prior assessment (as Receiver), which expressed viability concerns about FES functioning lawfully.

It also hammers home the FTC’s action, which, remember, accuses FES’s founders of conducting a nearly $500 million pyramid scam.

Stay tuned for further information on the FES Monitor and the case in general.

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