FTC alleges John and Roman Cresto posed as e-commerce experts, exploiting clients with false promises of Amazon and Walmart’s success. Lavish spending on luxury weddings and cars ensued. FTC seeks a temporary business ban while unveiling multimillion-dollar deception. The Crestos launched Automators AI, continuing fraudulent practices. Daniel Cohen sued Crestos for deceitful business transfer. Stubbs Alderton & Markiles, the Crestos’ lawyers, are accused of shifting representation. Client emails reveal losses and disappointment. FTC targets deceitful e-commerce consultancies, echoing its crackdown trend. Amazon and Walmart are silent.
The Federal Trade Commission (FTC) has accused John and Roman Cresto of making enormous profits by posing as e-commerce “gurus” and promising to reveal the secrets to success on sites like Amazon and Walmart in exchange for a substantial price.
Their opulent getaways and upscale automobiles showcased on their social media accounts crafted an illusion of multimillion-dollar prosperity, an image that federal authorities now assert was propped up by deceit and trickery.
This case is merely the most recent illustration of the FTC’s crackdown on duplicitous e-commerce consultancies that prey upon ordinary consumers and budding online enterprises. With the shift toward digital retail and the burgeoning success of marketplaces like Amazon and Walmart, an industry of advisors and firms, often dubbed “coaches” or “gurus,” has emerged. They claim to have achieved riches in the e-commerce realm and propose to impart their acumen to paying clients, who shell out considerable sums for courses that provide no guaranteed results.
On Tuesday, the FTC formally requested a judge to impose a temporary ban on the Cresto brothers’ business activities in connection with a lawsuit that the agency lodged earlier this month in the U.S. District Court for the Southern District of California.
According to the FTC’s complaint, the Cresto brothers promised to adeptly oversee the operations of automated online stores on both Amazon and Walmart through their companies, including Empire Ecommerce. They charged customers anywhere from $10,000 to $125,000 for the initial investment and an additional $15,000 to $80,000 as working capital, the FTC alleged.
Additionally, the Cresto brothers pocketed 35% of any profits generated by the e-commerce stores of their “partners,” according to the complaint. However, by June 2022, fewer than 10% of the stores managed by Empire had generated sales, the FTC claimed. By October 2022, Amazon had suspended or terminated the majority of these stores for violations related to intellectual property and the business practice known as drop shipping. Under this method, companies don’t keep inventory on hand; instead, they order products from manufacturers only after a customer makes a purchase. The FTC also stated that most of Empire’s storefronts on Walmart’s platform were either inactive or terminated due to policy breaches.
Despite the suspensions, Empire allegedly continued to falsely promote the success of its Amazon ventures by recruiting affiliate marketers to post flashy videos online, asserting that they were raking in “significant passive income” through Empire’s automation services. The FTC claimed that Empire used this affiliate marketing scheme to attract over 60 new clients and earned more than $1.5 million in commission fees.
The agency pointed out that the reality was quite different: “In truth, most of Empire’s clients lost money and virtually none made the advertised amounts,” as stated in the complaint.
The FTC’s complaint further alleged that the suspensions left Empire’s clients burdened with debt since the company often had clients pay for inventory using credit cards. According to the FTC, Empire refused to reimburse victims for the significant amounts they had paid to Empire or for goods sold.
The FTC accused the two brothers of pocketing more than $22 million from their clients. These funds were reportedly spent on extravagant cars, lavish vacations, and even a luxury wedding in Italy, as per social media posts and the FTC complaint.
At the outset of the current year, following the sale of Empire, the Cresto brothers initiated a new venture called Automators AI. This enterprise purportedly teaches consumers how to utilize artificial intelligence to become online sellers earning “over $10,000 per month in sales” and leverage AI chatbot ChatGPT to formulate customer service scripts. According to the FTC, this scheme is ongoing and is reportedly defrauding consumers of tens of thousands of dollars.
CNBC’s requests for comments from Amazon and Walmart have gone unanswered.
A Hasty Exit
As Empire’s alleged fraudulent activities were catching up with it, the Cresto brothers attempted to divest their operations to another individual, Daniel Cohen.
Cohen is currently embroiled in a lawsuit against the Crestos, asserting that they deceived him regarding the actual state of the business and used him to deflect accountability away from themselves.
In October 2022, the same month the FTC claimed that Empire’s Amazon stores were mostly suspended, the Cresto brothers approached Cohen, a Florida entrepreneur, about acquiring their business. Roman Cresto presented projections that painted the business as robust and highly profitable.
Cohen disclosed to CNBC that the Crestos initiated contact through Instagram, and a Zoom meeting followed later that month. During that Zoom conversation, John Cresto purportedly assured Cohen that Empire was not facing any litigation or substantial issues, aside from a few discontented clients.
“I raised this question because of my familiarity with the industry,” Cohen remarked to CNBC. The Crestos also provided him with projections claiming that Empire garnered up to 50% of profits from the numerous stores they purportedly managed.
“I’m uncertain where they sourced their projections,” Cohen told CNBC. “Perhaps they had a store that performed well at some point, and they generalized that outcome to all cases, but I suspect most of it was fabricated.”
Cohen agreed to purchase the Crestos’ business on November 7, 2022 and wired them $100,000 the following day. Just two days later, the Crestos disclosed the existence of five ongoing “legal disputes” handled by their defense firm, Stubbs Alderton & Markiles.
One email from a client, cited in Cohen’s lawsuit, lamented, “I paid Roman 490k total for 6 stores … between LLC set-ups/fees, credit card feeding, virtual store fees, their software on several that they told me would push my stores to the top, etc, etc, they scammed me for well over $525k total.”
Numerous other complaints languished in Cohen’s inbox, detailing allegations of neglect or dubious dealings by the Cresto brothers.
“I paid you guys $65k for an experienced store. Since starting, my store’s performance has been nowhere near the projections. Now my store isn’t making any sales at all. I need to understand why this is happening and what transpired. I’m starting to believe I was swindled, and I’m considering involving my lawyer,” another email cited in Cohen’s lawsuit read.
Cohen also disclosed to CNBC that Stubbs Alderton & Markiles initially agreed to represent him as his legal counsel but subsequently terminated their association and informed Cohen that they were now representing the Cresto brothers.
Cohen’s current attorney, Nima Tahmassebi, expressed his concerns, stating, “From a moral perspective, something doesn’t seem right.”
Despite CNBC’s attempts to solicit comments, attorneys at Stubbs Alderton & Markiles and the Cresto brothers remained unresponsive.
