FTC takes action against small business lender Seek Capital

The FTC filed a complaint in the U.S. District Court for the Central District of California against Seek Capital and its CEO, Roy Ferman, alleging that the company operated a bogus business finance scheme that cost small business owners more than $37 million. The FTC alleges violations of the FTC Act, Telemarketing and Consumer Fraud and Abuse Prevention Act, Telemarketing Sales Rule, and Consumer Review Fairness Act of 2016, and requests a temporary, preliminary and permanent injunction, monetary damages and other relief.

“The company has targeted new and aspiring small business owners looking for loans or lines of credit to open or grow their businesses,” according to the complaint. The complaint asserts that “[w]hile the company’s advertising implies that business owners would have access to cash, instead Seek charges clients thousands of dollars simply to open credit cards in the owners’ names” that the business owners “could have applied for on their own”.

The FTC said that Seek offers to provide sources of funding to small businesses to make payroll and pay other ongoing expenses. Seek’s ads call the company “the market leader in business loans for small businesses” and the company’s website advertises the “Best Startup Business Loans of 2024,” according to the complaint.

The FTC alleged that when business owners express an interest in Seek’s products, telemarketers use high pressure sales tactics.

“Once business owners sign the contract, instead of procuring business loans or lines of credit, Seek begins applying for numerous credit cards, typically personal credit cards in the name of the business owner,” the FTC alleged. “Seek then charges the business owner 10% of the total credit amount on the cards issued—an amount that can total thousands of dollars, according to the complaint.”

Business owners never see or approve any credit card applications that Seek submits on their behalf.

The FTC contended that “the first time many business owners learn that Seek has applied for credit cards in their name is when they receive an alert about a drop in their credit score, an invoice from Seek listing the credit cards Seek obtained in their name, or a letter from a bank approving or denying them for a credit card.”

This, the FTC said, is the first time business owners learn of Seek’s hefty fees.

 If business owners try to cancel their agreement with Seek–even before Seek has submitted a single application on the business owner’s behalf– Seek charges them an early termination fee of as much as $995, according to the complaint.

The FTC said that Seek distorts online ratings by pressuring consumers to provide five-star reviews of the company even before they have received any funding, encouraging employees to post positive reviews. The complaint also asserts that a document that business owners must sign “contains a clause that prohibits consumers from causing harm to Seek’s reputation, specifically from posting online any negative comments, reviews, or complaints about Seek for three years. Such clauses are prohibited by federal law.”

The Commission vote authorizing the staff to file the complaint was 5-0.