Get-rich-quick schemes involving property investment may look great from the outside, with the promise that a few meagre dollars will be transformed into an absolute fortune luring in plenty of Aussies who’d like to quit their day job or retire early.
But the dangers of some of these schemes was underlined on Thursday by the Federal Court’s decision to impose record penalties on property spruiker Rick Otton and his company We Buy Houses, which the Australian Competition and Consumer Commission (ACCC) had accused of peddling “false hope to people simply looking to get a foothold in the housing market or invest money in real estate for their future”.
The court ruled that Otton must pay a $6 million penalty and We Buy Houses, a company of which he was the sole director, a $12 million penalty for making false or misleading representations about how people could create wealth by buying and selling real estate.
It was the largest amount ever imposed for contraventions of the Australian Consumer Law by a corporation and an individual, and follows an ACCC action brought against Otton and his company in 2015.
We Buy Houses had been conducting training programs including free seminars, boot camps and mentoring programs since 2000 and generated the majority of its $20 million revenue between 2011 and 2014 through these programs, the ACCC said.
The court had already found in August 2017 in favour of the ACCC’s claims that Otton and his company had engaged in false and misleading conduct.
According to the ACCC, Otton made claims including that his ‘students’ could buy a house for as little as $1, without needing a deposit, bank loan or any real estate experience, and start making profits immediately. He also told seminar students they could build a property portfolio without investing their own money, that would create passive income streams that could ultimately allow them to quit their jobs.
The court also found Otton made false or misleading representations that he had successfully implemented the wealth creation strategies he taught, and that his books and website contained “false and misleading statements” purportedly from former students who had purchased properties for $1.
In the August 2017 hearing, the court heard that about 2,000 people spent around $3,000 for tickets to Otton’s boot camps, and about 700 consumers participated in his mentoring program at a cost of up to $26,000.
On top of the record penalties it levied on Thursday, the court banned Otton from managing corporations in Australia for 10 years and permanently restrained him from any further involvement in the supply or promotion of services or advice concerning real property transactions or investment.
Following the judgment, ACCC chair Rod Sims slammed Otton’s and his company’s conduct as “egregious”, and said the penalties were an example of the strict action being taken by his commission against property spruikers.
“These record penalties demonstrate the determination of the ACCC to take strong and effective enforcement action against businesses and individuals who prey on consumers using the false hope of creating financial success,” Sims said in a statement. “The judgement signals the court’s condemnation of false and misleading property spruiking and get rich quick schemes.
“This outcome also reflects a recent trend of higher penalties for Australian Consumer Law breaches. We can expect this to continue following recent law changes to increase maximum financial penalties under consumer law”.