CCT625 - Marketing, Advertising & Public Policy: Final Paper

Federal Trade Commission versus Trump University (aka Trump Entrepreneur Initiative)

Corey McKeon 2011 December 20 Prof. Adonis Hoffman, JD

Introduction Donald Trump became a household name with his television show The Apprentice, where contestants compete for a high level management position in one of Trumps enterprises. Prior to his reality show hit, he was and continues to be a big time business mogul, specifically in real estate. Since the show he has also become a successful author.1 In 2003, Trump also created an online education company called The Trump Entrepreneur Initiative, formerly known as Trump University. The Trump Entrepreneur Initiative offers courses in real estate, asset management, entrepreneurship, and wealth creation, charging fees ranging from $1500 to $35,000.2 It is classified by the Better Business Bureau as a Training Program, but is not accredited.3 In overview, the issues that Trump University, as it was originally named, face fall under heavy scrutiny as it was said to be in violation of New York Education Law and was found to be misleading. The campaigns that marketed and advertised for Trump University promised a varying services including: complete real estate education, a one year apprenticeship, a oneon-one mentorship, practical and fail-safe real estate techniques, a power team consisting of real estate agents, leaders, personal finance managers and contractors, and were assured that although the Seminars were costly, they would make the money back in their first real estate deal, and could make up to tens of thousands of dollars per month or more.4 It was found that users, who eventually sued Trump University, were not receiving these benefits. In many

Wikipedia contributors. Donald Trump. Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 14 December 2011. Web. 12 December 2011. <http://en.wikipedia.org/wiki/Donald_Trump> 2 Wikipedia contributors. Trump University. Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 14 December 2011. Web. 12 December 2011. <http://en.wikipedia.org/wiki/Trump_University> 3 "Trump University Review -TRAINING PROGRAMS in Dover, DE-BBB Business Review." United States and Canada BBB Consumer and Business Reviews, Reports, Ratings, Complaints and Accredited Business Listings. 4 Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2ndAmended-Complaint-12-16-10.pdf>.

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publications, Trump University was found to be scamming customers.5 The Huffington Post for example, published an in depth overview of the issues presented against the University. The article takes both sides in stating, Real-estate seminars like the one Trump operates have sometimes enriched thousands of motivated entrepreneurs, eager to flip houses and make extra money. But some high-profile hucksters have been indicted for fraud, putting the industry in a bad light. It is also found that since 2005, over 11,000 people have attended one of his highprofile real-estate seminars. The marketing of Trump University is what this paper intends to investigate and under what policies and principles govern the practice of marketing a service as a University, as it has been said to be in violation of both New York and Maryland state education laws. The marketing for this University could be found directly on their website, in email/online marketing campaigns and through print advertisements, which can be viewed in Appendices A, B,C and D. Based on their marketing claims, there appeared to be no substantiation for the resources or success, following the seminar it was found that many of the promised services were false. In the following sections I will provide a factual overview, present the issues of the case, provide an analysis of the policies affecting the marketing practices of Trump University and make recommendations based on these policies if the FTC were to intervene. There have previously been a number of complaints including a class action lawsuit and demands for a civil investigation by the Attorney General of Texas.6

Baram, Marcus. "Trump's 'University' Accused Of Scamming Customers." Breaking News and Opinion on The Huffington Post. The Huffington Post, 6 July 2011. Web. 14 Dec. 2011. <http://www.huffingtonpost.com/2011/05/06/trump-university-scammed-customers_n_858587.html>. 6 Abbott, Greg. "Civil Investigation Demand." Big.assets.Huffingtonpost.com. The Huffington Post, 6 Jan. 2010. Web. 14 Dec. 2011. <http://big.assets.huffingtonpost.com/TrumpUCID.pdf>.

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Factual Overview Trump University reportedly changed its name to the Trump Entrepreneur Initiative on May 23, 2011 after pressure from New York and Maryland educators for the use of the term University in its marketing. Aside from the undiscovered benefits of the seminars, the University claimed to make you a real estate tycoon in one of its expensive three day seminars which toured the country.7 In a class action lawsuit against Trump University, filed in the Southern District of California, it is stated that the University targeted seniors, and had its sales pitch designed to scare seniors into attending and paying for additional Seminars. Outlined in this complaint is an in depth investigation to the practices of Trump University, specifically how it deceives and misleads prospective students into the impression that theyll either be working directly with Donald Trump or that the value of information will eventually make them wealthier due to their new knowledge of the real estate marketing environment. Within this complaint it was expressed that unlawful activity occurred during seminars including: instructing students to engage in real estate practices that were illegal, such as posting bandit signs and engaging in the practice of real estate without a real estate license, issuing student testimonials which are misleading, and in some cases, completely fabricated by Trump University employees; and forging student signatures on seminar contracts when students have forgotten to sign the contracts.8

Editorial Staff, WW. "Trump Entrepreneur Initiative: The Donald Cant Duck Unhappy Customers." Willamette Week. Willamette Week, 30 June 2010. Web. 12 Dec. 2011. <http://wweek.com/portland/article-12169trump_entrepreneur_initiative.html>. 8 Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2ndAmended-Complaint-12-16-10.pdf>.

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In marketing materials such as Appendix A, Trump is informing the prospective student that he will teach them real estate skills equivalent to that of a university, We teach success. The uses of the term teach implies that there is an instructor and institution, especially when the name Trump University is attached to the same advertisement. Appendix B shows a program that is attempting to portray an MBA level education in just a one day seminar, equating a sometimes considered terminal degree, to be similar to what one of Donald Trumps seminars has to offer. The homepage of the website, found in Appendix C, shows a popular tagline: Are YOU My Next Apprentice? Prove it to me! directly demonstrating Donald Trumps involvement as an individual. Finally, in a print advertisement, Appendix D was a part of the Universitys marketing campaign efforts; we see a list of steps as part of Trumps Wealth Builder Blueprint, which was a service offered by the company. Deeper within the campaign you would find promises of success and personal teaching from Donald Trump. The nature of activity in question surrounds the advertising and marketing of a company who offers seminars framed to portray an actual university or educational institution, when there are no recognized degrees awarded or obvious benefits besides an informational discussion, which is subjective. In another section, Policy Issues, we will identify the regulations affected by a company that frames its marketing to resemble a higher education institution or organization, by promising services that are not followed through. The practice of how the organization markets its services will also come under scrutiny as it is applied to rules and regulations. Prices surrounding the seminars and teachings were by far, the obvious harm against consumers, with a range of $1,500 to $35,000. The obvious harm would be money loss to those who have participated, with a target audience of senior citizens, who typically have a fixed income, the loss of income to Trump University could be detrimental. The initial government McKeon | 5

response came in the form of the class action lawsuit, previously discussed. There are other, more harmful practices going on within the seminars that are illegal business practices in nature. The current situation with Trump University is that it has renamed itself the Trump Entrepreneur Initiative. In May 2011, the New York Attorney General announced that he would be investigating Donald Trumps institution, along with a number of other states, most notably Maryland. The investigation is prompted by about a dozen complaints, including the class action lawsuit, concerning Trump University; complaints which the attorney general has found to be credible and serious.9

Barbaro, Michael. "New York Attorney General Is Investigating Trumps For-Profit School." Nytimes.com. The New York Times, 19 May 2011. Web. 12 Dec. 2011. <http://www.nytimes.com/2011/05/20/nyregion/trumps-forprofit-school-said-to-be-under-investigation.html?_r=1&src=me&ref=nyregion>.

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Issues Presented The main issue currently being investigated concerns whether or not Trump University should be called a university at all, as expressed by New York and Maryland education laws. Over the last several years, New York and Maryland have told the company to drop the word university from its title, saying that using it violated state education laws, which it has since done.10 Another issue is that the marketing and advertising of the University should be heavily scrutinized based on the overwhelming reaction by former students complaining of fraud and scamming. Lastly, issues raised in a class action lawsuit are in regard to illegal practices that occurred during the seminars that have previously been discussed in the factual overview. The marketing practices that have gone on, attached to the university name, deal with claims of services that the company offers including mentorships, yearlong apprenticeships, techniques, etc. that were not followed through, making them false claims. The marketing has been less than truthful because Trump University has had claims advertised of services offered that are not, in the end, provided. The outcome of the seminars is not substantiated in the advertising. As it turned out, Trump University might have oversold itself a bit. According to the suit, the one-year apprenticeship turned out to be a three-day seminar; the one-on-one mentorship, paradoxically, "consisted of no practical insights and no mentorship"; and the members of the "power team" were only interested in lining their own pockets, says a Consumer Affairs report. 11 These claims

10

Barbaro, Michael. "New York Attorney General Is Investigating Trumps For-Profit School." Nytimes.com. The New York Times, 19 May 2011. Web. 12 Dec. 2011. <http://www.nytimes.com/2011/05/20/nyregion/trumps-forprofit-school-said-to-be-under-investigation.html?_r=1&src=me&ref=nyregion>. 11 Hood, John. "Trump University a Scam, Suit Claims." ConsumerAffairs.com: Knowledge Is Power! Consumer News, Reviews, Complaints, Resources, Safety Recalls. Consumer Affairs Education Scams, 5 Mar. 2010. Web. 13 Dec. 2011. <http://www.consumeraffairs.com/news04/2010/05/trump_univ_suit.html>.

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were all made in the marketing of the program and raise many issues around the legitimacy of the company. The major harm that is applied to the consumers is the financial harm, people are paying thousands of dollars which they leave and have nothing to show for. Theyve attended Trump University and have no accredited degree or legitimate proof of an education. They leave with tips and techniques that they may not be able to apply to the real world because theyre illegal. Pouring in money and obtaining an education from an organization that calls itself a university, is questionable. The issue being that one would reasonably expect a university to train them to leave a completed program with proof of participation or skills that could demonstrate competency within a field. Trump University does not fulfill these reasonable expectations, after charging a large sum of money to attend and making false claims of services. Formerly, Trump University had a D-minus rating by the Better Business Bureau (BBB) and is currently unaccredited since changing its name to the Trump Entrepreneur Initiative.12 This new name is currently also not accredited by the BBB which states on its website In May 2011, this firm informed the BBB that it has officially changed its name from Trump University LLC, effective May 21, 2010. According to information provided by this firm, Trump Entrepreneur Initiative is a for-profit company which sells products, classes, memberships, seminars and workshops and provides educational materials and support for entrepreneurs. This firm does not grant academic degrees or certification.13

12

Baram, Marcus. "Trump's 'University' Accused Of Scamming Customers." Breaking News and Opinion on The Huffington Post. The Huffington Post, 6 July 2011. Web. 14 Dec. 2011. 13 "Trump University Review -TRAINING PROGRAMS in Dover, DE-BBB Business Review." United States and Canada BBB Consumer and Business Reviews, Reports, Ratings, Complaints and Accredited Business Listings.

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Policy Analysis There are several rules governing the practice of marketing services such as seminars and training programs. Section 5 of the Federal Trade Commission Act declares unfair or deceptive acts or practices unlawful. An act or practice is deceptive if it involves a representation, omission, or practice that is likely to mislead consumers acting reasonably under the circumstances, and the representation, omission, or practice is material14. By looking at the marketing material in Appendices A, B, C and D, stated on the Trump University website and marketing material, we can see material promising the best in business education, MBA equivalent business training and speakers, and free courses. Discussed within the class action lawsuit were promises of apprenticeships, complete real estate education and extensive human resources. With complaints that these were not followed through, or were played down to be less than their straight forward value, this would be considered deception. Section 5 of the FTC Act is in place to protect consumers from misleading and deceptive marketing practices, such as those promised by Trump University. To be considered deceptive, the FTC must follow the following steps in analyzing the business practices and would evaluate complaints such as those mentioned in the class action lawsuit: 1. There must be a representation, omission or practice that is likely to mislead the consumer. This includes the "use of bait and switch techniques."15

14

Wikipedia contributors. Section 5 of the FTC Act. IT Law Wiki. Wikipedia, The Free Encyclopedia, 14 December 2011. Web. 12 December 2011 < http://itlaw.wikia.com/wiki/Section_5_of_the_FTC_Act> 15 "FTC POLICY STATEMENT ON DECEPTION." Federal Trade Commission. 14 Oct. 1983. Web. 15 Dec. 2011. <http://www.ftc.gov/bcp/policystmt/ad-decept.htm>.

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2. The practice is examined from the perspective of a reasonable person in the circumstances. If the practice "is directed primarily to a particular group," such as Internet users, "the Commission examines reasonableness from the perspective of that group."16 3. The representation, omission or practice must be a material one, i.e., it is likely to affect the consumer's conduct or decision regarding the product or service.17 Representation, omission and practices that mislead the consumer by Trump University would be the benefits and services that they stated such as a complete real estate education, that were not provided by the end of a course or three day seminar. Participants did not leave the seminar with qualifications to take a real estate exam and were further encouraged to make real estate transactions without a real estate license.18 We have this policy to protect consumers from deceptive acts and scams such as those posed by Trump University, which is currently reevaluating its curriculum and practices. As outlined in detail within the class action lawsuit, senior citizens were the targeted market to purchase the training program. This correlates to the second consideration to be considered deceptive or unfair. From the perspective of any individual, but specifically the elderly, the expectation of services would still remain unfulfilled. The stated benefits are furthermore likely to affect a consumers decision regarding purchasing the service because they have the stated

16

"FTC POLICY STATEMENT ON DECEPTION." Federal Trade Commission. 14 Oct. 1983. Web. 15 Dec. 2011. <http://www.ftc.gov/bcp/policystmt/ad-decept.htm>. 17 "FTC POLICY STATEMENT ON DECEPTION." Federal Trade Commission. 14 Oct. 1983. Web. 15 Dec. 2011. <http://www.ftc.gov/bcp/policystmt/ad-decept.htm>. 18 Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2ndAmended-Complaint-12-16-10.pdf>.

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potential to make money from the program, obtain an actual real estate education, and be eligible for one on one training and an apprenticeship. Trump University appears to have backed down for a time to legally evaluate where the organization is headed and how they can better understand and cater to their audience. The past few years have shown that Donald Trumps organization was really in it for the money and acknowledgment rather than serving its customers and informing individuals of beneficial real estate practices. For example, there is no reasonable understanding that when you sign up for benefits such as a one year apprenticeship that it would translate into six one-hour training sessions. The Federal Trade Commission Act is in place to protect consumers from underhanded organizations like Trump University. Upon re-evaluating the institution, it should consider how it would be perceived from the consumers standpoint and not how to get the most money out of the participants and leave them hanging with less than expected service.

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Recommendations From what weve seen through the policy analysis, there is only regulation applied to the marketing practices of the organization and not necessary to the specific deceptive use of the term university. My recommendation would be for the Federal Trade Commission to investigate alternative regulations on key words that consumers associate with an expectation of results. A university would generally be understood as an institution either for-profit or nonprofit that serves consumers in providing education and professional degrees and acknowledgement for satisfactory completion of a program. Trump University operated as an organization providing training seminars and did not appear to be educational like other university offerings. Institutions like the University of Phoenix or Kaplan University operate online to provide training and courses that have an end result of a degree. Trump University is taking away from appeal with similar marketing techniques, but a lack of accreditation. The perceived legitimacy of Trump University comes from its association with Donald Trump, an influential and well known business mogul. My recommendations to a policy making body, such as the Federal Trade Communication would first be to investigate Trump University as a marketer of training programs and seminars with the intentions of creating a list of requirements for an entity to call itself a university. State laws have backed New York and Maryland in persuading Trump University to change its name, but there is no forceful law that disallows entities from using the term. The deceptive claims made by the organization have had several complaints regarding lack of follow through of services on a grand scale, as seminars are attended by large numbers of individuals. The practices of the organization would not likely pass the four part Central Hudson

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Test, which provides guidelines on the law restricting the speech. The FTC would consider the following four factors19: 1. Is the marketing practice about lawful activity and not misleading? 2. Is there a substantial governmental interest? 3. Does it directly advance government interest? 4. Is it more extensive than is necessary to serve the interest? The marketing activity was misleading simply by the name of the company, Trump University, but also by what services were advertised and described in the class action lawsuit. The elderly being targeted by the institution is substantial for the government to take interest in the organization. This would not advance the government interest because they have an interest in the consumers welfare and fair treatment. Beyond the U.S. Department of Education, the United States has no federal Ministry of Education or other centralized authority exercising single national control over postsecondary educational institutions in this country. The states assume varying degrees of control over education, but, in general, institutions of higher education are permitted to operate with considerable independence and autonomy. As a consequence, American educational institutions can vary widely in the character and quality of their programs.20 Trump University is not actually a university, making a substantial interest by the government, necessary. Although it falls on the states to regulate educational institutions, the marketing practices thereof a national online organization make federal interference permissible. Lastly, it would not be more extensive

19

Hoffman, Adonis E. Marketing, Advertising ,& Public Policy. CCTP 625-01. Georgetown University. Georgetown University. Washington, DC. Fall 2011. Lecture Slides. 20 "College Accreditation in the United States-- Pg 2." U.S. Department of Education. 17 Nov. 2011. Web. 14 Dec. 2011. <http://www2.ed.gov/admins/finaid/accred/accreditation_pg2.html#U.S.>.

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than is necessary to serve the interest of the elderly and those affected by Trump University, who is marketing to individuals to invest money in a program that is misleading and deceptive.

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Conclusion In conclusion, weve seen how Trump University is operating a training program and seminar service for real estate entrepreneurs, but operating under an institutional veil. Trump University is not actually a college or university, it simply offers training seminars. It has been the subject of many complaints including a class action lawsuit and demands for civil investigation by the Attorney General of Texas. It has also been threatened by New York and Maryland education laws that is should not be operating with the term university if it is not actually a college. In our factual overview it was expressed that individuals were marketed services promising complete real estate education, a one year apprenticeship, a one-on-one mentorship, practical and fail-safe real estate techniques, a power team consisting of real estate agents, leaders, personal finance managers and contractors.21 We also discovered that these were false claims and deceptive advertising statements under Section 5 of the Federal Trade Commission Act. It was recommended the Federal Trade Commission develop policy that details what requirements an organization must fulfill to be considered a university and be able to market themselves with this word in their name listed with the Better Business Bureau and appearing on their marketing and advertising material both online and in print.

21

Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2ndAmended-Complaint-12-16-10.pdf>.

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Appendix A An advertisement from the Trump University online campaign:

Image Source: http://commercewide.com/wp-content/uploads/2011/05/trump.jpeg

Appendix B An advertisement for one of Trump Universitys specific event campaigns:

Image Source: http://2.bp.blogspot.com/_Ydx7Nn1SX9Y/RjyoY93AbkI/AAAAAAAAADQ/qD6jfULtHHA/s4 00/trump%2Buniversity.png McKeon | 16

Appendix C The website for Trump University:

Image Source: http://imgs.sfgate.com/c/pictures/2011/05/05/mntumrp05_PH_ad_0503418178.jpg

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Appendix D Print advertisement for Trump University:

Image Source: http://www.darrenottley.com/images/gallery/04.jpg

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