[Federal Register Volume 66, Number 26 (Wednesday, February 7, 2001)]
[Notices]
[Pages 9344-9345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3192]


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FEDERAL TRADE COMMISSION

[File No. 002 3015]


Indigo Investment Systems, Inc., et al.; Analysis to Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before February 26, 2001.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Janet Evans, FTC/S-4002, 600 
Pennsylvania Ave., NW., Washington, DC 20580. (202) 326-2125.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for January 25, 2001), on the World Wide Web, at ``http://www.ftc.gov/
os/2001/01/index.htm.'' A paper copy can be obtained from the FTC 
Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania. Ave., NW, 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement containing a consent order from Indigo 
Investment Systems, Inc., a corporation, and Frank Alfonso, its CEO 
(together, ``respondents'') settling charges that they engaged in a 
deceptive advertising campaign for Indigo, a stock trading program.
    The proposed consent order has been placed on the public record for 
thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
agreement and the comments received, and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    Respondents sold Indigo through ads in various media, including 
investment magazines, Internet banner ads, and three websites: 
www.microstar-reserach.com, www.msindigo.com, and 
www.indigoinvestor.com. According to the FTC complaint, respondents'

[[Page 9345]]

advertising falsely represented that Indigo earnings data described in 
the ads represent trades that were actually made and that resulted in 
the profits stated in the advertisements; that the annual returns for 
the years 1990 through 1999 enumerated in the advertisements were 
actually achieved by users of respondents' Indigo trading program; and 
that users of respondents' Indigo investment trading program can 
reasonably expect to trade with little financial risk. According to the 
complaint, the Inidgo earnings data described on the site do not 
represent trades that were actually made and that resulted in the 
profits stated in the advertisements; instead, the data represent 
results of hypothetical trading and are prepared with the benefit of 
hindsight using historical data. The annual returns for the years 1990 
through 1999 enumerated in the advertisements were not actually 
achieved by users of respondents' Indigo trading program; instead, the 
annual returns are based upon hypothetical trades using historical 
data. Indeed, respondents' Indigo trading program did not exist until 
1995. Additionally, the complaint alleges, users of respondents' Indigo 
trading program cannot reasonably expect to trade with little financial 
risk; indeed, consumers who trade in stocks risk a substantial loss of 
capital, and trading some Indigo models represents a high risk 
speculative investment.
    The complaint further alleges that respondents made several 
unsubstantiated claims. It alleges that respondents' advertising 
represented that most users of respondents' Indigo trading program who 
have invested in conservative portfolios have achieved an annual return 
of 40% over the past three years; that most users of respondents' 
Indigo trading program who have invested in aggressive portfolios with 
``hot'' Internet stocks have achieved returns of several hundred 
percent; that testimonials appearing in the advertisements for 
respondents' Indigo trading program reflect the typical or ordinary 
experience of members of the public who use the program; and that users 
of respondents' Indigo trading program can reasonably expect to achieve 
substantial profits on a consistent basis, whether pursuing a 
conservative or aggressive trading strategy. Respondents, however, 
lacked a reasonable basis to substantiate these claims, according to 
the complaint.
    The proposed consent order contains provisions designed to prevent 
respondents from engaging in similar acts and practices in the future. 
Part I of the order would require, with regard to the sale of any 
trading program, that respondents posses a reasonable basis for future 
representations about the amount of earnings, income, or profit, or the 
rate of return, that a user of such trading program could reasonably 
expect to attain; the usual or typical earnings, income, profit, or 
rate of return, achieved by users of such trading program or any part 
thereof; or any financial benefit or other benefit of any kind from the 
purchase or use of such trading program.
    Part II of the order prohibits respondents, in connection with sale 
of any trading program, from misrepresenting that hypothetical or 
simulated earnings data represent actual trading results; that users of 
such trading program can reasonably expect to trade with little risk; 
or the extent of risk to which users of the trading program are 
exposed.
    Part III requires that future benefits claims be accompanied by the 
statement that ``STOCK [or CURRENCY, OPTIONS, ETC., as applicable] 
TRADING involves high risks and YOU can LOSE a significant amount of 
money.'' Part IV prohibits respondents from representing that the 
experience represented by any user, testimonial or endorsement of the 
trading program represents the typical or ordinary experience of 
members of the public who use the trading program unless respondents 
can substantiate the typicality representation or they disclose either 
what the generally expected results would be for users of the trading 
program, or the limited applicability of the endorser's experience to 
what users may generally expect to achieve.
    The remaining parts of the order contain standard record keeping, 
order distribution, reporting, compliance, and sunsetting provisions.
    The purpose of this analysis is to facilitate public comments on 
the proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify in any 
way their terms.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-3192 Filed 2-06-01; 8:45 am]
BILLING CODE 6750-01-M