Lake Como in Lombardy, northern Italy.
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John and Roman Cresto made millions of dollars selling themselves as e-commerce “experts” who could teach regular customers and investors the secrets of selling successfully Amazon And Walmartat a price.
They posted lavish vacation trips and luxury cars on their social media accounts, creating a multi-million dollar image of success that benefited federal regulators say now was fueled by untruths and deceit.
The case is the latest example from the Federal Trade Commission crack down about fraudulent e-commerce consulting companies targeting consumers and young online businesses. As retailers move online and marketplaces flourish on sites like Amazon and Walmart, a strong industry of consultants and agencies, often referred to as “coaches” or “gurus,” has emerged. These coaches often claim to have made their fortunes in e-commerce and pass on their expertise to users who pay expensive courses with no guarantee of success.
The FTC on Tuesday asked a judge to temporarily bar the Cresto brothers from doing business in connection with a lawsuit filed by the agency submitted earlier this month in the US District Court for the Southern District of California.
The Cresto brothers “promised to expertly manage the operations of automated online stores” at both Amazon and Walmart through their companies, including Empire Ecommerce, doing everything from product discovery to order fulfillment, the complaint said. They asked consumers for between $10,000 and $125,000 for the initial investment and $15,000 to $80,000 in additional financing as working capital, according to the FTC.
The Cresto brothers also took 35% of all profits from their “partners” e-commerce stores, the complaint said. As of June 2022, less than 10% of Empire's managed stores were generating revenue, according to the FTC. By October 2022, Amazon had either suspended or terminated most of these stores for violating its intellectual property policies and a method of doing business called dropshipping, in which companies never own the inventory they sell and instead have products through one manufacturer at a time order makes a purchase, the complaint said. According to the FTC, most Empire stores on the Walmart marketplace were either never activated or closed due to policy violations.
For years, despite the suspensions, Empire continued to falsely tout the success of its Amazon businesses by recruiting affiliate marketers who posted flashy videos and claimed they had made “substantial passive income” from Empire's automation services. Empire has attracted more than 60 new customers and earned over $1.5 million in commissions through this affiliate marketing program, according to the FTC.
“In truth, most of Empire's clients have lost money and virtually none have made the amounts advertised,” the agency wrote in its complaint.
The suspensions left Empire's customers heavily in debt, the FTC claimed, “because Empire typically had its customers pay for inventory with credit cards.” Empire refused to reimburse victims for tens of thousands of dollars that victims paid to Empire or for paid for goods sold, the FTC claimed.
The two brothers made more than $22 million from their clients, the FTC claimed.
The millions the Crestos have spent on themselves have been spent on luxury cars, vacations and even a luxury wedding in Italy, according to the FTC complaint and social media posts.
Earlier this year, after selling Empire, the Crestos formed a new company called Automators AI, which reportedly teaches consumers how to use artificial intelligence to become online sellers who “make over $10,000 in sales a year.” Earn month” and popular AI use chatbot ChatGPT to create customer service scripts, the FTC claimed. According to the FTC, the scheme continues to cheat consumers out of tens of thousands of dollars.
Amazon and Walmart did not immediately respond to CNBC's request for comment.
When time ran out on Empire's alleged fraudulent behavior, the Cresto brothers attempted to mortgage their businesses to another operator, Daniel Cohen.
Cohen is now suing the Crestos, claiming they deceived him about the true state of the business and used him to shift the blame away from themselves.
In October 2022 — the same month the FTC claimed that most of Empire's functioning Amazon stores had closed — the Cresto brothers approached Cohen, a Florida businessman, with a desire to buy their empire. Roman Cresto presented forecasts that indicated his company was strong and highly profitable.
Cohen told CNBC in an interview that the Crestos initially messaged him via Instagram and that they met via Zoom later that month. John Cresto assured Cohen in that Zoom meeting that Empire had no litigation or major concerns other than “a few” dissatisfied customers.
“That was something I asked her because I know this industry,” Cohen told CNBC. The Crestos also offered him predictions that Empire would rake in up to 50% of the profits from the thousands of deals they allegedly operated.
“I'm not sure where they got their projections from,” Cohen told CNBC. “Maybe at some point they had a store that was doing well and maybe they just capitalized on that outcome for everyone, but I think most of it was probably made up.”
Cohen agreed to purchase the Crestos' business on November 7, 2022 and wire them $100,000 the following day. Two days later, the Crestos announced five ongoing “litigations” being handled by their defense firm, Stubbs Alderton & Markiles.
“I paid Roman a total of 490,000 for 6 trades… between LLC setups/fees, credit card collection, virtual business fees, their software for several that they told me would take my business to the top, etc., etc ., for which they cheated me.” totaling well over $525,000,” reads an email from a customer, according to Cohen's lawsuit.
Dozens more complaints slumbered in an inbox, detailing alleged negligence or “shady” dealings by the Cresto brothers.
“I paid you guys $65,000 for an experienced store. Since my store opened, it hasn't come close to meeting forecasts. Now my store has no sales at all. I need to know why this is and what happened. I'm starting to feel like I've been scammed and need to get my attorney involved,” reads another email cited in Cohen's lawsuit.
Cohen also told CNBC that Stubbs Alderton & Markiles had agreed to serve as his law firm before releasing him as a client and telling Cohen they would now represent the Cresto brothers.
“From a moral point of view. It just doesn't smell right,” said Cohen's current attorney. Nima Tahmassebisaid CNBC.
Attorneys for Stubbs Alderton & Markiles did not respond to CNBC's inquiries about their handling of the cases. The Cresto brothers did not respond to CNBC's request for comment.
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