Common sense is key to staving off fraud

October 16, 2019 | Evan H. Krinick | Appeals

Two truisms: 1) smart people do stupid things; and 2) if something seems to be too good to be true, then it is probably not real. The first truism occurs when people forget the second truism.

A persuasive salesperson, or a snappy marketing campaign, catches your attention. It sounds like something you have always wanted to try. It could be a new technology to modernize your business, or a fabulous trip that seems perfect. Whatever is being sold, it is always the “greatest of all time,” is always backed by a team of professionals that are “committed to earning your trust,” and “will exceed all your expectations.”

More often than not, the product or service does not live up to the hype. Anyone who has bought something from the shopping network knows what I mean.

When does “sales talk” or “puffery” turn into fraud? The law allows a certain amount of exaggerated praise, especially when it offers more subjective than objective views, which cannot be proven true or false and which reasonable people would not take literally.

A case from the federal court in New York City from this past July presents an interesting story. It involved the Fyre Festival, which was promoted in 2017 as a luxury musical festival to take place on a private island in the Bahamas and feature “top-notch” food, lodging and entertainment, including musical performances by well-known bands, boating, jet-skiing, morning yoga, guided meditation, massages, sound healings, chill-out sessions, famous models on yachts, pet sharks, incredible beaches, scuba diving and other amenities. Sounds like paradise – other than the pet sharks.

The reality was different. Sleeping accommodations were disaster-relief tents; unsecured lockers were provided to store belongings; and the only food provided was bread and slices of cheese, with salad. None of the musical acts performed, and the event was cancelled the morning of the first day.

Ticketholders and attendees brought a class-action lawsuit against the event organizer and the organizer’s founder and officer for fraud and other claims.

One of the defendants stated that the “Frye Festival looks set to be the biggest FOMO inducing event of 2017 . . . think Coachella x1000 and you’re still not even close.”  The Court rejected any fraud claim based on this statement because it was too exaggerated, blustering and boasting for a reasonable consumer to rely on.

Other fraud claims against the individual defendants also did not fare very well, either because (1) the statements could not be attributed to any specific individual, or (2) were made by “online influencers,” not the defendants, or (3) the allegations failed to include a specific time for when statements were made, making it impossible to conclude that they were false at that time.

The one statement that could have supported a fraud claim was a tweet on the day before the opening date: “The stage is set!!! In less than 24 hours, the first annual Fyre Festival begins. . .”

At that time, it was known by the tweet’s author that performers were not coming, amenities were not in place and could not be in place by the start of the festival. This statement was not puffery because it was a specific representation of fact that all was well – a tangible promise that a reasonable person could rely on. Alas, none of the attendees alleged that they had seen the tweet and that it influenced their behavior. The Court, however, gave them permission to make such allegations as the case moved forward. The case is ongoing.

Success in business, as in life, requires a large dose of common sense. Do not be persuaded by the smooth-talking salesperson or glossy marketing. Pay attention to the details. Make sure all statements can be verified. Visions of wealth and glory (and music festivals on a private island in the Caribbean) can be alluring. Do not leave your common sense behind.

This article appeared in the October 11-17, 2019 issue of Long Island Business News. ©2019 Long Island Business News.

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