Lake Como in the Lombardy region of northern Italy.
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John and Roman Cresto have made millions of dollars selling themselves as e-commerce “experts” who can teach regular consumers and investors the secret to sales success. Amazon and Walmartat a price.
They spread the image of luxury vacations and high-end cars on their social media accounts, creating an image of multimillion-dollar success that federal regulators now say was rooted in lies and deception.
The case is the latest example of the Federal Trade Commission cracking down on deceptive e-commerce consultants that target consumers and start-up online businesses. A robust industry of consultants and agencies, often called “coaches” or “gurus,” has emerged as retailers increasingly move online and marketplaces on sites like Amazon and Walmart flourish. These trainers often claim to be rich in e-commerce and will pass on their expertise to users who pay for expensive courses with no guarantee of success.
On Tuesday, the FTC asked a judge to temporarily ban the Cresto brothers from doing business in connection with a lawsuit they filed earlier this month in the U.S. 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 company, including Empire E-commerce, doing everything from sourcing products to fulfilling orders, the complaint says. The FTC alleges that they asked consumers for additional financing ranging from $10,000 to $125,000 for an initial investment and $15,000 to $80,000 as working capital.
The Cresto brothers also took 35% of the revenue from their “partners'” e-commerce stores, the complaint says. By June 2022, fewer than 10% of Empire-operated stores had generated sales, the FTC alleges. By October 2022, Amazon suspended or canceled most of these stores for violating its policies regarding intellectual property and a business method called dropshipping, where companies never own the inventory they sell and instead order products through a manufacturer after a buyer. shopping, the complaint said. According to the FTC, the majority of Empire storefronts in Walmart’s marketplace were either never activated or were terminated for policy violations.
Despite the suspensions, Empire continued to falsely promote the success of its Amazon businesses for years, as it recruited affiliate marketers to post nude videos online, claiming they were making “significant passive income” through Empire’s automation services. The FTC alleges that Empire was able to attract more than 60 new customers and earn more than $1.5 million in commissions through this affiliate marketing scheme.
“In fact, most of Empire’s clients lost money and almost none won the amount advertised,” the agency wrote in its complaint.
The FTC alleged that the suspensions left Empire’s customers deeply in debt “because Empire typically had to pay for inventory with its customers’ credit cards.” The FTC alleges that Empire has refused to refund tens of thousands of dollars that victims paid to Empire or for merchandise sold.
The FTC alleges that the two brothers bilked their clients of more than $22 million.
According to the FTC complaint and social media posts, the millions the Crestos diverted to themselves were spent on high-end cars, vacations and even a lavish wedding in Italy.
Earlier this year, after selling Empire, Crestos launched a new business called Automators AI, which claims to teach consumers how to use artificial intelligence to become online sellers that generate “over $10,000 in sales per month” and use the popular AI. FTC sued chatbot ChatGPT for creating customer service scripts. According to the FTC, the scheme is ongoing and defrauding consumers out of tens of thousands of dollars.
Amazon and Walmart did not immediately respond to CNBC’s requests for comment.
Fire sale outlet
As the clock ticked down on Empire’s alleged fraudulent behavior, the Cresto brothers attempted to pawn their business off to another operator, Daniel Cohen.
Cohen is now suing Crestos, alleging that they misled him about the true state of the case and used him to deflect blame.
In October 2022—the same month the FTC alleged that most of Empire’s operating Amazon stores were shut down—the Cresto brothers approached Cohen, a Florida businessman, to buy their empire. Roman Cresto showed forecasts showing that his business is strong and highly profitable.
Cohen told CNBC in an interview that Crestos first messaged him via Instagram and later that month they met over Zoom. John Kresto assured Cohen in the Zoom meeting that Empire faces no lawsuits or major concerns beyond a few unhappy customers.
“It was something I asked them because I know the industry,” Cohen told CNBC. The Krestos also offered him projections that claimed Empire collected up to 50% of the profits from the thousands of stores they supposedly operated.
“I’m not sure where they got their predictions from,” Cohen told CNBC. “Maybe at some point they had a store that was doing well and maybe they used that result for everyone, but I believe a lot of it is made up.”
Cohen agreed to buy Crestos’ business on November 7, 2022, and paid them $100,000 the next day. Two days later, Crestos revealed five ongoing “legal disputes” handled by defense firm Stubbs Alderton & Markiles.
“I paid Roman a total of 490k for 6 stores…LLC set up/fees, credit card feeding, virtual store fees, software for several programs they said would take my stores to the top, etc. in between, they cheated on me. A total of more than $525,000, according to Cohen’s claim,” an email from the customer read.
Dozens more complaints lurking in inboxes detailing alleged negligence or “illegal” dealings by the Cresto brothers.
“I paid you $65,000 for an experienced store. My store hasn’t done anything close to the forecast since I started. Now my store has stopped selling at all. I need to know why and what happened. I’m starting over. I feel like I’ve been scammed and I’m getting my lawyer involved. I have to,” read another email cited in Cohen’s lawsuit.
Cohen also told CNBC that Stubbs Alderton & Markiles agreed to serve as his law firm before they dropped him as a client and told Cohen they would now represent the Cresto brothers.
“From a moral standpoint. It just doesn’t smell right,” Cohen’s current attorney, Nima Tahmassebi, told CNBC.
Attorneys for Stubbs Alderton & Markiles did not respond to CNBC’s inquiries about the cases. The Cresto brothers did not respond to CNBC’s request for comment.
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