Landlords in Distress

Today the Federal Court of Australia found that We Buy Houses Pty Ltd (We Buy Houses) and its sole director, Rick Otton, made false or misleading representations in promoting a number of wealth creation strategies involving real estate (mainly lease options), following ACCC action.

We Buy Houses promoted these strategies throughout Australia via published material, seminars, boot camps and mentoring programs.

Consumers were enticed by these false or misleading representations to attend training programs, including paid boot camps and mentoring.

The Court found that We Buy Houses did not have a reasonable basis for representing that, by following its strategies, consumers could:

• buy a house for $1, without needing a deposit, bank loan or real estate experience, or using little or none of their own money
• create passive income streams through property and quit their jobs
• build a property portfolio without their own money invested, new bank loans or any real estate experience, and
• start making profits immediately and create or generate wealth.

The Court found that We Buy Houses failed to sufficiently inform consumers that the strategies could only realistically be successfully implemented by a consumer who already owned real estate, or who was able to finance a bank loan.

The Court also found that Mr Otton had made false or misleading representations that he had successfully implemented the wealth creation strategies he taught.

In addition, a book authored by Mr Otton, and websites operated by We Buy Houses and Mr Otton, included testimonials from ‘students’ claiming they were able to buy a house for $1 which the court found were false or misleading.

“We Buy Houses sold a lie to vulnerable consumers that home ownership could be achieved easily through strategies taught by Mr Otton,” ACCC Deputy Chair Delia Rickard said.

“Around 2,000 consumers spent around $3,000 per ticket to attend Mr Otton’s boot camps, and approximately 700 consumers participated in the mentoring program at a cost of up to $26,000.”

“Today’s judgment sends a strong message to ‘property spruikers’ that they must not make false or misleading representations about the success and profitability of their ‘wealth creation strategies’ to induce consumers to pay significant sums to learn about them,” Ms Rickard said.

“Consumers who attended We Buy Houses seminars, boot camps and mentoring should be aware that, in her judgment, Justice Gleeson stated that for ordinary consumers seeking to achieve the outcomes represented by We Buy Houses and Mr Otton, the free seminars were a waste of time, and that the boot camps and the mentoring programs were an expensive waste of time.”

Her Honour also said: “I formed the view that Mr Otton was a very unreliable witness who was prepared to maintain or defend statements that were obviously untrue or misleading and who is habitually careless with the truth in making statements and claims designed to promote [his and We Buy Houses’] business interests.”

The Court held that Mr Otton knew and approved of all the materials published by We Buy Houses, and was both knowingly concerned in and a party to the conduct of We Buy Houses.

The ACCC will now prepare the matter for a hearing seeking relief against both We Buy Houses and Mr Otton, including penalties, and a disqualification order against Mr Otton.

Background

The ACCC instituted proceedings against We Buy Houses and Mr Otton in March 2015 following a coordinated investigation with New South Wales Fair Trading. The ACCC alleged breaches of the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (ASIC Act). The Federal Court concluded that the conduct was within the ambit of the ACL, not the ASIC Act.

We Buy Houses had been conducting training programs including free seminars, boot camps and mentoring programs throughout Australia since around 2000. Between 2011 and 2014, We Buy Houses generated the majority of its $20 million revenue from conducting these training programs.

Since the original court date, Otton appears to have ceased doing business in Australia, but has been promoting, and running seminars, in the UK under the auspices of Simon Zutshi.

Rick Otton was also responsible for teaching Ben Rogers about lease options and Ben Rogers went on to become another lease options guru, subsequently going bankrupt, having borrowed millions off people within facebook and pin networks.

See - Ben Rogers - is Simon Zutshi correct?

Here are some excerpts from the 126 page decision below.

92  The cross examination of Mr Otton quickly demonstrated the paucity of the bases upon which Mr Otton was prepared to make extravagant claims to promote his business activity without any substantial basis.

96 Mr Otton was shown the following statement in large font on the inside front cover of the book:

Discover how Rick bought a property for one dollar in 3.5 minutes turning it into $801 monthly positive cash flow.

 97 Mr Otton said that he did not buy property in 3.5 minutes  and he did not know what the statement referred to. When asked to acknowledge that the statement was false, Mr Otton  answered:

 Sir, one of the forms the people signed is a Power of Attorney or a transfer deed. Once the person has signed the transfer deed, although that transfer deed is not registered, the fact that they sign and I sign means I have actually bought the property, Sir.

98 Thus, Mr Otton was not prepared to acknowledge the falsity at the statement in his own book, preferring to give an answer that was frankly nonsense in the context of the question.  When further questioned about the statement and asked whether it might just have been made up Mr Otton answered:

My staff have written this, and it would have been, I’m guessing, to something they saw me do.   I can’t be-  I can’t be specific.  I can understand how it might be 345 dot minutes.   And we will go to the forms on that.  Which property it is in that…I cannot give you any reference.

109  I formed the view that Mr Otton was a very unreliable witness who was prepared to maintain or defend statements that were obviously untrue or misleading and who is habitually careless with the truth in making statements and claims designed to promote the respondents’ business interests. I do not accept his evidence except to the extent that it was against the respondents’ interest, or is corroborated by contemporaneous records.

164 The respondents provided no evidence to support the truthfulness of the second example, although Mr Otton asserted repeatedly that he remembered the doctors. If the example were true, the Mr Otton would have received taxable income(the “cash flow” ) for which you should have records.  In the absence of such evidence, I find that this example is fictitious and that Mr Otton was lying when he claimed to remember the doctors.

Mr Otton’s implementation of the techniques.

181 Despite claiming their defence that Mr Otton had been successful financially “ in following the ideas and using the strategies”, there was almost no evidence that the respondents had used the strategies, let alone used them to make money.

182 There was no evidence that either of the respondents had bought the property since October 2006.

183 In their written closing submissions, the respondents did not identify any property purchased by Mr Otton or WBH at any time using any of the techniques. Orally, Mr Bell argued that Mr Otton implemented the techniques in relation to a property at Deception Bay.  As explained below, I do not accept that argument

479 based on the finding set out earlier in the judgement, Mr. Otton’s personal success in implementing the strategies was minimal and did not include the successful implementation of the “sandwich lease option”  technique on a single occasion.

Falsity of representations

504 Based on the evidence set out above, representations about Mr Otton’s financial success was false and misleading.

CONTRAVENTIONS

Section 18

508 For the reasons set out above, I conclude that, in making the System and Strategies Representations, the respondents, engaged in conduct, in trade or commerce in connection with the supply or possible supply of services, or in connection with the promotion of the supply or use of services, that was misleading or deceptive or was likely to mislead or deceive in contravention of ss 18 of the Australian Consumer Law. To the extent that the representations were made by WBH and not Mr Otton, Mr Otton was knowingly concerned in and party to the making of the representations.

509 Further, in making the representations that Mr Otton himself had been successful financially in using strategies, the respondents engage in conduct, in trade or commerce in connection with the supply or possible supply of services, or in connection with the promotion of the supply or use of services, that was misleading or deceptive or was likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law.

Sections 29(1)(f)

510  in publishing the testimonials referred to at [399] above , WBH and Mr Otton contravened s 29(1) (f) of the Australian Consumer Law.

Court media release 

Property Tribes warned about Rick Otton and the impending court case in Guru and lease options crash - Rick Otton but, despite these warnings, Rick Otton was brought back to the UK and promoted as an expert.

This result not only highlights the deceptive marketing techniques used by some wealth creation gurus, but also how some of them do not undertake the strategy themselves, and, in this case, it also highlights that the strategy itself might be flawed.

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