John and Roman Cresto made millions of dollars selling themselves as e-commerce “experts” who could teach regular consumers and investors the secret to selling success on Amazon and Walmart, for a price.
They splashed lavish vacations and high-end cars across their social media account, creating a multimillion-dollar image of success that federal regulators now say was fueled by falsehoods and deception.
The case is the latest example of the Federal Trade Commission cracking down on deceptive e-commerce consultancies that target consumers and fledgling online businesses. A robust industry of consultants and agencies, often referred to as “coaches” or “gurus,” have emerged as retailers increasingly move online and marketplaces on sites such as Amazon and Walmart flourish. These coaches often claim to have struck it rich in e-commerce and will pass along their expertise to users who pay for expensive courses with no guarantee of success.
The FTC on Tuesday asked a judge to bar the Cresto brothers from doing business temporarily, in connection with a lawsuit the agency filed earlier this month in U.S. District Court for the Southern District of California.
The Cresto brothers “promised to expertly manage the operations of automated online stores” on both Amazon and Walmart through their companies, including Empire Ecommerce, doing everything from finding products to fulfilling orders, the complaint says. They charged consumers anywhere from $10,000 to $125,000 for the initial investment, and $15,000 to $80,000 in additional funding as working capital, the FTC alleged.
The Cresto brothers also took 35% of any profits from their “partners'” e-commerce stores, the complaint says. By June 2022, less than 10% of Empire-managed stores generated sales, the FTC alleged. By October 2022, Amazon had either suspended or terminated most of those stores for violating its policies around intellectual property and a business method called dropshipping, where companies never actually have the inventory they’re selling, and instead order products through a manufacturer after a shopper makes a purchase, the complaint says. The majority of Empire’s storefronts on Walmart’s marketplace were either never activated or terminated for policy violations, according to the FTC.
Despite the suspensions, Empire for years continued to falsely promote the success of its Amazon businesses by recruiting affiliate marketers to post splashy videos online claiming they made “significant passive income” through Empire’s automation services. Empire was able to lure more than 60 new clients through this affiliate marketing scheme and netted over $1.5 million in commission fees, the FTC alleged.
“In truth, most of Empire’s clients lost money and virtually none made the advertised amounts,” the agency wrote in its complaint.
The suspensions left Empire’s clients deeply in debt, the FTC alleged, “because Empire typically had its clients pay for inventory on credit cards.” Empire refused to refund victims tens of thousands of dollars that victims had paid out to Empire or for goods sold, the FTC alleged.
The two brothers made more than $22 million from their clients, the FTC alleged.
The millions that the Crestos diverted for themselves were spent on high-end cars, vacations and even a luxury wedding in Italy, according to the FTC complaint and social media posts.
At the beginning of this year, after selling Empire, the Crestos spun up a new business called Automators AI, which claims to teach consumers how to use artificial intelligence to become online sellers making “over $10,000 per month in sales,” and use popular AI chatbot ChatGPT to create customer service scripts, the FTC alleged. The scheme is ongoing and defrauding consumers of tens of thousands of dollars, according to the FTC.
Amazon and Walmart did not immediately respond to CNBC’s requests for comment.
A fire sale exit
As the clock ran down on Empire’s alleged fraudulent behavior, the Cresto brothers attempted to pawn off their businesses to another operator, Daniel Cohen.
Cohen is now suing the Crestos, alleging that they deceived him about the true state of the business and used him to deflect blame from themselves.
In October 2022 — the same month the FTC alleged most of Empire’s working Amazon stores had been suspended — the Cresto brothers approached Cohen, a Florida businessman, about buying their empire. Roman Cresto showed projections that suggested his business was strong and highly profitable.
Cohen told CNBC in an interview that the Crestos first messaged him via Instagram and that they met over Zoom later that month. John Cresto assured Cohen in that Zoom meeting that Empire was not facing any litigation or major concerns, beyond a “couple” of unhappy clients.
“It was something I asked them, because I do know this industry,” Cohen told CNBC. The Crestos also offered him projections that claimed Empire collected up to 50% of profit from the thousands of stores they supposedly operated.
“I’m not sure where they got their projections from,” Cohen told CNBC. “Maybe at some point they did have a store that performed well, and maybe they just used that result for everybody, but I believe most of it was likely made up.”
Cohen agreed to buy the Crestos’ business Nov. 7, 2022, wiring them $100,000 the following day. Two days later, the Crestos revealed five ongoing “legal disputes” being handled by their defense firm, Stubbs Alderton & Markiles.
“I paid Roman 490k total for 6 stores … between LLC set-ups/fees, credit card feeding, virtual store fees, their software on several that they told me would push my stores to the top, etc, etc, they scammed me for well over $525k total,” one email from a client read, according to Cohen’s lawsuit.
Dozens more complaints were languishing in an inbox, detailing alleged negligence or “shady” dealings by the Cresto brothers.
“I paid you guys $65k for a experienced store. Since starting my store has done no where near the projections. Now my store has stopped having any sales at all. I need to know why this is and what happened. I am starting to feel like I was scammed and I need to get my lawyer involved,” read another email cited in Cohen’s lawsuit.
Cohen also told CNBC that Stubbs Alderton & Markiles agreed to serve as his law firm, before firing him as a client and telling Cohen that they would now represent the Cresto brothers.
“From a moral perspective. It just doesn’t smell right,” Cohen’s present attorney, Nima Tahmassebi, told CNBC.
Attorneys at 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.