CCT625 - Marketing, Advertising & Public Policy: Final Paper

Federal Trade Commission versus

Trump University (aka Trump Entrepreneur Initiative)

Corey McKeon2011 December 20

Prof. Adonis Hoffman, JD

Introduction

Donald Trump became a household name with his television show “The Apprentice,” where

contestants compete for a high level management position in one of Trump’s enterprises. Prior to

his reality show hit, he was and continues to be a big time business mogul, specifically in real

estate. Since the show he has also become a successful author.1 In 2003, Trump also created an

online education company called The Trump Entrepreneur Initiative, formerly known as “Trump

University”. The Trump Entrepreneur Initiative offers courses in real estate, asset management,

entrepreneurship, and wealth creation, charging fees ranging from $1500 to $35,000.2 It is

classified by the Better Business Bureau as a “Training Program,” but is not accredited.3

In overview, the issues that Trump University, as it was originally named, face fall under

heavy scrutiny as it was said to be in violation of New York Education Law and was found to be

misleading. The campaigns that marketed and advertised for Trump University promised a

varying services including: “complete real estate education”, a “one year apprenticeship,” a one-

on-one mentorship, practical and fail-safe real estate techniques, a “power team” consisting of

real estate agents, leaders, personal finance managers and contractors, and were assured that

although the Seminars were costly, they would make the money back in their first real estate

deal, and could make up to tens of thousands of dollars per month or more.4 It was found that

users, who eventually sued Trump University, were not receiving these benefits. In many

1 Wikipedia contributors. “Donald Trump.” Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 14 December 2011. Web. 12 December 2011. <http://en.wikipedia.org/wiki/Donald_Trump> 2 Wikipedia contributors. “Trump University.” Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 14 December 2011. Web. 12 December 2011. <http://en.wikipedia.org/wiki/Trump_University>3 "Trump University Review -TRAINING PROGRAMS in Dover, DE-BBB Business Review." United States and Canada BBB Consumer and Business Reviews, Reports, Ratings, Complaints and Accredited Business Listings.4 Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2nd-Amended-Complaint-12-16-10.pdf>.

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publications, Trump University was found to be scamming customers.5 The Huffington Post for

example, published an in depth overview of the issues presented against the “University”. The

article takes both sides in stating, “Real-estate seminars like the one Trump operates have

sometimes enriched thousands of motivated entrepreneurs, eager to flip houses and make extra

money. But some high-profile hucksters have been indicted for fraud, putting the industry in a

bad light”. It is also found that “since 2005, over 11,000 people have attended one of his high-

profile real-estate seminars”.

The marketing of Trump University is what this paper intends to investigate and under what

policies and principles govern the practice of marketing a service as a “University,” as it has

been said to be in violation of both New York and Maryland state education laws. The marketing

for this “University” could be found directly on their website, in email/online marketing

campaigns and through print advertisements, which can be viewed in Appendices A, B,C and D.

Based on their marketing claims, there appeared to be no substantiation for the resources or

success, following the seminar it was found that many of the promised services were false. In the

following sections I will provide a factual overview, present the issues of the case, provide an

analysis of the policies affecting the marketing practices of Trump University and make

recommendations based on these policies if the FTC were to intervene. There have previously

been a number of complaints including a class action lawsuit and demands for a civil

investigation by the Attorney General of Texas.6

5 Baram, Marcus. "Trump's 'University' Accused Of Scamming Customers." Breaking News and Opinion on The Huffington Post. The Huffington Post, 6 July 2011. Web. 14 Dec. 2011. <http://www.huffingtonpost.com/2011/05/06/trump-university-scammed-customers_n_858587.html>.6 Abbott, Greg. "Civil Investigation Demand." Big.assets.Huffingtonpost.com. The Huffington Post, 6 Jan. 2010. Web. 14 Dec. 2011. <http://big.assets.huffingtonpost.com/TrumpUCID.pdf>.

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Factual Overview

Trump University reportedly changed its name to the Trump Entrepreneur Initiative on

May 23, 2011 after pressure from New York and Maryland educators for the use of the term

“University” in its marketing. Aside from the undiscovered benefits of the seminars, the

University claimed to make you a real estate tycoon in one of its expensive three day seminars

which toured the country.7

In a class action lawsuit against Trump University, filed in the Southern District of

California, it is stated that the University targeted seniors, and had its sales pitch designed to

scare seniors into attending and paying for additional Seminars. Outlined in this complaint is an

in depth investigation to the practices of Trump University, specifically how it deceives and

misleads prospective students into the impression that they’ll either be working directly with

Donald Trump or that the value of information will eventually make them wealthier due to their

new knowledge of the real estate marketing environment. Within this complaint it was expressed

that unlawful activity occurred during seminars including: instructing students to engage in real

estate practices that were illegal, such as posting bandit signs and engaging in the practice of real

estate without a real estate license, issuing student testimonials which are misleading, and in

some cases, completely fabricated by Trump University employees; and forging student

signatures on seminar contracts when students have forgotten to sign the contracts.8

In marketing materials such as Appendix A, Trump is informing the prospective student that

he will teach them real estate skills equivalent to that of a university, “We teach success”. The

7 Editorial Staff, WW. "Trump Entrepreneur Initiative: The Donald Can’t Duck Unhappy Customers." Willamette Week. Willamette Week, 30 June 2010. Web. 12 Dec. 2011. <http://wweek.com/portland/article-12169-trump_entrepreneur_initiative.html>.8 Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2nd-Amended-Complaint-12-16-10.pdf>.

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uses of the term teach implies that there is an instructor and institution, especially when the name

“Trump University” is attached to the same advertisement. Appendix B shows a program that is

attempting to portray an MBA level education in just a one day seminar, equating a sometimes

considered terminal degree, to be similar to what one of Donald Trump’s seminars has to offer.

The homepage of the website, found in Appendix C, shows a popular tagline: “Are YOU My

Next Apprentice? Prove it to me!” directly demonstrating Donald Trump’s involvement as an

individual. Finally, in a print advertisement, Appendix D was a part of the University’s marketing

campaign efforts; we see a list of steps as part of Trump’s “Wealth Builder Blueprint”, which

was a service offered by the company. Deeper within the campaign you would find promises of

success and personal teaching from Donald Trump.

The nature of activity in question surrounds the advertising and marketing of a company who

offers seminars framed to portray an actual university or educational institution, when there are

no recognized degrees awarded or obvious benefits besides an informational discussion, which is

subjective. In another section, Policy Issues, we will identify the regulations affected by a

company that frames its marketing to resemble a higher education institution or organization, by

promising services that are not followed through. The practice of how the organization markets

its services will also come under scrutiny as it is applied to rules and regulations.

Prices surrounding the seminars and teachings were by far, the obvious harm against

consumers, with a range of $1,500 to $35,000. The obvious harm would be money loss to those

who have participated, with a target audience of senior citizens, who typically have a fixed

income, the loss of income to Trump University could be detrimental. The initial government

response came in the form of the class action lawsuit, previously discussed. There are other,

more harmful practices going on within the seminars that are illegal business practices in nature.

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The current situation with Trump University is that it has renamed itself the Trump

Entrepreneur Initiative. In May 2011, the New York Attorney General announced that he would

be investigating Donald Trump’s institution, along with a number of other states, most notably

Maryland. The investigation is prompted by about a dozen complaints, including the class action

lawsuit, concerning Trump University; complaints which the attorney general has found to be

credible and serious.9

9 Barbaro, Michael. "New York Attorney General Is Investigating Trump’s For-Profit School." Nytimes.com. The New York Times, 19 May 2011. Web. 12 Dec. 2011. <http://www.nytimes.com/2011/05/20/nyregion/trumps-for-profit-school-said-to-be-under-investigation.html?_r=1&src=me&ref=nyregion>.

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Issues Presented

The main issue currently being investigated concerns whether or not Trump University

should be called a university at all, as expressed by New York and Maryland education laws.

Over the last several years, New York and Maryland have told the company to drop the word

“university” from its title, saying that using it violated state education laws, which it has since

done.10 Another issue is that the marketing and advertising of the University should be heavily

scrutinized based on the overwhelming reaction by former students complaining of fraud and

scamming. Lastly, issues raised in a class action lawsuit are in regard to illegal practices that

occurred during the seminars that have previously been discussed in the factual overview. The

marketing practices that have gone on, attached to the university name, deal with claims of

services that the company offers including mentorships, yearlong apprenticeships, techniques,

etc. that were not followed through, making them false claims. The marketing has been less than

truthful because Trump University has had claims advertised of services offered that are not, in

the end, provided.

The outcome of the seminars is not substantiated in the advertising. “As it turned out,

Trump University might have oversold itself a bit. According to the suit, the one-year

apprenticeship turned out to be a three-day seminar; the one-on-one mentorship, paradoxically,

"consisted of no practical insights and no mentorship"; and the members of the "power team"

were only interested in lining their own pockets,” says a Consumer Affairs report. 11 These claims

10 Barbaro, Michael. "New York Attorney General Is Investigating Trump’s For-Profit School." Nytimes.com. The New York Times, 19 May 2011. Web. 12 Dec. 2011. <http://www.nytimes.com/2011/05/20/nyregion/trumps-for-profit-school-said-to-be-under-investigation.html?_r=1&src=me&ref=nyregion>.11 Hood, John. "Trump University a Scam, Suit Claims." ConsumerAffairs.com: Knowledge Is Power! Consumer News, Reviews, Complaints, Resources, Safety Recalls. Consumer Affairs Education Scams, 5 Mar. 2010. Web. 13 Dec. 2011. <http://www.consumeraffairs.com/news04/2010/05/trump_univ_suit.html>.

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were all made in the marketing of the program and raise many issues around the legitimacy of

the company.

The major harm that is applied to the consumers is the financial harm, people are paying

thousands of dollars which they leave and have nothing to show for. They’ve attended Trump

University and have no accredited degree or legitimate proof of an education. They leave with

tips and techniques that they may not be able to apply to the real world because they’re illegal.

Pouring in money and obtaining an education from an organization that calls itself a university,

is questionable. The issue being that one would reasonably expect a university to train them to

leave a completed program with proof of participation or skills that could demonstrate

competency within a field. Trump University does not fulfill these reasonable expectations, after

charging a large sum of money to attend and making false claims of services.

Formerly, Trump University had a D-minus rating by the Better Business Bureau (BBB)

and is currently unaccredited since changing its name to the Trump Entrepreneur Initiative.12

This new name is currently also not accredited by the BBB which states on its website “In May

2011, this firm informed the BBB that it has officially changed its name from Trump University

LLC, effective May 21, 2010.  According to information provided by this firm, Trump

Entrepreneur Initiative is a for-profit company which sells products, classes, memberships,

seminars and workshops and provides educational materials and support for entrepreneurs.  This

firm does not grant academic degrees or certification.”13

12 Baram, Marcus. "Trump's 'University' Accused Of Scamming Customers." Breaking News and Opinion on The Huffington Post. The Huffington Post, 6 July 2011. Web. 14 Dec. 2011.13 "Trump University Review -TRAINING PROGRAMS in Dover, DE-BBB Business Review." United States and Canada BBB Consumer and Business Reviews, Reports, Ratings, Complaints and Accredited Business Listings.

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Policy Analysis

There are several rules governing the practice of marketing services such as seminars and

training programs. Section 5 of the Federal Trade Commission Act declares unfair or deceptive

acts or practices unlawful. “An act or practice is deceptive if it involves a representation,

omission, or practice that is likely to mislead consumers acting reasonably under the

circumstances, and the representation, omission, or practice is material14.” By looking at the

marketing material in Appendices A, B, C and D, stated on the Trump University website and

marketing material, we can see material promising the best in business education, MBA

equivalent business training and speakers, and free courses.

Discussed within the class action lawsuit were promises of apprenticeships, complete real

estate education and extensive human resources. With complaints that these were not followed

through, or were played down to be less than their straight forward value, this would be

considered deception. Section 5 of the FTC Act is in place to protect consumers from misleading

and deceptive marketing practices, such as those promised by Trump University.

To be considered deceptive, the FTC must follow the following steps in analyzing the

business practices and would evaluate complaints such as those mentioned in the class action

lawsuit:

1. There must be a representation, omission or practice that is likely to mislead the

consumer. This includes the "use of bait and switch techniques."15

14 Wikipedia contributors. “Section 5 of the FTC Act.” IT Law Wiki. Wikipedia, The Free Encyclopedia, 14 December 2011. Web. 12 December 2011 < http://itlaw.wikia.com/wiki/Section_5_of_the_FTC_Act>15 "FTC POLICY STATEMENT ON DECEPTION." Federal Trade Commission. 14 Oct. 1983. Web. 15 Dec. 2011. <http://www.ftc.gov/bcp/policystmt/ad-decept.htm>.

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2. The practice is examined from the perspective of a reasonable person in the

circumstances. If the practice "is directed primarily to a particular group," such as

Internet users, "the Commission examines reasonableness from the perspective of

that group."16

3. The representation, omission or practice must be a material one, i.e., it is likely to

affect the consumer's conduct or decision regarding the product or service.17

Representation, omission and practices that mislead the consumer by Trump University

would be the benefits and services that they stated such as a “complete real estate education,”

that were not provided by the end of a “course” or three day seminar. Participants did not leave

the seminar with qualifications to take a real estate exam and were further encouraged to make

real estate transactions without a real estate license.18 We have this policy to protect consumers

from deceptive acts and scams such as those posed by Trump University, which is currently re-

evaluating its curriculum and practices.

As outlined in detail within the class action lawsuit, senior citizens were the targeted market

to purchase the training program. This correlates to the second consideration to be considered

deceptive or unfair. From the perspective of any individual, but specifically the elderly, the

expectation of services would still remain unfulfilled. The stated benefits are furthermore likely

to affect a consumer’s decision regarding purchasing the service because they have the stated

potential to make money from the program, obtain an actual real estate education, and be eligible

for one on one training and an apprenticeship.16 "FTC POLICY STATEMENT ON DECEPTION." Federal Trade Commission. 14 Oct. 1983. Web. 15 Dec. 2011. <http://www.ftc.gov/bcp/policystmt/ad-decept.htm>.17 "FTC POLICY STATEMENT ON DECEPTION." Federal Trade Commission. 14 Oct. 1983. Web. 15 Dec. 2011. <http://www.ftc.gov/bcp/policystmt/ad-decept.htm>.18 Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2nd-Amended-Complaint-12-16-10.pdf>.

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Trump University appears to have backed down for a time to legally evaluate where the

organization is headed and how they can better understand and cater to their audience. The past

few years have shown that Donald Trump’s organization was really in it for the money and

acknowledgment rather than serving its customers and informing individuals of beneficial real

estate practices. For example, there is no reasonable understanding that when you sign up for

benefits such as a “one year apprenticeship” that it would translate into six one-hour training

sessions.

The Federal Trade Commission Act is in place to protect consumers from underhanded

organizations like Trump University. Upon re-evaluating the institution, it should consider how it

would be perceived from the consumer’s standpoint and not how to get the most money out of

the participants and leave them hanging with less than expected service.

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Recommendations

From what we’ve seen through the policy analysis, there is only regulation applied to the

marketing practices of the organization and not necessary to the specific deceptive use of the

term “university”. My recommendation would be for the Federal Trade Commission to

investigate alternative regulations on key words that consumers associate with an expectation of

results. A university would generally be understood as an institution either for-profit or non-

profit that serves consumers in providing education and professional degrees and

acknowledgement for satisfactory completion of a program. Trump University operated as an

organization providing training seminars and did not appear to be educational like other

university offerings. Institutions like the University of Phoenix or Kaplan University operate

online to provide training and courses that have an end result of a degree. Trump University is

taking away from appeal with similar marketing techniques, but a lack of accreditation. The

perceived legitimacy of Trump University comes from its association with Donald Trump, an

influential and well known business mogul.

My recommendations to a policy making body, such as the Federal Trade

Communication would first be to investigate Trump University as a marketer of training

programs and seminars with the intentions of creating a list of requirements for an entity to call

itself a “university”. State laws have backed New York and Maryland in persuading Trump

University to change its name, but there is no forceful law that disallows entities from using the

term. The deceptive claims made by the organization have had several complaints regarding lack

of follow through of services on a grand scale, as seminars are attended by large numbers of

individuals. The practices of the organization would not likely pass the four part Central Hudson

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Test, which provides guidelines on the law restricting the speech. The FTC would consider the

following four factors19:

1. Is the marketing practice about lawful activity and not misleading?

2. Is there a substantial governmental interest?

3. Does it directly advance government interest?

4. Is it more extensive than is necessary to serve the interest?

The marketing activity was misleading simply by the name of the company, “Trump

University,” but also by what services were advertised and described in the class action lawsuit.

The elderly being targeted by the institution is substantial for the government to take interest in

the organization. This would not advance the government interest because they have an interest

in the consumers’ welfare and fair treatment.

Beyond the U.S. Department of Education, “the United States has no federal Ministry of

Education or other centralized authority exercising single national control over postsecondary

educational institutions in this country. The states assume varying degrees of control over

education, but, in general, institutions of higher education are permitted to operate with

considerable independence and autonomy. As a consequence, American educational institutions

can vary widely in the character and quality of their programs.”20 Trump University is not

actually a university, making a substantial interest by the government, necessary. Although it

falls on the states to regulate educational institutions, the marketing practices thereof a national

online organization make federal interference permissible. Lastly, it would not be more extensive

19 Hoffman, Adonis E. “Marketing, Advertising ,& Public Policy.” CCTP 625-01. Georgetown University. Georgetown University. Washington, DC. Fall 2011. Lecture Slides.20 "College Accreditation in the United States-- Pg 2." U.S. Department of Education. 17 Nov. 2011. Web. 14 Dec. 2011. <http://www2.ed.gov/admins/finaid/accred/accreditation_pg2.html#U.S.>.

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than is necessary to serve the interest of the elderly and those affected by Trump University, who

is marketing to individuals to invest money in a program that is misleading and deceptive.

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Conclusion

In conclusion, we’ve seen how Trump University is operating a training program and

seminar service for real estate entrepreneurs, but operating under an “institutional” veil. Trump

University is not actually a college or university, it simply offers training seminars. It has been

the subject of many complaints including a class action lawsuit and demands for civil

investigation by the Attorney General of Texas.

It has also been threatened by New York and Maryland education laws that is should not

be operating with the term “university” if it is not actually a college. In our factual overview it

was expressed that individuals were marketed services promising “complete real estate

education”, a “one year apprenticeship,” a one-on-one mentorship, practical and fail-safe real

estate techniques, a “power team” consisting of real estate agents, leaders, personal finance

managers and contractors.21

We also discovered that these were false claims and deceptive advertising statements

under Section 5 of the Federal Trade Commission Act. It was recommended the Federal Trade

Commission develop policy that details what requirements an organization must fulfill to be

considered a “university” and be able to market themselves with this word in their name listed

with the Better Business Bureau and appearing on their marketing and advertising material both

online and in print.

21 Makaeff, Keller, Oberkrom, and Murphy V.Trump University, LLC. Southern Court of California. 16 Dec. 2010. Zeldes & Haeggquest, LLP. 16 Dec. 2010. Web. 12 Dec. 2011. <http://www.zhlaw.com/Trump-University-2nd-Amended-Complaint-12-16-10.pdf>.

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Appendix A

An advertisement from the Trump University online campaign:

Image Source: http://commercewide.com/wp-content/uploads/2011/05/trump.jpeg

Appendix B

An advertisement for one of Trump University’s specific event campaigns:

Image Source: http://2.bp.blogspot.com/_Ydx7Nn1SX9Y/RjyoY93AbkI/AAAAAAAAADQ/qD6jfULtHHA/s400/trump%2Buniversity.png

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Appendix C

The website for Trump University:

Image Source: http://imgs.sfgate.com/c/pictures/2011/05/05/mn-tumrp05_PH_ad_0503418178.jpg

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Appendix D

Print advertisement for Trump University:

Image Source: http://www.darrenottley.com/images/gallery/04.jpg

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