Financial Education Services’ court-appointed Monitor (formerly Receiver), has filed his first report.

Overall FES has taken steps to address compliance, but top earners appear to still be flouting rules.

The FES Receivership was converted into a Monitorship following
denial of a preliminary injunction
back in July.

The FTC maintains FES is a
$467 million dollar pyramid scheme
, with the case scheduled for an October 2023 trial.

Till then FES has been given permission to operate under supervision of the Monitor.

The Monitor’s filed November 10th report focuses heavily on FES’ compliance efforts.

At the July 26, 2022 meeting with the Monitor and members of the Monitor Team, Mr. Naik reported the development of a “new compliance plan” for the Company that would be ready “this week.”

“Mr. Naik” refers to Parimal Naik, one of FES’ co-founders.

Documented compliance changes in the Monitor’s report include:

new customers going through an “initial consultation” before any fees are paid

FES’ Protection Plan capped at six months, ongoing subscription requires customers to opt-in

full disclosure of “expected fees” during the initial six-month Protection Plan subscription period

informing and emphasizing to customers that they are able to “cancel at any time”

Most of FES’ customers cancel their subscription “within two to three months of enrolling”.

FES refers to its distributors as “Agents”. To better monitor Agent compliance, FES has purchased FieldWatch.

FieldWatch automatically searches social media platforms, blogs, websites, news sites, and private online groups – using search terms provided by the Company – for non-compliant postings by the Monitored Entities’ agents.

The software then returns results based on the applicable search terms, which results are reviewed by the Company for incidents of non-compliance.

While FieldWatch can monitor live streams and posted videos, as of November 10th, 2022, FES hasn’t opted for that subscription tier.

This deficiency creates a potentially material gap in monitoring of agent activity.

While the cost of purchasing the upgraded search feature is not insignificant, the Company apparently deferred hiring additional personnel to bolster its online compliance monitoring in large part because of the efficiencies resulting from the FieldWatch technology.

Back in July Naik also represented to the court that he would “create a new five-person Compliance Department”.

The Monitor inquired as to the status of the Compliance Department in August, wherein only two staff names were provided.

FES does have a seven-person support team, however they are unable to act on compliance issues.

Assisting the Compliance Department is Javier Canales;

Mr. Canales apparently was referred to the Company by Kevin Thompson, an attorney who advises the Company on multi-level marketing legal compliance.

A member of the Monitor Team interviewed Mr. Canales. Mr. Canales is based in Las Vegas, Nevada. Mr. Canales state

🤖 Quick Answer

What is the current legal status of Financial Education Services?
Financial Education Services operates under court supervision following the conversion of its Receivership into a Monitorship in July 2022. The FTC alleges FES is a $467 million pyramid scheme, with trial scheduled for October 2023. Meanwhile, the court-appointed Monitor oversees compliance efforts while the company continues operating under specific restrictions and supervision.

What did the Monitor's November report reveal about FES compliance?
The Monitor's first report, filed November 10th, documents FES's compliance initiatives but indicates significant concerns remain. While the company has implemented measures to address regulatory issues, evidence suggests top earners continue violating established rules and compliance standards despite ongoing supervisory oversight.

What compliance developments has FES undertaken?
FES management reported developing a new comprehensive compliance plan, announced at the July 26, 2022 meeting with the Monitor and his team.

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