E-Commerce Automation Scams: Everything you Need to Know to (try to) Get Your Money Back

Image of an eCommerce website.

What is Automation?

You may have come across an opportunity to generate passive income by investing in an online store or website, operated by someone else. All you have to do is provide the initial capital, and a third party handles the rest. They find the products, create the store, advertise it, process orders, fulfill delivery and customer service. You just sit back and wait for your monthly profits. If it sounds too good to be true, it is.
This is called “automation”, when someone else runs the business, and the investor simply provides the capital and expects profits. It is available in many industries: real estate, trucking, and most notoriously – e-commerce.

Although automation is neither illegal nor a “scam” (including e-commerce), some people use the prospect of easy money through automation to lure unsuspecting clients into a promise that won’t be delivered.

This article does not propose that e-commerce automation is a “scam”. Rather, it discusses only those instances in which it is used for fraudulent purposes.

How does the scam look?

A company will set up a website and social media pages, advertising the promise of typically around $1,000.00 – $5,000.00 in profits per month, by investing in an online store. The stores are usually built on Amazon, Walmart, Shopify, Facebook and other third party platforms. The company may host webinars to sell you on the opportunity; and you may be assigned sales agents or officers to enroll you.

In these marketing efforts, you may be told about the potential returns, in oral or written form. You may even see a slideshow, presentation, charts or other materials promising profits and returns.

They promise to select the products for you, based on research, purchase the inventory, open the store in third party platforms, generate traffic, fulfill directly or deliver via Fulfillment by Amazon (FBA), process returns and refunds, and all activity related to the page.

In exchange, you must pay an initial fee, usually between $20,000.00 -$50,000.00, and open a line of credit for inventory purchases; plus any administration fee they may require.

How does the Agreement look?

In the Agreement, the company may, firstly, not include any of the promises they’ve made in either oral or written form. Instead, they will include a standard contract provision called “Entire agreement”, which basically means that any promises, agreements or representations made, not included in the agreement are not valid or enforceable.

Secondly, they may include disclaimers, in which they are not to be held liable for eventualities, such as:

  • Failing to open the store;
  • Failing to generate profits;
  • Suspension or canceling of the Store;
  • Violation of Terms of third parties;
  • Others

Thirdly, they may provide for a Money-Back Guarantee, typically between 12-24 months, either from the Effective Date of the Agreement, or the date of opening the store. They guarantee to return you your Initial Fee within said time, ONLY IF the Store fails to generate ANY profit, in most cases.

Fourthly, it is possible that the Agreement sets forth that disputes and complaints are to be resolved by arbitration, which is private and confidential.

How does it go wrong?

Once you sign the Agreement, they will begin the “onboarding process”. They may ask: for your driver’s license, social security card or number; that you register a company; that you open a commercial bank account and credit line; and/or set up an email address.

They tell you that they need that information to set up the store and purchase the initial inventory, and that it will take several months to get the store up and running. They include this language in the Agreement.

The Stores usually sell nondescript consumer products like – apparel, cosmetics and household items. You must provide an open credit line for monthly inventory purchases, generally around $1,000.00 – $5,000.00. Failure to maintain one is a breach of the Agreement. They also include this language in the Agreement.

After several months, in some cases, you do not yet see a Store built, nor sales, much less profits. In other cases, while a Store has been built, it has negligible sales or profits – in the hundred of dollars, at most. At some point afterwards, in most cases, something happens to the Store that it gets suspended, shut down or reported for violation of the Terms of Service of the third party platform (Shopify, Amazon, etc.). Common violations include:

  • Operating multiple stores for the same product;
  • Artificially generating traffic and user reviews;
  • Failing to timely fulfill orders;
  • Impersonation;
  • Others

Some examples of when companies violate terms are:

  • Multiple stores – since they operate a business of opening stores for clients, and those stores sell products that are in demand, they may be similar to other company clients.
  • Artificial generation – making a store popular is expensive and takes time. In order to quickly generate sales, sometimes these companies engage in “gaming”, or manipulation, of platform features like: user reviews, ads, and placements.
  • Impersonation – they may ask for your driver’s license, SSN, and your own company and bank account, in order to try to fool Amazon, for example, into thinking that it’s you who is opening and operating the store, and not the company.

You attempt to resolve this issue with the company, but they tell you that there’s nothing they can do; that it’s up to Amazon, or whomever, to restore the account. It has been several months, at times a year or more, since you entered into the Agreement, and you’ve invested around $30,000.00 – $80,000.00; between initial investment, inventory purchases and administration fees.

At this point, you’ve entirely lost faith and want to walk away. You ask the company for your money back; and may even be eligible for a guarantee. But the company refuses to refund you. They say that they have not breached the agreement, that it is beyond their control since Amazon (or others) are responsible for Store shutdown. They rely on the Agreement to remind you that money-back guarantees do not apply if the store has opened, profits have been paid (however small), or Store operation is interrupted.

What can you do?

These cases are not easy to fight and win. In most instances, courts will defer to two consenting parties agreeing to enter into a business which may or may succeed; unless, there is express evidence of the intent to defraud or engage in unlawful acts. Also, in commercial transactions, as opposed to consumers, the parties are expected to conduct due diligence and make an informed decision. Being unsophisticated or inexperienced in an industry is generally not grounds for challenging these agreements.

For this reason, if you wish to have a chance at prevailing in these cases, you
generally must have of one or more of the following:

  • Failure to open the Store;
  • Zero or near-zero sales;
  • Written evidence of a promise of profits or returns not met;
  • A money-back guarantee in the Agreement, not honored;
  • A violation of third party terms;
  • Promise of refund or returns.

If any of these apply, the company may be liable to you for one or more of the following legal causes of action: breach of contract; unjust enrichment; unfair and deceptive trade practices; fraud; misrepresentation; wire fraud; impersonation; illegality and others.

If you believe that you have one or more of the above, you may be entitled to relief. The process is not easy, since it requires that you send notice to them of their breach and your intent to dispute the agreement.

You may be able to negotiate a settlement for a return, or partial, of your investment. If not, you will likely need to sue or demand arbitration.

In some cases, companies may have developed a bad reputation, and have generated multiple negative reviews online. You may be able to take advantage of having multiple aggrieved clients by putting together joint actions, known as joinders, or even class actions, in rare instances. If you feel like you’ve been harmed by an e-commerce, or other, automation company, or have questions about your situation, feel free to reach out for a consultation.

Information provided for educational purposes, not legal advice*

EPGD Business Law is located in beautiful Coral Gables. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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Silvino Diaz

Silvino E. Diaz’s practice ranges from Civil and Commercial Litigation to Entertainment and Intellectual Property Law. Silvino has earned a reputation as one of Puerto Rico’s foremost advocates for independent musicians and artists. As a result of his sustained commitment to creative industries, he was named Professor of Intellectual Property Law at Atlantic University College (Guaynabo, PR) – the Caribbean’s leading digital arts institution – where he spearheaded the “Introduction to IP” course for both the graduate and undergraduate programs, and was appointed by the Office of the President to develop an Intellectual Property graduate curriculum, where he served until moving to Miami in 2017. He is the founder of the service known as Starving Artists, where he offers innovative business and legal counsel for artists and creatives.


*The following comments are not intended to be treated as legal advice. The answer to your question is limited to the basic facts presented. Additional details may heavily alter our assessment and change the answer provided. For a more thorough review of your question please contact our office for a consultation.

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