“It’s hundreds of thousands of dollars in total and more than anything it’s the opportunity cost,” Daniels said. “If that had been a real 24 million emails, we would have had a gigantic amount of business to do right now.”
The loss of business means EF Hutton America will now need to seek a new vendor, change its business projections and cut hours for its staff. Daniels declined to name the marketing firm.
The Springfield News-Sun obtained a copy of the incident report from the Springfield Police Division. However because neither Daniels nor the police report identified the firm, the News-Sun was unable to reach out to the company for comment.
He said EF Hutton America leaders did their due diligence before hiring the firm, but didn’t call the company’s previous customers for references.
“This type of activity has been terribly pervasive throughout the Internet,” Daniels said. “We’re not the only company that has suffered at the hands of these kinds of people.”
The news marks a setback for the financial start-up firm. Since announcing its move to downtown Springfield in September, the company’s website and product launch was delayed, the company has been sued by a former executive in federal court and company officials said a vendor error delayed employee payroll.
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Alois Pirker, research director for Aite Group’s Wealth Management practice, described the alleged marketing fraud as a rookie mistake and said it raises credibility questions for potential customers.
It’s not necessarily unusual for a company to be fooled by a fraudulent marketing firm, Pirker said. It also shows how difficult it is for new companies to get a foothold in a crowded digital market, he said.
“When we look at the EF Hutton launch, it has been dragging on for a while,” Pirker said. “The website hasn’t been working and now with this incident here, it suggests the opposite. If the negative news outweighs the positive, it’s not good from the get-go.”
Often start-up firms try to stay out of the public eye until their business is on steady ground, he said.
“The more digital the industry becomes, the more having an established brand counts,” Pirker said.
Springfield city commissioners recently approved a seven-year tax incentive agreement that would give EF Hutton America half of the income tax revenue generated from the new employees it plans to bring downtown. City Commissioner Karen Duncan voted against the incentive package after hearing concerns from some of the company’s vendors who said they hadn’t been paid.
Daniels said the company had been delayed in paying some vendors but said those issues have since been resolved. The company has also fired some employees who Daniels said weren’t a good fit.
Duncan stressed she remains optimistic about EF Hutton America’s future, but said she believes city officials should have waited before approving the incentive package. The company intends to create about 415 jobs downtown over the next five years and generate about $24 million in annual wages, the Springfield News-Sun previously reported.
She also noted even though the package has been approved, the city faces no risk because the company cannot receive the incentives unless it creates the promised jobs.
“I voted against the employee incentive agreement because I thought we needed to wait a little longer until they were better established,” Duncan said.
The first and second year for start-up firms like EF Hutton America are critical, Pirker said, but the news about a possible marketing fraud doesn’t necessarily mean the company can’t eventually be successful.
“Some firms it takes them a little longer to find their mojo,” he said. “I wouldn’t write them off by any stretch.”
EF Hutton America will regroup and restart its marketing campaign again early next year, Daniels said.
“We identified these bad actors and we took action immediately to address it,” he said.