FTC Continues Crackdown on Deceptive Internet Marketing Practices
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FTC Continues Crackdown on Deceptive Internet Marketing Practices

According to a lawsuit filed May 16, 2011 by the Federal Trade Commission (“FTC”) in the U.S. District Court for the Western District of Washington, a renowned Canadian online marketing operation that obtained credit and banking information by offering purportedly “free” or “risk free” trials subsequently withdrew over $450 million in unauthorized charges from consumers’ accounts in five countries (United States, United Kingdom, Canada, Australia, and New Zealand).

As set forth in an FTC press release, a group of online businesses under the control of Internet marketing entrepreneur Jesse Willms promoted free trials or risk-free offers on several products, including acai berry weight-loss pills, teeth whiteners, health supplements, work-at-home opportunities, access to government grants, free credit reports and penny auctions.  Once the defendants obtained billing information from unsuspecting consumers, the defendants charged consumers for unwanted and unordered products and services.

The FTC’s complaint alleges that the defendants’ conduct violates FTC Act §5 and the Electronic Fund Transfer Act (EFTA).  The complaint also cites the following defendants, Peter Graver, Adam Sechrist, Brett Callister, Carey L. Milne, Just Think Media, Credit Report America, eDirect Software, WuLongsource, Wuyi Source, eDirect Software, Terra Marketing Group, SwipeBids.com, SwipeAuctions.com, Selloffauctions.com, Coastwest Holdings Ltd.,  Farend Services Ltd., and JDW Media LLC.

The defendants’ penny auction offers, allegedly, falsely indicated that consumers would receive free  “bonus” bids.  However, consumers who provided credit or debit card numbers to participate in future auction buying were charged $150.00 for introductory “bonus” bids and $11.95 per month for ongoing “bonus” bids.  Charges that were, apparently, unexpected and unauthorized.

Further, consumers were told that the “free” or “risk-free” trial offers required only small shipping and handling fees. However, once the defendants obtained consumers’ credit or debit card account numbers, consumers were charged in excess of the nominal fees represented by the defendants.  The FTC alleges that the defendants charged for the trial product or the extra bonus products and consumers often were charged a monthly recurring fee, in addition to the charges for the “free” trial.

While the defendants “offered” a money-back guarantee, the FTC alleges that consumers were, more often than not, unsuccessful in canceling the recurring charges or obtaining refunds.

In addition to the false and deceptive advertising allegations, the FTC alleges that the defendants provided merchant banks with false information in an effort “to acquire and maintain credit and debit card processing services from the banks in the face of mounting chargeback rates and consumer complaints.”

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Richard B. Newman is an Internet Lawyer and FTC Defense Lawyer at Hinch Newman LLP.

Written by Pace Lattin

Pace Lattin is one of the top experts in interactive advertising, affiliate marketing. Pace Lattin is known for his dedication to ethics in marketing, and focus on compliance and fraud in the industry, and has written numerous articles for publications from MediaPost, ClickZ, ADOTAS and his own blogs.

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13 Comments

  • Nick Brown says:

    Swipebids.com did this to me and I tried to get my money back. I called them up and said I didn't authorize them to charge me $150 and they said if you want your money back then you have to use all your bids and if you don't win anything then they'll give you your money back. I did so and won zero auctions on purpose as I wanted my money back, filled out their form and did EVERYTHING exactly correct and never saw my $150.

    Total crooks.

  • I hope they throw the book at them. A free trial is supposed to be a free trial.

  • Marketing Guru says:

    If the user does not read the small print, then it's their fault. You can't blame the company because it's all in the small print.

    Their free trials are free trials but they may charge you a subscription fee every month. It's a legal business model. I run two of them.

    • insidevault says:

      This usually has nothing to do with just small print. It's usually companies that use fake news sites, then send to an offer that yes, in the "small print" mentions that you are paying for rebills. Then they send the product days after the rebill date so you can't even "return" it… and make returns impossible, no customer service, no return address. It's 100% fraud.

    • Yes, I see fine print with a magnifying glass and bright light because the fine print is in a very faint grey. Very Ethical, don't you think? I now know why the term GURU has a bad name. If you were ethical, you'd put the Terms in BOLD print.

    • Agent Love says:

      Heres a thought – try being a honest marketer and lose the con. It's marketer like you that give the rest of use a bad name.

  • Justice says:

    @ marketing guru…

    maybe someone should notify the FTC about you….small print my asterisk!!!

    If you're not trying to cheat anybody put it in bold print. fortunately for me I ALWAYS read the terms of service and I have caught on numerous occasions someone saying they will bill me. I ran from that site. I wish I had complied a list to warn people about sites such as yours with friggin small print….that's just a way for a crook to sneak up on you!!!

    By the way why didn't you put your links to your site in your comments?…I know why…crooked as a snake!!!

  • Jezreel says:

    I can see your point Justice but you've also made Marketing Guru's point as well. You haven't been caught in one of these financial traps BECAUSE YOU DO read the fine print, however and obviously there are many (Too many) people who still do not and by all rights it IS their fault for not taking precaution and tending to the details of ANY online OR offline financial transaction.

    I pose a question, more of an experiment. If the small print were bigger, how many people do you think would read through all the details before they jumped at the FREE Button? How many people would read through 10 pages of "Terms Of Service" before they jumped in on the "Get This Free Rush"?

    What would be the excuse then?

  • Clara D says:

    FREE means free, no charge, here's my goodwill in return for nothing but your goodwill. If you have to cheat the near sighted to make a living, you're not offering good value, good will, or good salesmanship. Bleh!

  • Norly says:

    Jesse Wimps' name has been coming up in stories about fraud and scams for years now, let's hope this is the final chapter (of freedom) for him.

    Don't drop the soap

  • click says:

    'Internet marketing entrepreneur' is way too nice a title for this creep. he's been in and out of the news for running these huge multi-million dollar scams.

  • Guest says:

    Most unfortunate for the consumers, as well as to those who are honorable folks using Internet Marketing to promote products.

    Terms should be plainly visible and marketers should never show contempt for the very people from whom they make a living. If a product is good enough, a free trial converts to a satisfied client. I've built business using that model for years and have been successful.

    It comes down to a few words that many people don't seem to have in their vocabulary:
    Ethics, Honor, Respect…
    And… because they forget it's not about "Them", it's about helping someone else first. Your success will come after that, or not – but always do the right thing. It pays off in the end.

    They act as they do because the world is filled more and more with Evil, Greed, Contempt and a "what I want" mentality. Just look in the paper, tv and the web to see the state of humanity. I'm 49 years old and I can't believe how rapidly the decent into evil has been the world over. Of course, this has been happening for thousands of years, but seriously, this is just another symptom of a broken and corrupt humanity that is getting worse around the world day by day.

    I wish it were not the case, but I am a realist.

    All you can do, and I mean the reader of this comment, is to treat people fairly (treat others as you want to be treated). Care about people, give freely and always seek the truth in everything.

    There's a better day coming…. that's the Good News… but it's going to get very bad for many, many people- and there's no reason it has to.

    Take care

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