United States - FTC Charges Online Marketers with Scamming Consumers out of Hundreds of Millions of Dollars with 'Free' Trial Offers
The Federal Trade Commission has brought a law enforcement action against an online operation that allegedly raked in more than $450 million from consumers in the United States, Canada, the United Kingdom, Australia, and New Zealand by luring them into “free” or “risk-free” offers, and then charging them for products and services they did not want or agree to purchase. As part of its ongoing efforts to stamp out online fraud, the FTC seeks to stop the operation’s illegal practices and make the defendants repay injured consumers.
“The defendants used the lure of a ‘free’ offer to open an illegal pipeline to consumers’ credit card and bank accounts,” said David C. Vladeck, Director of the FTC’s Bureau of Consumer Protection. “‘Free’ must really mean ‘free’ no matter where the offer is made.”
The FTC worked closely with Canadian law enforcement, including the Alberta Partnership Against Cross Border Fraud, in investigating this international scheme. Most of the defendants are located in Alberta.
“Internet fraud is a global problem that requires an international enforcement response,” said Lisa Campbell, Deputy Commissioner of Competition for the Competition Bureau of Canada. “International cooperation ensures that fraudsters can’t hide behind borders.”
According to the FTC’s complaint, Jesse Willms and 10 companies he controls used deceptive tactics in offering “free trials” for various products online, including acai berry weight-loss pills, teeth whiteners, and health supplements containing resveratrol (the supposedly healthful ingredient in red wine), as well as for a work-at-home scheme, access to government grants, free credit reports, and penny auctions. (Penny auctions are online auctions in which consumers must purchase bids, usually for $0.50 to $1 each. Regardless of whether a consumer actually wins a penny auction, the consumer has paid for each bid he or she placed during the auction. However, each bid that is placed raises the price of the auctioned item by a penny.)
According to the FTC, Willms and his companies obtained consumers’ credit or debit card account numbers, by enticing them with bogus “free” or “risk-free” trial offers that supposedly required only small shipping and handling fees, and also promised phony “bonus” offers just for signing up. Consumers had no reason to believe they would be charged for the trial product or the extra bonus products, but they were often charged for the “free” trial plus a monthly recurring fee, typically $79.95. Consumers were also charged monthly recurring fees for the so-called bonus offers. Although the defendants offered a money-back guarantee, consumers were often unsuccessful in canceling the charges or obtaining refunds, and the process involved time-consuming phone calls and other steps that made the deals far from risk-free, the FTC complaint alleged.
Read the press release.