Settlements Ban Defendants From Using 'Negative-Option' Marketing
The Federal Trade Commission has stopped an Internet scheme that allegedly used bogus "free" product offers that deceived consumers in the United States and other countries and charged them for products and services they did not want or agree to purchase. A settlement order, reached as part of the FTC's ongoing efforts to stamp out online marketing fraud, permanently bans Jesse Willms and his companies from using "negative-option" marketing, a practice in which the seller interprets consumers' silence or inaction as permission to charge them. The Willms settlement order imposes a judgment of $359 million that will be suspended upon Willms's surrender of bank account funds and proceeds from the sale of his house, personal property, and corporate assets, including a Cadillac Escalade, fur coat, and artwork.
"The fact that almost four million consumers fell prey to the lure of these 'free trial' offers is a stark reminder that 'free' offers can come at a huge price," said David Vladeck, Director of the FTC's Bureau of Consumer Protection. "The FTC has stopped about $1 billion in online marketing fraud during the past two years by shutting down operations like this. But consumers still need to beware, because scam artists are constantly coming up with new ways to deceive people online."
The FTC worked closely with Canadian law enforcement, including the Alberta Partnership Against Cross-Border Fraud and the Canada Competition Bureau, in investigating this international scheme. Most of the defendants are located in Alberta.
"International collaboration is increasingly important for enforcement agencies combating deceptive practices online," said Lisa Campbell, Deputy Commissioner of Competition for the Competition Bureau. "The Bureau worked with the FTC as part of our ongoing investigation into alleged misleading representations by Mr. Willms and his companies."
According to the FTC's complaint, filed in May 2011, Willms and his companies lured consumers with "free" trial offers for weight-loss pills, teeth whiteners, health supplements, a work-at-home scheme, access to government grants, free credit reports, and penny auctions. Consumers were often charged for the "free" trial, a monthly recurring fee, typically $79.95, and additional monthly recurring fees for so-called "bonus" offers. The defendants allegedly contracted with affiliate marketers whose banner ads, pop-ups, sponsored search terms, and unsolicited e-mail led consumers to the defendants' websites, and paid the affiliates for each consumer whose credit or debit card was charged. The agency filed an amended complaint, in September 2011, to add two defendants.
The Willms settlement order also permanently prohibits Willms and his 11 companies from:
- debiting consumers' bank accounts without first obtaining their express verifiable authorization;
- misrepresenting any product or service or the terms and conditions associated with any offer, specifically including claims of "free," "risk-free," or "trial offer;"
- failing to clearly disclose the terms and conditions of any offer, including refund terms, before requesting consumers' payment information;
- making misleading or unsubstantiated disease-prevention, weight-loss, and other health-related claims;
- using false or deceptive endorsements and testimonials;
- failing to monitor the activities of marketing affiliates and affiliate networks involved in the marketing of any Willms product or service; and
- making misrepresentations in order to obtain services from payment processors, banks, and other third parties.
In addition to Willms and his companies, five individuals who allegedly provided services to Willms have entered into separate settlements with the FTC. Peter Graver, Adam Sechrist, Brett Callister, Carey L. Milne, and Elizabeth Graver are permanently prohibited from making misrepresentations in order to obtain services from payment processors, banks, and other third parties. The amended complaint alleged that these defendants, along with Willms, had provided merchant banks with false or misleading information to obtain and maintain merchant accounts through which Willms placed charges on consumers' credit and debit card accounts.
The settlement orders against these individuals also impose monetary judgments of varying amounts. The judgment against Peter Graver will be suspended upon his payment of $20,000. The order against Elizabeth Graver imposes a $38,000 judgment that is not suspended. The judgments against Sechrist, Callister, and Milne are suspended due to their inability to pay. If any of the defendants is found to have misrepresented his or her financial condition or fails to meet the monetary terms of his or her order, the full judgment in the order will become due immediately.
Federal Trade Commission, Plaintiff v. Jesse Willms; Peter Graver; Adam Sechrist; Brett Callister; Carey L. Milne; 1021018 Alberta Ltd., also d/b/a Just Think Media, Credit Report America, eDirect Software, WuLongsource, and Wuyi Source; 1016363 Alberta Ltd., also d/b/a eDirect Software; 1524948 Alberta Ltd., also d/b/a Terra Marketing Group, SwipeBids.com, and SwipeAuctions.com; Circle Media Bids Limited, also d/b/a SwipeBids.com, SwipeAuctions.com, and Selloffauctions.com; Coastwest Holdings Limited; Farend Services Ltd.; JDW Media, LLC; Net Soft Media, LLC, also d/b/a SwipeBids.com; Sphere Media, LLC, also d/b/a SwipeBids.com and SwipeAuctions.com; and True Net, LLC, also d/b/a Selloffauctions.com, Defendants.
(United States District Court for the Western District of Washington)
Case No. 2:11-cv-00828 - FTC File No. 102 3012