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.”


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

Pesach Lattin
Pesach Lattinhttp://pacevegas.com
Pesach "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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