FTC release date: 02/23/2012
FTCHalts Deceptive Practices of Marketer Who Collected $359 Million Using Bogus'Free' Trial Offers
Settlements Ban Defendants From Using 'Negative-Option' Marketing
The Federal Trade Commission has stopped anInternet scheme that allegedly used bogus "free" product offers thatdeceived consumers in the United States and other countries and charged themfor products and services they did not want or agree to purchase. A settlementorder, reached as part of the FTC's ongoing efforts to stampout online marketing fraud, permanently bans Jesse Willms and hiscompanies from using "negative-option" marketing, a practice in whichthe seller interprets consumers' silence or inaction as permission to chargethem. The Willms settlement order imposes a judgment of $359 million that willbe suspended upon Willms's surrender of bank account funds and proceeds fromthe sale of his house, personal property, and corporate assets, including aCadillac Escalade, fur coat, and artwork.
"The fact that almost four millionconsumers fell prey to the lure of these 'free trial' offers is a starkreminder that 'free' offers can come at a huge price," said David Vladeck,Director of the FTC's Bureau of Consumer Protection. "The FTC has stoppedabout $1 billion in online marketing fraud during the past two years byshutting down operations like this. But consumers still need to beware, becausescam artists are constantly coming up with new ways to deceive peopleonline."
The FTC worked closely with Canadian lawenforcement, including the Alberta Partnership Against Cross-Border Fraud andthe Canada Competition Bureau, in investigating this international scheme. Mostof the defendants are located in Alberta.
"International collaboration isincreasingly important for enforcement agencies combating deceptive practicesonline," said Lisa Campbell, Deputy Commissioner of Competition for theCompetition Bureau. "The Bureau worked with the FTC as part of our ongoinginvestigation into alleged misleading representations by Mr. Willms and hiscompanies."
According to the FTC's complaint, filed in May2011, Willms and his companies lured consumers with "free" trialoffers for weight-loss pills, teeth whiteners, health supplements, awork-at-home scheme, access to government grants, free credit reports, andpenny auctions. Consumers were often charged for the "free" trial, amonthly recurring fee, typically $79.95, and additional monthly recurring feesfor so-called "bonus" offers. The defendants allegedly contractedwith affiliate marketers whose banner ads, pop-ups, sponsored search terms, andunsolicited e-mail led consumers to the defendants' websites, and paid theaffiliates for each consumer whose credit or debit card was charged. The agencyfiled an amendedcomplaint, in September 2011, to add two defendants.
The Willmssettlement order also permanently prohibits Willms and his 11companies from:
· debiting consumers' bankaccounts without first obtaining their express verifiable authorization;
· misrepresenting anyproduct or service or the terms and conditions associated with any offer,specifically including claims of "free," "risk-free," or"trial offer;"
· failing to clearlydisclose the terms and conditions of any offer, including refund terms, beforerequesting consumers' payment information;
· making misleading orunsubstantiated disease-prevention, weight-loss, and other health-relatedclaims;
· using false or deceptiveendorsements and testimonials;
· failing to monitor theactivities of marketing affiliates and affiliate networks involved in themarketing of any Willms product or service; and
· makingmisrepresentations in order to obtain services from payment processors, banks,and other third parties.
In addition to Willms and his companies, fiveindividuals who allegedly provided services to Willms have entered intoseparate settlements with the FTC. Peter Graver, Adam Sechrist, BrettCallister, Carey L. Milne, and Elizabeth Graver are permanently prohibited frommaking misrepresentations in order to obtain services from payment processors,banks, and other third parties. The amended complaint alleged that thesedefendants, along with Willms, had provided merchant banks with false ormisleading information to obtain and maintain merchant accounts through which Willms placed charges on consumers' credit and debit card accounts.
The settlement orders against these individualsalso impose monetary judgments of varying amounts. The judgment against PeterGraver will be suspended upon his payment of $20,000. The order againstElizabeth Graver imposes a $38,000 judgment that is not suspended. The judgmentsagainst Sechrist, Callister, and Milne are suspended due to their inability topay. If any of the defendants is found to have misrepresented his or herfinancial condition or fails to meet the monetary terms of his or her order,the full judgment in the order will become due immediately.
The FTC would like to thank the Canada Competition Bureau, Service Alberta, the Royal Canadian Mounted Police, theAlberta Partnership Against Cross Border Fraud, the Edmonton Better Business Bureau, and the BBB of Southern Nevada for their invaluable assistance in this investigation.
The Commission vote approving the proposedconsent orders was 4-0. The FTC filed the orders in the U.S. District Court forthe Western District of Washington at Seattle on February 22, 2012. The orderswill become final when approved and signed by the District Court judge.
To help consumers avoid the hidden costs in some"free trial" programs, an FTC video, Free TrialOffers, tells how to check out a free trial before you sign up andwhat to do if you find yourself enrolled in a free trial offer without yourpermission. The video is also available atyoutube.com/ftcvideos. For moreinformation, click "FreeTrials" Aren't Always Free",
Taking Charge:What To Do If Your Identity Is Stolen, and Online PennyAuctions: Nothing for Something?.
NOTE: These consent orders are for settlement purposes only and donot constitute an admission by the defendants that the law has been violated.Consent orders have the force of law when approved and signed by the DistrictCourt judge.
The Federal Trade Commission works for consumersto prevent fraudulent, deceptive, and unfair business practices and to provideinformation to help spot, stop, and avoid them. To file a complaint in Englishor Spanish, visit the FTC's online Complaint Assistant orcall
1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into ConsumerSentinel, a secure, online database available to more than 2,000 civil andcriminal law enforcement agencies in the U.S. and abroad. The FTC's websiteprovides free information on a variety of consumer topics.Like the FTC on Facebook andfollow us on Twitter.