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.
The FTC would like to thank the Canada Competition Bureau, Service Alberta, the Royal Canadian Mounted Police, the Alberta 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 proposed consent orders was 4-0. The FTC filed the orders in the U.S. District Court for the Western District of Washington at Seattle on February 22, 2012. The orders will 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 Trial Offers, tells how to check out a free trial before you sign up and what to do if you find yourself enrolled in a free trial offer without your permission. The video is also available at youtube.com/ftcvideos. For more information, click "Free Trials" Aren't Always Free",
Taking Charge: What To Do If Your Identity Is Stolen, and Online Penny Auctions: Nothing for Something?.
NOTE: These consent orders are for settlement purposes only and do not 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 District Court judge.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call
1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's website provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.
(FTC File No. X110031)
Office of Public Affairs
FTC's Northwest Region
Kathryn C. Decker
FTC's Northwest Region