Markets Wired

The operators of a deceptive negative option scheme have agreed to a court-ordered preliminary injunction temporarily barring them from a wide range of conduct. The preliminary injunction stops the defendants from misleading consumers about supposedly “free trial” offers, enrolling them in unwanted continuity plans, billing them without their authorization, and making it nearly impossible for them to cancel or get their money back.

“These companies promised ‘free’ trial offers—telling people that they would pay only for shipping and handling—but then enrolled people in a subscription plan, placing big unauthorized charges on their credit cards every month,” said Andrew Smith, Director the FTC’s Bureau of Consumer Protection. “When you sign up for a free trial, but the merchant asks for your credit card for shipping and handling, you should be on-guard. Read the fine print of the offer, pay attention to your credit card statement, and contact your bank if you see any charges that you did not authorize.”

According to the FTC’s complaint, since at least April 2016, defendants AH Media Group, LLC (AH Media) and the company’s owners, Henry Block and Alan Schill, operated an online subscription scam that pitched at least eight different product lines to consumers. The defendants primarily sold cosmetics and dietary supplements, including Amabella Allure, Adelina, Parisian Glow, and Tone Fire Garcinia, with claims that they promote younger-looking skin or weight loss.

The FTC alleges that the defendants used deceptive websites to charge consumers for both the “trial” product and ongoing monthly subscription plans. The defendants claimed consumers would have to pay only a small shipping and handling fee for the trial, usually $4.99 or less, while burying the true cost of these trials behind small-font “terms” links and faded background text.

In reality, the trials were far from free: after two weeks, the defendants charged unsuspecting consumers around $90 for the trial product and enrolled them in unwanted subscription plans with additional monthly charges. They also used similarly deceptive upsell pages to trick consumers into a second product “trial” and related subscription plan.

The FTC contends that to facilitate the fraud the defendants used a network of shell companies and straw owners to process consumer payments. By using dozens of nominally distinct companies, the defendants circumvented underwriting requirements and monitoring programs and made it more difficult to be detected by consumers and law enforcement.

The FTC alleges the defendants also made it very difficult for consumers to cancel their subscriptions. The defendants did not allow consumers to cancel online, forcing them to call a customer service number. The FTC alleges that consumers who called the number were frequently put on hold for a long time. The FTC also alleges that when consumers contacted their credit card companies to challenge the unauthorized charges—initiating a chargeback request—in many cases, the defendants used fraudulent versions of their websites to dispute the request.

The agency alleges the defendants defrauded consumers nationwide out of more than $35 million through illegal credit and debit card charges. The complaint charges them with violating Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), and the Electronic Fund Transfer Act.

The Commission vote approving the complaint was 5-0. The FTC filed the complaint in the U.S. District Court for the Northern District of California against: 1) AH Media Group, LLC; 2) Henry Block, individually and as an officer of AH Media; and 3) Alan Schill, individually and as an owner of AH Media. The FTC also named Zanelo, LLC, which is based in Puerto Rico and controlled by Schill, as a relief defendant in this case, alleging it has received over $1 million from AH Media.

NOTE:The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest.

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