Markets Wired

The Federal Trade Commission reached a settlement putting a stop to the deceptive tactics of a California Internet marketer that allegedly tricked British consumers into believing it was based in the United Kingdom by using foreign websites ending in “.co.uk.”  Under the settlement, the company also is banned from charging consumers for goods until they are in hand and ready to be shipped.  The case was brought by the FTC under provisions added to the FTC Act by the U.S. SAFE WEB Act of 2006.  SAFE WEB confirmed the agency’s authority to sue U.S.-based wrongdoers who harm consumers abroad, as part of a strategy to prevent the United States from becoming a haven for fraud.

According to the FTC, California Internet marketer Jaivin Karnani, his company, Balls of Kryptonite, and several associated companies, sold cameras, video games, and other electronic goods to thousands of British consumers.  Because the defendants used website names such as www.bestpricedbrands.co.uk, www.bitesizedeals.co.uk, and www.crazycameras.co.uk, consumers believed they were buying from a company operating in the United Kingdom, and were therefore protected by manufacturer warranties that were valid there.

The FTC’s complaint, filed in 2009, alleged that when consumers received the goods, they discovered they had been charged unexpected import duties, were left with invalid warranties, and would be charged draconian cancellation and refund fees if they attempted to return the merchandise.  The defendants promised fast shipping dates, but usually did not meet those dates.  Without the prior consent of consumers, as required by the FTC’s Mail or Telephone Order Merchandise Rule (Mail Order Rule), the defendants allegedly shipped the goods much later than promised.  When customers tried to cancel these delayed orders, they were met with stiff resistance, no response at all, or otherwise had difficulty obtaining refunds.

The FTC also charged the defendants with deceiving consumers about their participation in the EU/US Safe Harbor Framework – a voluntary international program that provides a means for U.S. companies to transfer data from the European Union to the United States, and to assure European customers that they secure the customers’ personal information as required by EU law.

The settlement order prohibits the defendants from misrepresenting:  the location, quality, quantity, characteristics, and model numbers of products they sell; their compliance with or certification by government-sponsored information security programs; their policies regarding cancellation, exchange, or return; the existence of product warranties; and the total cost of the products sold.

The FTC settlement order also prohibits the defendants from violating the Mail Order Rule, and it imposes a $500,000 judgment, which is suspended based on the defendants’ inability to pay.  If it is determined that the financial information the defendants gave the FTC was untruthful, the full amount of the judgment will become due.

The FTC thanks the United Kingdom Office of Fair Trading for its assistance.

The Commission vote approving the proposed consent judgment was 4-0-1, with Commissioner J. Thomas Rosch abstaining.  The FTC filed the proposed consent judgment in the U.S. District Court for the District of Central California, and it was signed by the judge on May 20, 2011.

NOTE:  This consent judgment is for settlement purposes only and does not constitute an admission by the defendant that the law has been violated.  Consent judgments have the force of law when approved and signed by the district court judge.

Copies of the complaint and stipulated final judgment and order are available from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.  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. X090071; Civil Action No. CV 09-05276 DDP)
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