Markets Wired

A U.S. district court has ordered a halt to the operations of a vast international spam network that peddled prescription drugs and bogus male-enhancement products. The network has been identified as the largest “spam gang” in the world by the anti-spam organization Spamhaus. The Federal Trade Commission has received more than three million complaints about spam messages connected to this operation, and estimates that it may be responsible for sending billions of illegal spam messages. At the request of the FTC, the court has issued a temporary injunction prohibiting defendants from spamming and making false product claims, and has frozen the defendants’ assets to preserve them for consumer redress pending trial. Authorities in New Zealand also have taken legal action, working in tandem with the FTC.

According to papers filed with the court, the defendants deceptively marketed a variety of products through spam messages, including a male-enhancement pill, prescription drugs, and a weight-loss pill.

One product called “VPXL” was touted as an herbal male-enhancement pill. Advertised as “100% herbal and safe,” it supposedly caused a permanent increase in the size of a user’s penis. The agency alleged that not only did the pills not work, but they were neither “100% herbal” nor “safe,” because they contained sildenafil – the active ingredient in Viagra. At the FTC’s request, the pills were tested by the FDA. According to medical experts, men taking nitrate-containing drugs – which are commonly prescribed to treat diabetes, high blood pressure, high cholesterol, or heart disease – can experience an unsafe drop in their blood pressure when they also take sildenafil.

The defendants also used spam e-mail to sell prescription drugs. They claimed that the medications came from a bona fide, U.S.-licensed pharmacy that dispenses FDA-approved generic versions of drugs such as Levitra, Avodart, Cialis, Propecia, Viagra, Lipitor, Celebrex, and Zoloft. In fact, the defendants do not operate a U.S.-licensed pharmacy. They sell drugs that are shipped from India. The drugs have not been approved by the FDA and are potentially unsafe. FTC staff made two undercover pharmacy purchases and were not asked to provide verification of a prescription. The drugs they received contained no dosage information or doctor’s instructions.

The FTC also alleges that the defendants made false claims about the security of consumers’ credit card information and the other data they were required to provide to buy goods. In operating the online pharmacy, which was called “Target Pharmacy” and later “Canadian Healthcare,” the defendants’ Web site assured potential consumers that “TARGET PHARMACY treats your personal information (including credit card data) with the highest level of security,” according to papers filed with the court. The Web site went on to describe its encryption process, which supposedly involved “Secure Socket Layer (SSL) technology.” FTC investigators, however, found no indication that the Web sites were encrypted using SSL technology.

The FTC also challenged claims made for a weight-loss supplement pill purportedly containing Hoodia gordonii, a cactus-like plant found in southern Africa that supposedly could cause users to lose up to six pounds a week. The FTC charged that the claims were false and violated federal law.

According to papers filed with the court, the defendants recruited spammers around the world to send billions of spam messages directing consumers to Web sites operated by an affiliate program called “Affking.” By using false header information to hide the origin of the messages, failing to provide an opt-out link, and failing to list a physical postal address, the defendants violated the CAN-SPAM (Controlling the Assault of Non-Solicited Pornography and Marketing) Act of 2003.

Some security researchers believe that at one time, nearly one-third of the world’s spam e-mail came from a network of compromised computers, often referred to as a ‘botnet,’ that sent spam promoting the defendants’ Web sites. Their enterprise included participants in Australia, New Zealand, China, India, Russia, Canada, and the United States.

The defendants include two individuals – Lance Atkinson, a New Zealand citizen living in Australia, and Jody Smith of Texas – and four companies they control: Inet Ventures Pty Ltd., Tango Pay Inc., Click Fusion Inc., and TwoBucks Trading Limited. The FTC’s complaint alleges that both Atkinson and Smith are liable for the spamming. It holds Lance Atkinson responsible for all product claims, and Smith liable for claims made for the pharmaceutical products. In June 2005, the FTC obtained a $2.2 million judgment against Atkinson and another business partner for running a similar spam affiliate program that marketed herbal products.

The FTC would like to thank the following groups for their collaboration in bringing this case: the New Zealand Department of Internal Affairs; the Australian Communications and Media Authority; the U.S. FDA, Office of Generic Drugs and Division of Pharmaceutical
Analysis; the Chicago-based National Association of Boards of Pharmacy; CastleCops, a non-profit group focused on Internet safety; and Marshall Software (NZ) Ltd.

The St. Louis and Chicago Field Offices of the FBI recently executed criminal search warrants connected to this operation.

On October 6, 2008, the FTC filed its complaint under seal and requested a temporary restraining order against the defendants from the United States District Court for the Northern District of Illinois, Eastern Division. The seal was lifted On October 9, 2008, after the defendants had been served with the complaint and the temporary restraining order. The Commission vote authorizing the staff to file the complaint and request a temporary restraining order was 4-0. The case is being handled by the FTC’s Midwest Region in Chicago.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(Herbal Kings NR.wpd)
(FTC File No. 0723085)