Markets Wired

The operators of a worldwide negative option scam have agreed to settle Federal Trade Commission charges that they deceptively advertised “risk-free” trial offers for only the cost of shipping and handling, but then charged consumers full price for the trial product and enrolled them in expensive, ongoing continuity plans without their knowledge or consent.

The court orders resolving the FTC’s complaint bar the defendants from such illegal conduct and require them to turn over more than $9 million in assets.

“Products touted as ‘risk free’ shouldn’t come loaded with hidden costs and obligations,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “The FTC will continue to bring actions against this kind of deceptive and unfair marketing, and will seek to return money to victimized consumers.”

According to the FTC’s complaint, filed in June 2018, for at least five years, the defendants marketed and sold a variety of products online, including skin creams, electronic cigarettes, and dietary supplements. Advertising through third-party websites, blog posts, and surveys, the defendants offered consumers “RISK FREE” trials of their products. Consumers who clicked on these advertisements were taken to the defendants’ websites, which claimed to offer trials of these products for just the cost of shipping and handling, typically $4.95.

However, consumers who accepted the defendants’ offer were charged as much as $98.71 for the trial, and enrolled in a negative-option plan without their consent. The FTC also alleged the defendants used deceptive order confirmation pages to trick consumers into ordering additional products, for which consumers were charged full price and enrolled in additional negative option plans.

Based on this conduct, the FTC charged the defendants with violating the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), and the Electronic Fund Transfer Act (EFTA). In December 2018, the FTC filed an amended complaint adding two defendants to the case.

The first order announced today settles the FTC’s charges against San Diego-based defendants Triangle Media Corp., Jasper Rain Marketing LLC, and Brian Phillips and contains both conduct and monetary relief. First, it prohibits the defendants from, or assisting others in, misrepresenting any material facts about a negative option transaction, including the cost of the good or service, that a good or service is free, or subject to a nominal fee, and the terms of any refund, cancellation, or exchange policy.

The order also requires the defendants to comply with ROSCA by providing clear and conspicuous disclosures to consumers, getting their express informed consent before charging them for a product or service with a negative option plan, and providing a simple means of cancelling any shipping order to avoid future charges. It also requires the defendants to obtain consumers’ express informed consent before making any electronic funds transfer and to provide the consumer with a copy of the written authorization.

The order imposes a $48.1 million judgment against the Triangle defendants, which will be partially suspended after they pay the Commission $399,795 and relinquish of any right they may have to assets currently held by the court-appointed receiver.

The second order settles the FTC’s charges against defendants Hardwire Interactive Inc., Global Northern Trading Ltd., and Devin Keer, who helped operate the scheme from outside the United States. It prohibits the same conduct as the first order. It also imposes a $123.1 million judgment against the defendants, which will be partially suspended upon payment to the Commission of $3,027, 388 by the Hardwire defendants. The court-appointed receiver also will turn over more than $5 million of the defendants’ assets.

The Commission vote approving the proposed stipulated final orders was 5-0. The FTC filed the proposed orders in the U.S. District Court for the Southern District of California, and they have been entered by the court.

The Commission thanks the following agencies and organizations for their collaboration and contributions to this case: the United States Postal Inspection Service, the Nevada Attorney General’s Office, the San Diego County District Attorney’s Office, the Better Business Bureau of Eastern & Southwest Missouri & Southern Illinois, the Better Business Bureau of Denver & Boulder, the Better Business Bureau of Detroit & Eastern Michigan, and the Better Business Bureau of Southern Nevada.

NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). Like the FTC on Facebook, follow us on Twitter, read our blogs, and subscribe to press releases for the latest FTC news and resources.