An international network of corporations and individuals put consumers through the wringer with false claims about “free” trial offers, followed by unauthorized charges to their accounts. What’s more, the complaint alleges that the defendants used shell companies and straw owners to engage in credit card laundering – the practice of circumventing credit card associations’ fraud-monitoring programs in an effort to avoid detection by consumers and law enforcers.
It’s unusual for a lawsuit to include two exhibits just to list the names of the companies the defendants allegedly used to mask what they were really up to, but from Alpha Group LLC to Zoom Media Ltd, 11 UK corporations, Phillip Peikos, and David Barnett. The defendants had more than a thousand websites, and used many of them to market at least 50 products advertised to – among other things – cause weight loss, build muscles, grow hair, improve sexual performance, and sharpen cognition.
On many of those sites, the defendants’ modus operandi was to lure consumers in with a “free” or “risk free” trial purportedly available for a shipping and handling fee of $4.95.
As a result, consumers were in for a surprise about two weeks later – when they may have just received the item – to learn their credit or debit cards were dinged for the full price of the product, usually about $90. Until consumers were able to reach the defendants and cancel – not an easy feat – more shipments and more charges kept coming. But it triggered a second undisclosed (or poorly disclosed) negative option, resulting in even more unauthorized charges to unsuspecting consumers’ credit and debit cards. In other words, consumers found themselves enrolled without their consent in not one but two automatic shipment programs.
For many consumers, just trying to reach a customer service representative was a challenge. Once they found a phone number, some people were left on hold for an hour or longer. And even when they expressly told the defendants to stop sending merchandise, some consumers say the unwanted shipments – and unauthorized charges – continued.
Consumers requesting refunds were left similarly agitated. Some were told the refund period had expired or that they could get their money back only if they returned the trial product unopened. And in numerous instances, consumers were told to send packages back to a return address that wasn’t the defendants’ real address.
You’ll want to read the complaint for the specifics, but here’s just one example. Applications for merchant accounts filed on the defendants’ behalf didn’t list them as the owners. Instead, the paperwork named 13 other individuals, some of whom were relatives or neighbors of an Apex Capital Group employee.
A federal court in California has issued a temporary restraining order halting defendants’ alleged illegal conduct, appointed a receiver over the corporate defendants, and frozen the defendants’ assets. The case should serve as a reminder that ROSCA violations won’t just come out in the wash. If you use negative options in your online marketing, don’t hide the dirty laundry. The law requires that you: 1) clearly and conspicuously disclose all material terms of the transaction before obtaining consumers’ billing information; 2) get consumers’ express informed consent before making the charge; and 3) provide a simple mechanism for stopping recurring charges.
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