Federal Trade Commission Goes After “Risk Free” Negative Option Offers And Demands $450,000,000.00 From A Canada Based Advertiser And His Affiliates

The U.S. Federal Trade Commission is suing an internet entrepreneur from Canada over allegations he used deceptive business practices to take more than $450 million from customers since 2007. In a complaint filed in Seattle on May 16, the FTC alleges Jesse Willms, 24, used “risk-free” trial offers to get customers’ credit card numbers and then billed them each month for products like tooth whiteners and weight-loss products.

The FTC complaint contains nine different charges including misrepresentation, failure to disclose charges to customers, using false endorsements, and misleading credit card companies as to the rate of his charge backs to keep his merchant accounts open and charging in the face of high charge backs from consumers. Most interesting is that the FTC has claimed a violation of the Electronic Fund Transfer Act for the first time in negative option and more likely than not because of the foreign entity involvement.

The complaint reads as a text book or risk factors for internet marketers and advertisers using a continuity offer on the internet – including the negative option rule, the endorsement and testimonial rule, article 5 of the Federal Trade Commission Act on deceptive advertising. But it is the use of the Electronic Fund Transfer Act that makes this case unique.

The FTC is asking the court to place a permanent injunction on the companies to stop their alleged violations as well as order refunds for consumers and a freeze order on all assets. That last remedy is going to make it difficult of Willms to pay for a defense as the order is indiscriminate as to what assets can be frozen.

Willms lead generators and affiliates did not avoid detection either and the allegations appear to claim that even those affiliates that used Willms own content have been named and freeze orders are being sought.

Willms has denied the allegations and responded that he believed his business practices were compliant with the law and was working with the appropriate government agency to resolve the disagreement. In a statement on his website, Willms said “Our companies give consumers the opportunity to buy a variety of products and services at significant savings.” the statement reads.

“Our business is based on the loyalty and longevity of our customer relationships.

“For example, we are proud to report that a large percentage of our customers continued to use our products after 12 months of use -a tremendous achievement given the global competition in the Internet marketplace. This loyalty, in part, is earned through compliant business practices and disclosures that are both clear and conspicuous.”

What will this case come down to – font size, font color, placement of disclosures, how the company managed its merchant accounts and ultimately how much of a defense can be presented while fighting with all of his assets frozen. If you are running a continuity program in any sector, then this is a must read case to ensure compliance with the litany of rules and regulations under which your site, advertising and merchant program will be scrutinized – no matter where your business is incorporated.

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