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The FTC has just announced that, in response to its motion, a
district court in California has issued an order temporarily
halting an alleged marketing scam.
According to the FTC's complaint, since early 2014, Apex
Capital Group and a number of other corporate and individual
defendants have operated an online subscription scam, marketing and
selling dozens of personal care products and dietary supplements
that purport to promote weight loss, hair growth, clear skin,
muscle development, sexual performance, and cognitive abilities.
Defendants marketed the products online through a variety of means,
including advertisements hosted on third-party websites, Internet
surveys and contests, social media advertisements, email, and
search engine ads. The defendants claimed to offer "risk
free" and "free trials" of these products for the
cost of shipping and handling, typically $4.95.
However, according to the FTC's complaint, consumers'
credit and debit cards were actually charged the full price of the
products – approximately $90 -- not just the shipping
and handling charge. Defendants also allegedly enrolled consumers,
without their knowledge or consent, in continuity programs,
shipping them additional supplies of the products (as well as
"complementary" products) and charging for them on a
monthly basis. The FTC also alleges that consumers who tried to
cancel their subscriptions had trouble doing so, with the
defendants continuing to charge consumers even after
cancellation.
The defendants also allegedly set up shell companies, which they
used to open merchant accounts. The FTC alleges that those accounts
processed millions of dollars in consumer payments for the
defendants' products, allowing the defendants to avoid
detection by the credit card networks and law enforcement for
several years.
Based on this conduct, the FTC's complaint alleges that the
defendants violated Section 5 of the FTC Act, as well as the
Restore Online Shoppers' Confidence Act (ROSCA) and the
Electronic Fund Transfer Act (EFTA). The complaint also alleges
that the defendants engaged in unfair practices, in violation of
the FTC Act, through their credit card laundering activities and
unauthorized charges.
This action, though describing practices that legitimate
marketers are not likely to employ, offers insights into marketing
techniques that can spell trouble to a regulator: placing important
disclosures in hard-to-read places; inadequately disclosing the
terms of a free trial or continuity program (see my earlier blog
post with
More Details about such programs); failing to get
consumers' consent to reoccurring charges; and making it
difficult for consumers to return products or reach customer
service reps.
This alert provides general coverage of its subject area. We
provide it with the understanding that Frankfurt Kurnit Klein &
Selz is not engaged herein in rendering legal advice, and shall not
be liable for any damages resulting from any error, inaccuracy, or
omission. Our attorneys practice law only in jurisdictions in which
they are properly authorized to do so. We do not seek to represent
clients in other jurisdictions.
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