More than 30 defendants blemished since 2015 complaint
Bait and Switch
The scheme, the Federal Trade Commission (FTC, or the Commission) alleges, was at its core a simple one. More than a dozen companies and seven individuals who were in the business of marketing skincare products offered free trials including AuraVie and LéOR Skincare branded products. Customers were asked to pay only shipping fees, which required a credit card number.
Once the marketers had the numbers, however, they allegedly signed the unwitting customers up for a subscription that included regular shipments of product and recurring monthly charges – often close to $100 a month.
Line Up
The complaint, filed back in 2015, featured 22 California-based defendants, which were a mix of companies and corporate directors. The companies were accused of various activities related to the scheme, including advertising, marketing, selling and distributing the products, or providing customer support to buyers. The group was charged as a common enterprise with multiple FTC Act violations, including failure to disclose material terms, false "risk-free" trial claims, false representation of an "A-" Better Business Bureau rating (the actual rating was "F") and charging customers without authorization. The group was also accused of violating the Restore Online Shoppers' Confidence Act's (ROSCA) negative option prohibitions and unauthorized debiting in violation of the Electronic Fund Transfer Act.
The Takeaway
Amendments to the complaint increased the defendant count to 33 entities and individuals. However, in the intervening years the FTC has whittled down the remaining defendants through court orders and default judgments.
In late June 2018, the last two defendants standing – Alan Argaman and Secured Merchants, LLC – settled with the FTC. The agreement bars the defendants from engaging in future deceptive practices and imposed a fine of $320,000 in favor of the FTC as equitable monetary relief. The agreement also stated that all money paid to the FTC may be "deposited into a fund administered by the Commission or its designee to be used for equitable relief, including consumer redress and any attendant expenses for the administration of any redress fund." As evidenced by this hefty penalty, companies and brands should exercise utmost caution when marketing negative option subscriptions to consumers without adequate disclosure and consent. ROSCA violations have continued to be a source of enforcement for the FTC and will continue to be an important mechanism to deter companies from misleading consumers.
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