A U.S. District Court has frozen the assets and halted operations of an online firm that the Federal Trade Commission alleged tricked consumers with “free” or “risk-free” offers for weight-loss pills and tooth whiteners, among other products.
The preliminary injunction against defendant Jesse Willms and 10 companies under his control is based on the sites’ use of “negative option” sales to generate more than $450 million from consumers, the agency said.
The defendants used deceptive tactics to obtain consumers’ credit or debit card information and then charged consumers a monthly recurring fee for various “bonus” offers, the FTC alleged.
According to the complaint filed in May, the defendants made offers of “free trials” for products ranging from acai berry weight-loss pills to teeth whiteners to work-at-home schemes, and access to government grants and free credit reports to penny auctions. Consumers were typically charged for the free trial as well as a recurring monthly fee, usually $79.95, the agency said.
Pending trial, the defendants are barred from conducting negative option and continuity plan sales or making “free trial” or “bonus” offers under the preliminary injunction, as well as prohibited from misrepresenting the costs of a product, failing to disclose the amount and timing of fees and the terms and conditions of any refunds, misrepresenting any product endorsement or testimonial, and charging consumers without their express consent.
“Not only has [the FTC] shown a likelihood that defendants have engaged in misleading marketing practices, but it has also shown that defendants have moved substantial funds to offshore companies and bank accounts,” U.S. District Court Judge Marsha J. Pechman wrote in the preliminary injunction order.
Because of such actions, she found that the agency had shown enough evidence to justify the asset freeze and the halt to operations.
To read the preliminary injunction order, click here.
To read the complaint in FTC v. Willms, click here.
Why it matters: Companies that make “free trial” or “bonus” offers should make sure that all material terms and conditions related to billing are clearly disclosed to consumers, as the FTC continues to crack down on continuity plan and negative option sales.