Alleged ‘scareware’ vendors to pay $8.2 million to FTC

The operator of an alleged “scareware” scheme, using deceptive advertising to trick Internet users into buying software to fix their supposedly infected computers, will pay the U.S. Federal Trade Commission US$8.2 million to settle a complaint brought by the agency, the FTC said.

Marc D’Souza and his father, Maurice D’Souza, will give up the money in the settlement, announced Thursday by the FTC. Marc D’Souza was one of the key participants in a group of businesses that delivered online advertisements falsely claiming that the viewers’ computers were infected with malicious software, the FTC said in a press release.

The FTC will use money from the settlement to reimburse customers who purchased software from the defendants, the agency said.

The defendants in the case, doing business under several company names including Innovative Marketing and ByteHosting Internet Services, falsely claimed that scans had detected viruses, spyware and illegal pornography on consumers’ computers, the FTC said. The defendants sold more than 1 million software products, with names such as Winfixer, Drive Cleaner and Antivirus XP, to remove the malware the bogus scans had supposedly detected, the agency added.

The defendants charged $39.95 or more for the software packages, the FTC said.

Marc D’Souza operated one business connected to the scheme and served as an officer in a second business, according to documents filed in U.S. District Court for the District of Maryland. Maurice D’Souza did not participate in the scam, but allegedly profited from it, the FTC said.

A lawyer for the D’Souzas didn’t immediately return a phone call seeking comment on the settlement.

The court had ordered a halt to the “massive scheme” in December 2008, when the FTC filed a complaint about the advertising practices.

The defendants used what the FTC called an “elaborate ruse” that duped Internet advertising networks and popular websites into carrying their advertisements. The defendants falsely claimed they were placing Internet advertisements on behalf of legitimate companies, the agency said.

But the defendants inserted hidden programming code into the advertisements that delivered, instead, the ads for the bogus security software, the agency said.

The settlement order bars Marc D’Souza from any involvement with software that interferes with consumers’ computers. It also prohibits him from making deceptive claims connected to computer security software and using domain names registered with false information.

Two other defendants in the case, one individual and one company, have previously settled the charges against them. The FTC obtained default judgments against three other defendants. Litigation will continue against the remaining defendant in the case, Kristy Ross.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant’s e-mail address is grant_gross@idg.com.