FTC Targets ‘free’ Trial Offers From Canadian Entrepreneur

The U.S. Federal Trade Commission has filed a lawsuit against a Canadian entrepreneur and a group of Web-based businesses that promised customers free offers, but allegedly raked in more than US$450 million by then charging for products and services they did not purchase.

The 10 Web businesses, controlled by 24-year-old entrepreneur Jesse Willms, touted free trials or risk-free offers on several products, including acai berry weight-loss pills, teeth whiteners, health supplements, work-at-home opportunities, access to government grants, free credit reports and penny auctions, the FTC said in a press release.

Customers in the U.S., U.K., Canada, Australia and New Zealand were lured in by the free trial offers, the FTC said.

Willms and his companies obtained consumers’ credit or debit card account numbers through the promise of free or risk-free trial offers, the FTC said. Customers had “no reason to believe” they would be charged for the trial product or extra bonus products, but they were often charged for the supposedly free trial, plus a monthly recurring fee, typically $79.95, the FTC said.

“The defendants used the lure of a ‘free’ offer to open an illegal pipeline to consumers’ credit card and bank accounts,” David Vladeck, director of the FTC’s Bureau of Consumer Protection, said in a statement. “‘Free’ must really mean ‘free’ no matter where the offer is made.”

Willms and other defendants in the case allegedly contracted with affiliate marketers that used banner ads, pop-ups, sponsored search terms and unsolicited e-mail to lead consumers to the defendants’ websites. The defendants “buried” important terms and conditions in fine print, the FTC alleged.

The defendants’ penny auction offers promised free bonus bids, but customers were hit with unexpected charges, including $150 for introductory bonus bids and $11.95 a month for ongoing bonus bids, the FTC alleged. Willms and his companies also made false weight loss and cancer cure claims for their products, the agency alleged in its complaint, filed Monday in U.S. District Court for the Western District of Washington.

Willms, who writes about his charitable contributions and online ethics on various blogs, issued a statement saying he believes his business practices comply with the law.

His companies “are working to resolve this disagreement with the appropriate government agencies,” the statement said. “Our companies give consumers the opportunity to buy a variety of products and services at significant savings.”

The companies’ business models are based on customer loyalty, the statement said. “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,” the statement said. “This loyalty, in part, is earned through compliant business practices and disclosures that are both clear and conspicuous.”

In one September blog post, Willms talked about companies that make false claims online.

“I know it’s tempting to make false or borderline claims,” the blog said. “We get excited about products and services and want to yell from the rooftops about how great they are. But, you need to keep it realistic.”

Repeat business is the “bread and butter” of the Internet marketing industry, the blog added. “So, be an Internet good guy and don’t make any false claims,” the blog said. “Just tell it like is — and you’ll profit from the experience.”

In another blog post, Willms wrote that he never uses the word “free” to promote products because customers will assume the free products are worthless.

The FTC alleged that the defendants provided banks with false or misleading information, in order to acquire and maintain credit and debit card processing services from the banks in the face of mounting charge-back rates and consumer complaints. Willms and his companies also allegedly violated the Electronic Fund Transfer Act and other U.S. regulations by debiting consumers’ bank accounts without their signed, written consent and without providing consumers with a copy of the written authorization.

The FTC worked with Canadian law enforcement agencies to bring the complaint, the agency said.

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.