United States: Online Marketers Settle Telemarketing And Cramming Lawsuit For $10 Million

Last Updated: October 24 2014
Article by David O. Klein

On October 22, 2014, the Federal Trade Commission ("FTC") announced that it had settled a long-standing case against a group of defendants that allegedly engaged in text message, robocall and cramming schemes involving offers for "free" merchandise.  The combined settlement amount comes to approximately $10 million and will be enforced against a series of defendant companies and their principals, including: Acquinity Interactive, LLC; Garry Jonas; Gregory Van Horn; Revenuepath Ltd.; Sarita Somani; Burton Katz; Polling Associates Inc.; Boomerang International, LLC; Jonathan Smyth; Firebrand Group S.L.; LLC, Worldwide Commerce Associates, LLC; and Matthew Beucler (collectively referred to herein as "Defendants").

The Alleged Text Message Marketing Scheme

According to the Amended Complaint, the Defendants directed consumers to different "free" merchandise websites through various text message marketing campaigns.  The subject text messages allegedly notified consumers that they had won a contest or were otherwise specially selected to win a prize.  When the consumers clicked the links in the subject text messages, they were then sent to a website requiring them to enter a specific code contained in the text message or other information in order to receive the prize.  After completion of the prize page, they then would be directed to a second, "registration" page.  According to the FTC, that page would contain a prominent message indicating, for example, "Congratulations! Tell us where to send your Free New iPad!"

The registration page contained fields requesting that consumers enter their personal information in order to receive the advertised free gift.  Once the required information was submitted, consumers would be led to a page or series of pages requiring them to complete assorted surveys.  Like the registration page, the survey pages requested that consumers submit a significant amount of personal information, including their applicable income ranges and credit card debt.  Each page purportedly represented that the consumers were submitting their personal information in order to receive the promised free merchandise.

Consumers were usually required to complete a total of 13 offers in order to qualify for the promised free merchandise.  Many of the offers required that the consumers incur some obligation, such as applying and qualifying for credit cards or paying a certain amount of money.  Some of the offers also included negative option components which, if not canceled, would be billed automatically and indefinitely on customer telephone bills.

According to the Amended Complaint, in most cases, it was impossible for consumers to qualify for the promised free merchandise without spending money, and in many cases, consumers never even received the advertised "free" merchandise.

Alleged Telemarketing Scheme

Telemarketing through use of robocalls was another component of the FTC lawsuit.  According to the FTC, Defendants obtained consumer telephone numbers as part of the free merchandise website registration process and without consumers providing the requisite express consent.  The Amended Complaint alleged that the individual Defendants, as well as their respective companies, violated the FTC Act by, among other things, failing to disclose the material terms and conditions associated with their offers and collecting consumers' personal information that they shared with third party marketers (rather than for the purported purpose of sending consumers the promised free merchandise).

The Amended Complaint further alleged that certain of the individual Defendants and their respective companies violated the Amended Telemarketing Sales Rule ("ATSR") by initiating outbound telephone calls delivering pre-recorded messages to consumers in order to induce the purchase of goods or services when the consumers had not provided prior express consent to receive such calls.

Alleged Cramming Scheme

The FTC's Amended Complaint also alleged that some of the Defendants placed monthly subscription fees on consumers' mobile phone bills without proper authorization.  The FTC asserted that the Defendants took advantage of the fact that consumers may not expect their mobile phone bills to contain charges from third parties and disguised the charges on consumer bills in an abbreviated manner that did not always clearly designate the source of the charges.  As a result, many consumers did not notice or understand the nature of the charges and otherwise paid the bills.  According to the Amended Complaint, to the extent that consumers did notice the charges, the process of obtaining refunds was difficult and often unsuccessful.

Settlement Specifics

The settlement agreement reached with the FTC requires that the Defendants pay varying amounts of a large monetary penalty equaling approximately $10 million.  In addition, some of the Defendants' principals were forced to forfeit personal vehicles, real estate holdings and other assets.  Under the terms of the settlement, the Defendants are banned from prospectively: 1) sending unauthorized text messages; 2) participating in other illegal telemarketing activities; and 3) placing unauthorized charges on consumer telephone bills, whether landline or mobile.

If you are interested in learning more about this topic, or if you are facing an FTC investigation or other regulatory complaint, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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David O. Klein
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