Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC Seeks to Amend Complaint Against Operators of Government Grant and Money-Making Scheme to Add Additional Defendants, (Jan 23, 2013)

By Tobias J. Gillett, J.D., LLM.

The FTC has filed a motion in the federal district court in Las Vegas for leave to amend its complaint against an operation that allegedly offered deceptive trial memberships in government grant and money-making opportunities through the Internet to add eight defendants that did not participate in the scheme but allegedly profited from it (Federal Trade Commission v. Johnson, FTC File No. 102 3015, Case No. 2:10-cv-02203).

The operation allegedly received more than $275 million from consumers. The proposed amended complaint would add three individuals and five corporations as relief defendants who allegedly did not participate in the scheme but did profit from it, and would seek to recover more than $22 million from those defendants. The recoveries would include at least $5 million in funds and property, including a multi-million dollar mansion, from the wife of the alleged ringleader Jeremy Johnson; at least $1.6 million from Johnson’s father; at least $77,500 from Johnson’s mother; at least $5.1 million from Orange Cat Investments LLC; more than $13 million from Zibby LLC; at least $2.5 million from Zibby Flight Service LLC; more than $800,000 from KV Electric Inc.; and at least $1.75 million in funds and property from the KB Family Limited Partnership.

According to the FTC’s original complaint, the operation, known as I Works, Inc. and controlled by Johnson and nine other individuals, offered consumers information about government grants or money-making opportunities through websites in exchange for a token shipping and handling fee. However, when consumers would pay the fee the operation would enroll the consumers in plans that charged much higher recurring fees. The operation allegedly did not adequately disclose that the consumers would be charged those additional fees.

The FTC’s complaint alleged that the operation violated the Electronic Fund Transfer Act and the Federal Reserve Board’s Regulation E by charging recurring fees without the consumers’ written authorization or without providing a copy of the authorization to the consumers. The complaint also alleged that the operation violated the Federal Trade Commission Act by misrepresenting that government grants are available for paying personal expenses, that consumers are likely to obtain grants by using the defendants’ program, that users of their money-making products will earn substantial income, that their offers are free or risk-free, and that positive reviews of its services were independently produced; by failing to adequately disclose that consumers would be charged the recurring fees; and by charging consumers’ credit cards and debiting their bank accounts without their authorization.

The charged individuals operated the scheme through 61 corporations, allegedly because payment processors and credit card companies would close the merchant accounts of the corporations due to excessive consumer chargebacks, and additional shell corporations would permit the operation to open additional merchant accounts. The court previously granted a temporary restraining order freezing the assets of Johnson and the 61 corporations, appointing a receiver, and providing other equitable relief.

News: ConsumerProtection FederalTradeCommissionNews