Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Marketers of alleged government-grant, money-making schemes agree to settle FTC charges, (Nov 26, 2013)

By John W. Arden, J.D., LL.M.

Two key players in a scheme that allegedly took more than $275 million from consumers through deceptive “trial” memberships for bogus government-grant and money-making programs have agreed to settle FTC charges that they violated the FTC Act and other federal laws, the agency announced today (FTC v. Johnson, FTC File No. 102 3015, Case No. 2:10-cv-02203).

Bryce Payne and Kevin Pilon, who were named in a December 2010 FTC complaint, allegedly were among those controlling the “I Works” operation, which used websites touting the availability of government grants and pitching various money-making programs. The websites offered “free” information at no risk and asked consumers to provide their credit or debit card numbers to pay for a small shipping and handling fee, such as $1.99, according to the FTC. When consumers provided their billing information, I Works charged them one-time fees of up to $129.95 and monthly recurring fees of up to $59.95 for the programs, according to the complaint.

The U.S. District Court for the District of Nevada froze the assets of defendant Jeremy Johnson and 61 corporate defendants and appointed a receiver to ensure that money could be returned to consumers if the case was resolved in the FTC’s favor.

The settlement order against Payne bans him from selling or having a financial interest in any business that sells grant-related products, investment opportunities, products with negative-option features or continuity programs, or “forced upsells” (extra products automatically bundled with a purchase). It further bans him from being an officer, director, or manager of any business, or acting as a signatory on any account for any business, or applying for any merchant account for any business, unless he controls, participates in, or has knowledge of the daily operations of the business.

In addition, the order permanently enjoins Payne from (1) making several types of misrepresentations, including those relating to the total cost of a product or any associated risk; (2) debiting consumers’ bank accounts without first obtaining their express verifiable authorization; (3) failing to make any of several key disclosures about material information, including the total cost of a product; (4) misrepresenting that an endorser is an independent, ordinary consumer; and (5) failing to disclose any material connection between an endorser and any individual or entity involved in the manufacture, advertising, sale, or distribution of the product or service being endorsed.

The settlement order against Pilon bans him from selling, owning, or having a financial interest in any business that sells “forced upsells.” It also bans him from being an officer, director, or manager of any business, or acting as a signatory on any account for any business, or applying for any merchant account for any business, unless he controls, participates in, or has knowledge of the daily operations of the business.

The order permanently prohibits Pilon from misrepresenting facts about any product and, specifically, from making misrepresentations (1) related to the total cost of a product or any associated risks; (2) related to the income or sales volume likely to come from an investment opportunity; (3) related to the availability of government grants to pay personal expenses; (4) regarding grants being available through the use of materials provided by Pilon; (5) regarding consumers making money from investment opportunities provided by Pilon; and (6) related to any material aspect of a negative-option or continuity program.

Under the orders, Payne and Pilon may not sell or otherwise benefit from consumers’ personal information and must properly dispose of customer information. The settlement orders against Payne and Pilon impose monetary judgments of more than $289 million and $7.5 million, respectively. The judgments will be suspended based on their inability to pay, provided they surrender certain assets to the FTC, including $20,000 from Payne and $1,000 from Pilon. The full judgments will come due immediately if the defendants are found to have misrepresented their financial conditions.

The judgments against Payne and Pilon were entered by the U.S. District Court for the District of Nevada on October 21, 2013.

The FTC’s lawsuit against Johnson and his 61 companies is ongoing.

Companies: I Works, Inc.

News: ConsumerProtection FederalTradeCommissionNews