Deceptive ‘Free Trial’ Offers Cost Defendants FTC Action

Advertising Law

The Federal Trade Commission (FTC) obtained a temporary restraining order (TRO) that brought a halt to an Internet marketing scam that touted supposedly “free trial” offers for personal care products and dietary supplements.

Apex Capital Group and related individuals set up shell companies in the United States and the United Kingdom, the agency alleged, and used them as fronts to open merchant accounts. Those accounts were then used to process millions of dollars in consumer payments for the purportedly “free trials” the defendants advertised online (through search engine ads as well as Internet surveys and contests) that claimed to help with weight loss, hair growth, clear skin, muscle development, sexual performance and cognitive abilities.

Consumers believed they were paying only $4.95 for shipping and handling, according to the California federal court complaint, but were hit with a charge for the full price instead, approximately $90. The defendants also tricked consumers into ordering additional products, the agency alleged, and imposed unauthorized continuity plans on unsuspecting purchasers, billing them another $90 each month.

When the defendants did include the material terms of their offers, the terms were “hidden in small, hard-to-read type or on separate webpages accessible only via hyperlinks,” the FTC said. Consumers who attempted to cancel their plans faced difficulties and, in some cases, continued to be charged even after they supposedly canceled their plans.

The defendants formed at least 32 limited liability companies in Wyoming between August 2013 and May 2016 that existed solely to obtain merchant accounts but employed no workers and conducted no business. At least 37 similar shell corporations were created by the defendants in the U.K. during the same time period, often listing as directors the same individuals named as directors of the Wyoming companies.

Seeking permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief, the FTC alleged violations of Section 5 of the FTC Act, the Electronic Fund Transfer Act and the Restore Online Shoppers’ Confidence Act (ROSCA).

A California federal court judge granted the agency’s motion for a TRO pending the ongoing litigation.

To read the complaint in Federal Trade Commission v. Apex Capital Group, click here.

Why it matters: The case serves as an important reminder to marketers that in order to be ROSCA-compliant, they must clearly and conspicuously disclose all material terms of a transaction, obtain express informed consent from consumers before making any charges and provide a simple mechanism for stopping recurring charges.

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