URGENT >> BULLETIN >> MOVING: FTC Goes To Federal Court To Block Alleged $467 Million Scam Operating Globally Online; International Cooperation Cited In Exposing Colossal Fraud Caper, Officials Say

David Vladeck of the FTC.

BULLETIN: UPDATED 3:50 P.M. EDT (U.S.A.) The FTC has gone to federal court to halt what it described as a $467 million, online fraud scheme operating across international borders. The scheme was exposed through international cooperation among the FTC, the Canada Competition Bureau, Service Alberta, the Royal Canadian Mounted Police, the Alberta Partnership Against Cross Border Fraud, the Edmonton Better Business Bureau and the BBB of Southern Nevada, officials said.

Charged in the case were Jesse Willms, Peter Graver, Adam Sechrist, Brett Callister, Carey L. Milne and several companies.

Willms, a Canadian, released a statement on his website that described the FTC case as a “disagreement.”

“We believe our business practices are compliant with the law and are working to resolve this disagreement with the appropriate government agencies,” the statement attributed to Willms read in part.

The FTC had a far different take.

Part of the scheme falsely traded on the names of Oprah Winfrey and Rachael Ray while also making false claims of cancer cures and weight loss, the FTC charged. In fact, the FTC said, Winfrey has sued Willms.

Named corporate defendants by the SEC were: 1021018 Alberta Ltd., also doing business as Just Think Media, Credit Report America, eDirect Software, WuLongsource and Wuyi Source; 1016363 Alberta Ltd., also doing business as eDirect Software; 1524948 Alberta Ltd., also doing business as Terra Marketing Group, SwipeBids.com and SwipeAuctions.com; Circle Media Bids Limited, also doing business as SwipeBids.com, SwipeAuctions.com, and Selloffauctions.com; Coastwest Holdings Ltd.; Farend Services Ltd.; JDW Media LLC; Net Soft Media LLC, also doing business as SwipeBids.com; Sphere Media LLC, also doing business as SwipeBids.com and SwipeAuctions.com; and True Net LLC, also doing business as Selloffauctions.com.

In addition to using the names of Winfrey and Ray, the scheme also traded on the famous names of CNN, USA Today, CBS, the “60 Minutes” television show and other brands, the FTC said.

“None of these entities have endorsed or positively reported on any of the 10 Willms defendants’ products,” the FTC said. The agency added that financial service-providers were duped and manipulated into processing payments for the alleged scam, in part through the creation of “dummy” websites designed to sanitize the scheme.

“Shell corporations” also were used to hoodwink service-providers, the FTC alleged. Consumers were fleeced out of at least $412 million in the scam, which netted nearly half a billion dollars, the agency charged.

The heart of the scheme was a continuity-billing fraud in which consumers who responded to “free” trial offers were billed for products and services they never requested, the agency said.

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

A Canadian official said cross-border cooperation was vital as agencies combat online fraud schemes.

“Internet fraud is a global problem that requires an international enforcement response,” said Lisa Campbell, deputy commissioner of competition for the Competition Bureau of Canada. “International cooperation ensures that fraudsters can’t hide behind borders.”

Auction fraud also was part of the massive scam, the FTC said.

“Willms and 10 companies he controls used deceptive tactics in offering ‘free trials’ for various products online, including acai berry weight-loss pills, teeth whiteners, and health supplements containing resveratrol (the supposedly healthful ingredient in red wine), as well as for a work-at-home scheme, access to government grants, free credit reports, and penny auctions,” the FTC said.

Penny auctions, the agency said, are “online auctions in which consumers must purchase bids, usually for $0.50 to $1 each. Regardless of whether a consumer actually wins a penny auction, the consumer has paid for each bid he or she placed during the auction. However, each bid that is placed raises the price of the auctioned item by a penny.”

“Willms and his companies obtained consumers’ credit or debit card account numbers, by enticing them with bogus ‘free’ or ‘risk-free’ trial offers that supposedly required only small shipping and handling fees, and also promised phony ‘bonus’ offers just for signing up,” the FTC said.

Consumers, though, often were “charged for the ‘free’ trial plus a monthly recurring fee, typically $79.95,” the agency said.

Making matters worse, the agency alleged, consumers also were “charged monthly recurring fees for the so-called bonus offers,” the agency said.

A purported money-back guarantee was no remedy because “consumers were often unsuccessful in canceling the charges or obtaining refunds, and the process involved time-consuming phone calls and other steps that made the deals far from risk-free.”

Meanwhile, the “penny auctions” were corrupt, the agency charged.

“The complaint charges that the defendants’ penny auction offers falsely indicated consumers would receive free ‘bonus’ bids, but those who provided credit or debit card numbers to facilitate future auction buying were hit with charges they did not know about, including $150 for introductory ‘bonus’ bids and $11.95 per month for ongoing ‘bonus’ bids,” the FTC charged.

Winfrey and Ray never endorsed the program, despite the appearance that they had, the FTC said.

Affiliate marketers in pursuit of commissions helped the massive fraud scheme go viral, affecting consumers in the United States, Canada, the United Kingdom, Australia and New Zealand, the FTC said. Important details were buried in the “fine print,” the agency charged.

The complaint was filed in federal court in Seattle. Willms resides in Alberta, according to the complaint. Graver, Callister and Milne are from Utah. Sechrist lives in Pennsylvania.

Some of the corporate defendants are from Canada. Others are from England, Cyprus, Utah, Idaho and Nevada, according to the complaint.

“Offshore merchant banking services” were used as part of the scam, the FTC said.

“Because these corporate defendants have operated as a common enterprise, each of them is jointly and severally liable for the acts and practices,” the FTC said.

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4 Responses to “URGENT >> BULLETIN >> MOVING: FTC Goes To Federal Court To Block Alleged $467 Million Scam Operating Globally Online; International Cooperation Cited In Exposing Colossal Fraud Caper, Officials Say”

  1. Looks like most if not all of the sites that I checked are still up and running.

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  2. “Important details were buried in the ‘fine print,’ the agency charged.”

    An example: I once ordered flowers for my wife from a company advertised on a major national talk-radio program. The offer was very appealing, but in the fine print was a subscription to a “buyers club”, which involved a monthly recurring fee. I had no idea about that until my credit card bill arrived. (I was able to unhook – and got a credit to my account for the amount I was billed – but it was a hassle.)

    This and other “tricks” cited in the article above – as well as others not mentioned in this case – have caused me to be unwilling to respond to any offers seen online, via radio or TV ads, or direct mail unless they come from major companies with whom I have an established relationship.

    Bottom line: As more and more people make the same decision I have re dealing only with major companies, newer, younger businesses will have difficulty achieving success. I suspect that the people using these tricks will ultimately severely depress this segment of the market.

    -PWD

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  3. Quick note: The Salt Lake Tribune localized the story for Utah readers:

    http://www.sltrib.com/sltrib/money/51832340-79/media-consumers-com-lawsuit.html.csp

    In just two FTC cases that included Utahans as defendants since December, the injury to consumers is estimated at $687 million.

    The alleged schemes were not contained to Utah, of course. The December case was against Utah resident Jeremy Johnson, who had a previous brush with the SEC.

    Last summer, we reported that the FBI/law enforcement has identified 370 “subjects” of investment-fraud inquiries in the state, with losses estimated at $1.4 billion.

    http://patrickpretty.com/2010/06/13/officials-ponzi-schemes-investment-fraud-have-led-to-staggering-losses-in-utah-hundreds-of-potential-perpetrators-identified/

    In December, Salt Lake City was identified by the interagency Financial Fraud Enforcement Task Force as one of the “top five Ponzi scheme hot spots in the country.”

    http://patrickpretty.com/2011/03/15/sec-chief-makes-veiled-reference-to-imperia-invest-case-in-congressional-testimony-will-ongoing-law-enforcement-initiatives-spell-more-trouble-for-serial-online-scammers-and-their-enablers/

    Finally, a Utah banker was arrested in the poker case brought by federal prosecutors in New York City several weeks ago. The banker has ties to Johnson, a defendant in the December fraud action by the FTC.

    Patrick

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