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The penny auction industry continues to face undeserved criticism as a result of a few unethical websites. Thankfully, many honest penny auctions have set the bar higher with clear fair bidding policies, more transparency and BBB accreditation. Those are the sites we choose to highlight at the Penny Auction List.

Though we intentionally avoid the negativity surrounding these few unethical websites, we want to take the opportunity to highlight some important legal developments, and remind these sites that fraudulent and misleading business practices won’t go unnoticed.

Earlier this week, the Federal Trade Commission brought a lawsuit against a Canadian entrepreneur and a group of Web-based businesses that they believe operated in an unethical fashion. Simply put, the complaint argues that these individuals lured in customers with “free” offers, but then charged their credit card upon signup and then continued to charge an additional fee on a monthly basis. This is a fair game if consumers are notified up front, but this was not the case (see articles below). Wavee attempted something similar this past year and went from being one of the best penny auctions in the industry to a now defunct website.

Learn more about the FTC’s intervention below.

From Grant Gross of TechWorld:

FTC targets ‘free’ trial offers from Canadian entrepreneur
The U.S. Federal Trade Commission has filed a lawsuit against a Canadian entrepreneur and a group of Web-based businesses that promised customers free offers, but allegedly raked in more than US$450 million by then charging for products and services they did not purchase.

The 10 Web businesses, controlled by 24-year-old entrepreneur Jesse Willms, touted free trials or risk-free offers on several products, including acai berry weight-loss pills, teeth whiteners, health supplements, work-at-home opportunities, access to government grants, free credit reports and penny auctions, the FTC said in a press release.

Customers in the U.S., U.K., Canada, Australia and New Zealand were lured in by the free trial offers, the FTC said.

Willms and his companies obtained consumers’ credit or debit card account numbers through the promise of free or risk-free trial offers, the FTC said. Customers had “no reason to believe” they would be charged for the trial product or extra bonus products, but they were often charged for the supposedly free trial, plus a monthly recurring fee, typically $79.95, the FTC said.

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

Willms and other defendants in the case allegedly contracted with affiliate marketers that used banner ads, pop-ups, sponsored search terms and unsolicited e-mail to lead consumers to the defendants’ websites. The defendants “buried” important terms and conditions in fine print, the FTC alleged.

The defendants’ penny auction offers promised free bonus bids, but customers were hit with unexpected charges, including $150 for introductory bonus bids and $11.95 a month for ongoing bonus bids, the FTC alleged. Willms and his companies also made false weight loss and cancer cure claims for their products, the agency alleged in its complaint, filed Monday in U.S. District Court for the Western District of Washington.

Willms, who writes about his charitable contributions and online ethics on various blogs, did not immediately respond to a message seeking comment on the FTC charges. In one September blog post, Willms talks about companies that make false claims online.

“I know it’s tempting to make false or borderline claims,” the blog said. “We get excited about products and services and want to yell from the rooftops about how great they are. But, you need to keep it realistic.”

Repeat business is the “bread and butter” of the Internet marketing industry, the blog added. “So, be an Internet good guy and don’t make any false claims,” the blog said. “Just tell it like is — and you’ll profit from the experience.”

In another blog post, Willms wrote that he never uses the word “free” to promote products because customers will assume the free products are worthless.

The FTC alleged that the defendants provided banks with false or misleading information, in order to acquire and maintain credit and debit card processing services from the banks in the face of mounting charge-back rates and consumer complaints. Willms and his companies also allegedly violated the Electronic Fund Transfer Act and other U.S. regulations by debiting consumers’ bank accounts without their signed, written consent and without providing consumers with a copy of the written authorization.

The FTC worked with Canadian law enforcement agencies to bring the complaint, the agency said.

See the original article here:

From Tom Harvey of the Salt Lake Tribune:

Utahns linked to half-billion-dollar fraud, FTC says
Federal regulators are suing three Utahns for allegedly taking part in an illegal operation that took in $467 million from consumers in at least five countries.

The Federal Trade Commission filed its action this week in Seattle naming an Alberta, Canada, man and the trio for allegedly using deceptive Internet marketing tactics to strip money from customers in the United States, Canada, the United Kingdom, Australia and New Zealand.

Named along with Jesse Willms of Sherwood Park in Alberta, were Utahns Peter Graver of JDW Media LLC and Sphere Media LLC, Orem; Brett Callister of True Net LLC, Payson; and Carey L. Milne of Net Soft Media LLC of Herriman. Also named was Adam Sechrist of Circle Media Bids and Sphere Media, York, Penn.

The lawsuit is the latest federal action that has targeted a number of Utah companies involved in what’s called the Upsell Industry. In this scheme, companies allegedly use sales techniques to get customers’ credit card or debit card numbers with lures of free products for only a minor handling and shipping charge, then assess monthly fees for products or services that the buyers are not aware they had agreed to pay.

“Regardless of the specific product, program or service offered — which has varied widely, from teeth whiteners and quick weight-loss products to work-at-home schemes and penny auctions — the Willms defendants induce consumers to enter their credit or debit card information by making false claims about the nature of the offer, including the total cost to the consumer, recurring monthly charges that the Willms defendants make to the consumer’s account and the availability of refunds,” according to the lawsuit.

With “risk-free” trial offers, some consumers were typically charged an additional $79.95 a month for products, while others ended up paying a “membership” fee for access to products for a year, the FTC said. The websites included “penny auction” sites, where new customers ended up paying monthly charges of about $150 for 300 “introductory bonus bids” and then faced $11.95 monthly charges for other bonus bids.

Jesse Willms failed to disclose information about the monthly charges on websites, nor was it placed close to where consumers were asked to fill in credit and debit card information.

Graver, Callister, Milne and Sechrist sold services to Willms, according to the complaint. The Utahns could not be reached for comment Tuesday.

Graver established JDW Media to assist Willms’ operations, while Callister’s True Net was a penny auction site featured on that was used to help secure banking and merchant processing services, the lawsuit said. Milne’s Net Soft Media also allegedly operated penny auctions, including SwipeBids.coms.

The three Utah companies “have submitted inaccurate information to financial institutions and manipulated sales data reported to the credit card processing system in order to obtain and retain access to merchant processing accounts through which consumers’ credit and debit cards may be charged,” the lawsuit said.

The suit asks for a freeze of the defendants’ assets, injunctions to prohibit continuing violations of federal laws and orders for refunds to consumers and the forfeiture of “ill-gotten monies.”

Utah appears to be a hub of sorts for the Upsell Industry. St. George businessman Jeremy Johnson was sued in December by the FTC, which alleged he took in $275 million from U.S. consumers for using the same types of tactics as outlined in the Seattle lawsuit.

JDW Media also was named in a lawsuit, along with other Utah companies that include Pacific WebWorks, filed in 2010 by search giant Google for misusing its name in selling work-at-home opportunities to consumers. That suit was settled, with the companies agreeing not to misuse Google’s name.

See the original article here: