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Posted June 18, 2011

FTC Attacks Massive Online Fraud Regarding "Free Trials" of Supplements and Health Products

On May 17, 2011, the U.S. Federal Trade Commission (FTC) announced that it is suing the operators of an online operation that collected more than $450 million from consumers in the United States, Canada, the United Kingdom, Australia, and New Zealand. According to the FTC's complaint:

**Jesse Willms (a Canadian resident), four American associates, and 10 companies Willms controlled used deceptive tactics in offering "free trials" for dietary supplements, a work-at-home scheme, access to government grants, free credit reports, and penny auctions.

**The products included at least 15 brands of acai berry weight-loss pills, 6 brands of colon cleansers, 13 brands of teeth whiteners, and supplements containing resveratrol (the supposedly healthful ingredient in red wine)-all marketed with false or misleading claims. One of the "colon cleansers" was falsely claimed to prevent cancer.

**The defendants also touted bogus endorsements by Oprah Winfrey and Rachael Ray and falsely represented that their products had been endorsed or positively reported by CNN, MSNBC, USA Today, CBS, and 60 Minutes.

**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. Consumers who had no reason to believe they would be charged for the trial product or the extra bonus products were often charged for the "free" trial plus a monthly recurring fee, typically $79.95. Consumers were also charged monthly recurring fees for so-called bonus offers.

**Although the defendants offered a money-back guarantee, consumers were often unsuccessful in canceling the charges or obtaining refunds.

**Defendants generated more than $467 million in gross sales, with unreimbursed consumer injury totaling more than $412 million.

Although credit card companies and banks attempted to stop the defendants from using merchant credit card services, they were able keep the money flowing by using shell companies and manipulating payment data.