While a federal judge advanced a class action accusing a host of marketers, software and fulfillment companies of running an online scam for La Pura skin cream, finding the culprit behind the alleged conspiracy — and recovering damages — poses a challenge.
(CN) — In early January 2020, LeAnne Tan received a text message promising a free gift of La Pura anti-wrinkle cream in exchange for completing an online survey.
The text purported to be an ad from Amazon and only stipulated a small $4.94 shipping fee. Spurred by this assurance, she took the survey and clicked the link to receive her free gift.
Tan was taken to the La Pura website’s order page, where she saw that two more products had been added to her shopping cart. There was no option to remove them, but she still clicked the “complete my order” box, believing she would only be charged $4.94 in shipping for her “free gift.”
Tan immediately received an email from La Pura saying her credit card would be billed from three separate merchant accounts: “beautifullyremarkableh,” “beautyhealthremarkable” and “skincarehealthybeautygroup.”
But rather than the expected $4.94, Tan was separately charged $88.46 and $84.37, for a total of $172.83 for three products — La Pura Wrinkle Freezing Moisturizer, La Pura Instant Lifting Eye Serum, and La Pura Instant Tightening Serum.
Alarmed by the charges for products she didn’t want, Tan contacted La Pura’s customer service number. Tan was unavailable for an interview about her experience, but a transcript of the conversation indicates Tan grew increasingly vexed.
After some back and forth with the customer service agent, she secures a 70% refund and a promise that she won’t be charged again — a less than satisfying outcome. “You know, honestly this is so wrong, you guys should be reported,” Tan told the agent.
Instead, she filed a federal class action against some 60 entities that market and brand La Pura products and operate merchant accounts that bill customers’ credit cards. In her complaint, she claims the La Pura defendants “maintained hundreds of such merchant accounts under a host of shell companies, using them in a churn-and-burn scheme” to evade detection by credit card companies and banks who keep lists of high risk merchants in order to decline suspicious transactions.
All of these merchants share the same registered agent whose address leads to a back alley in downtown Sacramento.
It’s an all too common scheme according to consumer protection experts, where an unwitting consumer is lured in by the promise of a free product in exchange for the cost of shipping.
Across the internet, affiliate marketers are paid to post fake celebrity endorsements of various products like La Pura skin cream, enticing consumers to visit phony product landing pages and sign up for a free trial, only to be enrolled in an automatic, high-cost monthly “subscription.”
“None of this surprises me. This is a very lucrative business and they are very sophisticated about who they market to,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. Most people wouldn’t click on an ad for face cream “endorsed” by Joy Behar, Rheingold said, but it only takes a few.
In scheme like this one, Tan says in her complaint, the La Pura scammers set up a hidden landing page to show the banks that Tan had consented to the free trial — a false-front website that Tan had actually never seen.
Tan’s attorney Kevin Kneupper said he’d been investigating consumer scams for years with his law partner. In a phone interview, he said it’s not about the product. For this type of scheme, the only goal is to get ahold of the consumer’s credit card.
“The product changes over time with whatever the fad is,” Kneupper said. “I’ve seen people do this with CBD. I’ve seen them doing it with flashlights. I’ve seen them doing this with skin creams and Keto diets and açai berries. Any time there’s a fad, there’s a new type of website, and a lot of them are copy/paste jobs. They use the same templates.”
Kneupper said affiliate marketing generally targets older, less savvy consumers. At an affiliate marketing conference in 2019, keynote speaker Neil Patel recaps the scheme to the audience:
“[Y]ou tell ‘em it’s a free trial, but they don’t really see in the fine print that they’re gonna get billed every single month. And then you target the older demographics who have no idea why they’re continually getting rebilled. And then some of you guys have what’s called a quote-unquote hell room that just deals with the calls. And the refunds.”
Tan’s lawsuit also lists software company Konnektive Corporation and CEO Matthew Martorano among the defendants, claiming the company performed “load balancing” services to automatically spread purchases across merchant accounts. This avoids suspicion by keeping the refunds or chargeback numbers artificially low.
“A normal business would only need one merchant account, because they are following the rules. The La Pura defendants needed to run their purchases through hundreds of them, forcing the banks and credit card companies to play whack-a-mole and ensuring the fraud would continue and that they could keep selling La Pura,” Tan says in her complaint.
Tellingly, the complaint notes, Martorano threw a party at the 2020 Affiliate Summit in Las Vegas where he urged invitees “to network with Konnektive and a rogue’s gallery of ‘chargeback mitigation’ companies who also assist scammers.”
Fulfillment company Quick Box LLC also plays a role in the scheme, Tan says in her lawsuit, by receiving, storing and shipping generic “white label” products for shell brands and handling the returns.
Its executives, who are listed as individual defendants Stephen Adele, James Martell, and Chad Biggins, appear to have a long history of running “free trial” scams, according to the complaint.
All of the defendants deny that they participated in a conspiracy to defraud hapless consumers.
“What they want to be able to do is what we call ‘ostrich defense.’ Anything they say they don’t know they intentionally didn’t know. It’s all about plausible deniability,” Rheingold said.
Senior U.S. District Judge Marilyn Huff denied their motion to dismiss the case this week, finding Tan had shown the existence of a conspiracy in which all defendants appeared to have played some part, and that she had sufficiently stated a claim for violation of California’s consumer protection laws.
“In sum, the court concludes that plaintiff has plausibly, and with sufficient particularity, pled that the La Pura, Quick Box, and Konnektive defendants engaged in the conduct of an enterprise through a pattern of racketeering activity, and that their conduct caused injury to her business or property,” Huff wrote.
In an emailed statement, lead counsel for the Konnektive defendants Christopher Queally said his clients were not involved in any wrongful conduct.
“We are naturally disappointed by the court’s decision on the motion to dismiss. That said, the court was required to accept the plaintiff’s allegations as true, rather than weigh or decide any facts,” Queally said. “Konnektive merely provides customer relationship management (CRM) software to its clients, and neither Konnektive nor its people were involved with any of the alleged wrongful conduct. When the true facts are presented, we are very confident our clients will be vindicated.”
Attorney Damon Wright, who represents the Quick Box defendants, also distanced his clients from La Pura.
“It isn’t hard to state a claim when a plaintiff takes tremendous liberty with the facts,” he said in an email. “We are disappointed by the court’s decision on the motion to dismiss, but understand the decision since the court was required to accept the plaintiff’s factual allegations as true at this stage. The reality is that Quick Box is only a fulfillment services provider, it does not advertise to consumers or transact with consumers, and neither Quick Box nor its people were involved with any wrongful conduct. Once the court has the benefit of the true facts, we fully expect dismissal of the claims against our clients.”
Both Queally and Wright are partners at Gordon & Rees.
Having weathered the first hurdle, Tan’s attorneys will now have to trace the alleged scam back to its originators, to determine who exactly is behind La Pura.
“This will require a lot of forensic work,” Rheingold said. “I give credit to the plaintiffs’ attorneys for bringing this case because it is complicated and difficult.”
Court documents have provided some clues. Quick Box executive Adele swore in February that Quick Box signed a contract to ship La Pura with a company called Rocket Management Group LLC and described a meeting with its owner, someone allegedly named “Kiet Liu.”
“There’s just been some surprise at the idea that they can even be located,” Kneupper said, adding that the case is being closely monitored by the industry. “A lot of scammers are watching this case,” he said.
The lawsuit seeks an injunction against the companies and an unspecified amount in monetary damages.
Stuart Rossman, director of litigation at the National Consumer Law Center, said it is very difficult to actually get any money from these kinds of companies, even if the lawsuit is successful. “It’s going to be like getting blood from a rock,” he said.
Years ago, Rossman represented a class of military veterans who were defrauded out of their pensions by an unscrupulous loan company. A judge awarded the plaintiffs $3 million in 2011, but they were never able to collect. “The day after we got the verdict they filed for bankruptcy protection to wipe it out,” Rossman said. “But the guy just started the same scam out of New York and was indicted there by the attorney general.”
Rossman said government enforcement is often the only way of stopping consumer fraud.
“Fraud is portable product,” he said, noting companies can dissolve one day and then start up again the next under a different name and in a different state, skirting any real consequences. “These companies often operate with just a table, telephone and computer hookup. This kind of scheme is so intentional and so venal, government enforcement that results in criminal penalties is the kind of thing we need to keep this from happening in the future.”
Rheingold agreed. “This is the kind of thing where you would expect criminal action to be taken,” he said. “And I don’t think there’s any question it’s criminal — they’re stealing money from people.”
Sometimes the fraud appears so egregious that government agencies do take note. In 2018, the Federal Trade Commission took Apex Capital and a host of related entities to court for marketing “free trial” offers for personal care products and dietary supplements online, then charged customers full price for the products — a scheme much like the one Tan claims she fell for. The perpetrators agreed to surrender millions worth of assets under a settlement.
“The reality is if you really want to shut something like this down you need government intervention,” Rossman said. “Private enforcement of it is like trying to squeeze Jello into a baggie. I applaud the consumer attorneys who are bringing this case, but the pot at the end of the rainbow may be empty.”
Aside from avoiding these ads altogether, Rossman said consumers can protect themselves by immediately contacting their credit card company or bank to have the unauthorized charges canceled.