PHOENIX (CN) - The Federal Trade Commission claims Utah businessman Jeremy Johnson used a "far-reaching Internet enterprise" to defraud "hundreds of thousands" of people by deceptively enrolling them in "memberships for products or services," and then repeatedly charging their credit and debit cards, without their knowledge, "for memberships the consumers never agreed to accept."
"This scam has caused hundreds of thousands of consumers to seek chargebacks, reversals of charges to their credit cards or debits to their bank accounts," according to the 81-page federal complaint also filed in Las Vegas. "The high number of chargebacks has landed the defendants in VISA's and MasterCard's chargeback monitoring programs, resulted in millions of dollars in fines for excessive chargebacks, and led to the termination of numerous of defendants' merchant accounts through which they had been billing their victims. Yet, rather than during their deceptions, defendants have employed a variety of stratagems to continue and expand their scam, thereby causing unreimbursed consumer injury to mount to more than $[redacted] million since 2006. For instance, in 2009 defendants incorporated more than 50 shell companies using maildrop addresses and straw figures as owners and officers because they knew that it was unlikely they could obtain additional merchant accounts using existing companies, due to these companies' negative chargeback histories. Defendants then applied through intermediaries called Payment Processors for new merchant accounts in the names of these 'front' companies in order to continue processing the credit and debit card charges for the online memberships defendants sell. They have also attempted to drive down their chargeback rates by threatening to report consumers who seek chargebacks to an Internet consumer blacklist they operate called 'BadCustomer.com' that will 'result in member merchants blocking [the consumer] from making future purchases online!' And they have attempted to counter the large number of complaints about their conduct by flooding the Internet with supposedly independent positive articles and other Web pages." (Brackets in complaint.)
Jeremy Johnson is the "mastermind" of I Works Inc., one of dozens of companies which "markets its products as both core products and as forced upsells," the FTC says. "Defendants lure consumers into their scam through websites that claim to offer free or risk-free information about products or services ... such as government grants to pay personal expenses and Internet-based money-making opportunities."
The websites include multiple misrepresentations about the profitability of the money-making opportunities, the availability of grants, and "frequently feature testimonials that falsely represent that consumers who use defendants' grant program are likely to obtain grants such as those obtained by the consumers in the testimonials," the complaint states.
Customers who fill out payment forms on the companies' websites are led to believe that only a small fee for shipping and handling, such as $1.99 or $2.99, will be charged to their credit cards or debited from their bank accounts, for information about getting government grants or making money. Bur rather than providing a "free product or service for the nominal shipping and handling fee, defendants immediately enroll consumers in multiple expensive online negative option continuity plans whereby consumers are charged recurring fees or other additional fees until they affirmatively cancel enrollment in the plan," the complaint states.
Johnson's companies "enroll consumers in online negative option plans for the advertised ('core') product as well as for additional products and services ... many of which are 'forced upsells,'" the FTC say. The forced upsells cannot be opted-out of when signing up for the core product, and customers are subsequently charged "hefty one-time fees of as much as $189 and then recurring monthly fees ... for the core product, as well as recurring monthly fees for the forced upsells."
The FTC wants Johnson's assets frozen, a preliminary injunction to stop the defendant companies from scamming more customers, restitution and disgorgement.
Dozens of corporations are named as defendants, including Cloud Nine, CPA Upsell, Elite Debit, Internet Economy, Marketing Funding Solutions, Success Marketing, and on and on.
Also sued are Duane Fielding, Andy Johnson, Loyd Johnson, Scott Leavitt, Scott Muir, Bryce Payne, Kevin Pilon, Ryan Riddle and Terrason Spinks.
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