FTC settles with Adteractive over deceptive spam

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The Federal Trade Commission has reached a settlement with Adteractive Inc., an online advertising company, for its alleged use of “deceptive” spam e-mails and online advertising to draw people to its Web sites.

The settlement, filed on behalf of the FTC by the Department of Justice, requires that the San Francisco-based company pay $650,000 in civil penalties.

While doing business as FreeGiftWorld.com and SamplePromotionsGroup.com, Adteractive allegedly sent e-mail spam to consumers advertising free gifts such as flat-screen televisions and laptops.

For example, one e-mail subject line used by the company stated, “Congratulations! Claim Your Choice of Sony, HP or Gateway Laptop,” according to the FTC.

However, when consumers went to Adteractive's promotional Web sites, they discovered that these items weren't free, said Stephen Cohen, senior attorney for the FTC.

“Some of the offers that they presented to consumers required consumers to spend money,” he said. Others asked visitors to apply for credit cards, qualify for those cards, and use them, he added.

According to the settlement, Adteractive will need to disclose all costs and obligations for any free gifts it may advertise. The company is also barred from sending any e-mail that violates the CAN-SPAM Act.

When reached by phone, Greg Wharton, the general counsel for Adteractive, said the company was “happy” with the settlement. “We've been working co-operatively with [the FTC] since early 2006,” he said, adding that Adteractive has already changed its practices.

Wharton said that the decision better clarifies what companies need to do when they use the word “free” in advertising, which is beneficial to Adteractive and to the industry as a whole. Now there is a universal standard for the rest of the industry, he continued.

The FTC started investigating Adteractive Inc. in April 2006, after receiving complaints from consumers, Cohen said. FTC staff had also come across some of the company's advertising. Adteractive agreed to the settlement and a judge signed the order on November 27.

“There is a very large industry that does promotions this way,” Cohen said, adding that it is a common practice, and that it would be interesting to see how the settlement will shape future promotions targeted at consumers.



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