Internet Marketers Settle FTC Charges

The Federal Trade Commission charged two Internet marketers with violating the CAN-SPAM Act by failing to offer an opt-out method or honor consumers’ right to opt-out of future marketing mailings within 10 days of making the request.

The charge was one of several announcements made by the FTC over the past week regarding direct marketing-related activities.

In this case, the FTC said the marketer also failed to include a valid physical postal address, which also is required by the CAN-SPAM Act. Settlements with the marketers prohibit future violations of the Act and provide for civil penalties totaling more than $32,000.

The FTC charged that Kodak Imaging Network, formerly Ofoto Inc., sent a commercial e-mail message to more than two million recipients that failed to contain an opt-out mechanism, failed to disclose in the message that consumers have the right to opt-out of further mailings and did not include a valid physical postal address.

The stipulated final judgment prohibits future violations of the CAN-SPAM Act and imposes $26,331 in civil penalties, which represents a one hundred percent disgorgement of the gross proceeds from the offending e-mail campaign. The settlement also contains record-keeping and reporting provisions to allow the agency to monitor compliance with its order.

The FTC also charged that sent more than 6,000 e-mail messages to consumers who had previously requested not to receive messages from the company. The stipulated final judgment with requires the company to pay $6,500 in civil penalties. The final order also prohibits future violations of the CAN-SPAM Act and includes record-keeping provisions.

On May 11, the FTC said sellers making questionable weight-loss and fat-loss claims to peddle skin gels and diet supplements will pay $3 million to settle charges that their deceptive claims violated federal law. The settlement bars unsubstantiated claims in the future and bars the marketers from misrepresenting studies or endorsements.

According to the FTC’s Complaint, the ads for three skin gels — Tummy Flattening Gel, Cutting Gel, and Dermalin APg — claimed they melted away fat wherever applied, including a user’s thighs, tummy, even a double chin. Ads for Leptoprin and Anorex, two ephedrine pills, claimed they caused weight loss of more than 20 pounds. The advertising for PediaLean fiber pills for overweight children claimed the pills caused substantial weight loss. Ads for the products ran on television, magazines and in tabloids. The products were also marketed on the Internet.

Under the FTC’s final order, Basic Research, the primary company, will pay $3 million on behalf of all six companies and three individuals charged in this case: Basic Research LLC, A.G. Waterhouse LLC, Klein Becker USA LLC, NutraSport LLC, Sovage Dermalogic Laboratories LLC, BAN LLC, Dennis Gay, Daniel B. Mowrey (also doing business as American Phytotherapy Research Laboratory) and Mitchell K. Friedlander.

On May 10, the FTC said a title company that promised consumers it maintained “physical, electronic and procedural safeguards” to protect their confidential financial information — but tossed consumer home loan applications in an open dumpster — agreed to settle FTC charges that its inadequate storage and disposal procedures for sensitive consumer information violated federal laws.

The settlement with Nations Title Agency Inc., Nations Holding Company and Christopher M. Likens, bars deceptive claims about privacy and security, and requires that they implement a comprehensive information security program. The companies also must obtain audits by an independent third-party security professional every other year for 20 years.

NHC, Kansas City, KS, is a privately held holding company that provides real estate services in 44 states. Its subsidiary, NTA, provides a variety of services in connection with financing home purchases and refinancing existing home mortgages. Likens is the president and sole owner of NHC and its subsidiaries.

According to the FTC’s complaint, NHC, NTA, and Likens routinely obtain sensitive consumer information from banks, real estate brokers, consumers, and public records that include such things as consumer names, Social Security numbers, bank and credit card account numbers and credit histories. The FTC alleged that they engaged in a number of practices that failed to provide reasonable and appropriate security to protect the information.

According to the complaint, a hacker exploited the failures by using a common Web site attack to gain access to NHC’s computer network. In addition, a Kansas City television station found documents containing sensitive consumer information discarded in NHC’s and NTA’s unsecured dumpster.

Finally, the FTC said on May 8, that a nationwide telemarketer of mortgage loans has been calling people whose numbers are listed on the National Do Not Call Registry and doing so without identifying itself.

The FTC is seeking civil penalties and an injunction against the telemarketer for violations of the FTC’s Telemarketing Sales Rule. This is the Commission’s first case alleging transmission of false caller ID information.

According to an FTC complaint, Srikanth Venkataraman, formerly of New Jersey, has been doing business as Scorpio Systems Ltd., selling mortgage loans, refinancing, and other products and services. Scorpio allegedly called numbers on the Do Not Call Registry, failed to transmit its telephone number and name to consumers’ caller identification service, and failed to pay the fee required to access the registry. The telemarketer transmitted either no caller ID or a phony caller ID – 234-567-8923 – and, as a result, consumers were unable to contact the telemarketer to stop unwanted calls.

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