Around the world in shady ways

Yes, it’s a global marketplace, but geography still matters. Misrepresentations about where a company is based can have significant implications for buyers. That’s the message of an FTC settlement announced today against a California online retailer that allegedly deceived British consumers into thinking it was a “hometown operation” by falsely using a .co.uk website.

The settlement puts an end to the FTC’s law enforcement action against Jaivin Karnani and his company, Balls of Kryptonite. (Sometimes these blog posts just write themselves.) According to the complaint, the defendants sold consumer electronics to people in the UK under the pretext the companies were UK-based. How did they convey that misimpression? Through the use of URLs like bestpricedbrands.co.uk and bitesizedeals.co.uk, by stating prices solely in pounds, and by referring to the Royal Mail.

Would the location of the company really matter to buyers? Oh, yeah. Because when consumers got their cameras, software, or other electronics, they discovered they’d been billed for unexpected import duties, were left with invalid warranties, and would be hit with hefty cancellation and refund charges if they tried to send the stuff back — for example, a 50% restocking fee.

But that’s not all. The defendants often sold buyers in the UK products not intended for distribution there. As a result, consumers got chargers that were incompatible with the UK power system or user manuals or camera controls written in Spanish or Chinese.

According to the FTC, by hiding the international nature of the transaction, the defendants inflicted further harm on buyers. Every country’s set of consumer protections is different. The UK’s Distance Selling Regulations, which governs sales by mail, phone, and internet, give consumers the right to cancel a transaction within seven days of receiving merchandise and the right to receive full refunds for canceled orders or returned items. The FTC charged that by representing themselves as a UK company, the defendants mislead consumers into thinking that their purchases would be covered by UK protections — which they weren’t.

The FTC’s complaint alleges additional counts, including violations of the Mail Order Rule and misrepresentations about the defendants’ compliance with the Joint US-EU Safe Harbor Framework regarding data protection.

In addition to tough injunctive provisions, the settlement imposes a $500,000 judgment, which was suspended based on the defendants’ inability to pay. If the financial information the defendants gave the FTC turns out to be untruthful, the full amount of the judgment will become due.

An interesting note for international consumer protection watchers: The FTC brought this action under provisions added to the FTC Act by the US SAFE WEB Act of 2006. SAFE WEB confirmed the agency’s authority to sue US-based wrongdoers who harm consumers abroad. The FTC’s announcement tips its hat to the UK Office of Fair Trading for its assistance.