Operators Charge for Free Products

The Federal Trade Commission has charged that a telemarketing operation promised “free samples,” then debited consumer’s accounts without their authorization in violation of federal law. The FTC alleges that the defendants withdrew fees from consumers’ credit and debit card accounts, and enrolled them in automatic programs to keep the products coming without their knowledge or authorization.

The FTC’s complaint names Conversion Marketing, Inc., doing business as National Health Support Center, Natural Bright, and Pounds Off Patch, and Adam Tyler MacDonald d/b/a Fast White, all based in Santa Ana, California.; and Drsharp, Inc., d/b/a Oratech, LC, Fast White, and Product Design Corporation, and David R. Sharp, all based in North Salt Lake, Utah.

According to the FTC, the operation uses telemarketing, television, radio, and Internet ads to induce consumers to try a “free” sample of Fast White tooth-whitening product or the Pounds Off Patch weight-loss patch. Regardless of whether they accept the defendants’ offer, consumers later discover that they have been charged for the “free” sample, and then assessed additional, unauthorized charges for shipments they never requested.

Fast White

According to the complaint, prior to November 2003, MacDonald began telemarketing Fast White through a now-bankrupt company called Test Marketing Group, LLC (TMG). TMG’s telemarketers made outbound calls to consumers and represented that they could get a “free trial” or a “free sample” of the tooth-whitening kit at no cost or obligation. The telemarketers did not ask for consumers’ financial information. They already had the consumers’ debit and credit account information, that they had improperly obtained from third parties. When consumers agreed to receive the kit, they were unaware of this fact. After TMG filed for bankruptcy, its operations were transferred to Conversion Marketing.

Pounds Off Patch

The FTC alleges that defendants MacDonald and Conversion Marketing used telemarketing, radio, the Internet, and television ads to market the Pounds Off Patch weight-loss patch. During the telemarketing calls, some consumers were asked if they would like to participate in a “study” during which they would receive free samples of the patch and were told that all they had to pay were shipping costs. Other consumers were told that if they bought one set of patches they would receive a second set at “half off.” Consumers were asked for their financial account information. The FTC alleges that these defendants, in both instances, placed unauthorized charges on consumers’ accounts, and enrolled them in programs where the consumers would automatically receive additional unauthorized shipments (known as “continuity plans”).

The FTC’s complaint charges MacDonald and his companies with falsely representing that the products were “free” or part of trial offers. The complaint also charges as unfair the practice of enrolling consumers in continuity plans and imposing unauthorized charges. In addition, MacDonald and his companies are charged with violating the Telemarketing Sales Rule by:

• Engaging in unauthorized billing;
• Misrepresenting a material aspect of a negative option feature (e.g., the fact that consumers’ accounts will be charged unless the consumers take affirmative actions to avoid charges, or failing to inform consumers of the specific steps they must take to avoid the charges);
• Failing to disclose the total cost of the products; and
• Receiving unencrypted account information.

In addition, the complaint charges David Sharp and his company Drsharp with providing substantial assistance or support to MacDonald and his companies while knowing that MacDonald was violating the federal laws. The FTC alleges that Sharp and his company sold products to MacDonald, shipped products to consumers, and provided some telephonic customer service for Fast White customers. The complaint charges that Sharp was either aware or should have been aware that MacDonald and his companies routinely assessed unauthorized charges against consumers bank or debit accounts.

On October 29, 2004, the FTC obtained a temporary restraining order and asset freeze against MacDonald and Conversion Marketing to halt the business practices the FTC has alleged are illegal.

The Commission vote to authorize staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court, Central District of California, on October 29, 2004.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the complaint are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov . The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. 042-3079)
(Civil Action No. SACV 04-1264)