FTC Announces First Can-Spam Act Cases

The FTC has cracked down on two spam operations that have clogged the Internet with millions of deceptive messages and violated federal laws. A complaint targeting Detroit-based Phoenix Avatar was developed in a joint investigation with the U.S. Attorney’s Office in Detroit and the U.S. Postal Inspection Service. At the request of the FTC, a U.S. District Court judge has barred the illegal spamming and frozen the defendants’ assets. Federal criminal authorities yesterday executed a criminal search warrant and are in the process of arresting four principals in that case. In the second case, the FTC filed a legal action against Global Web Promotions, a spam enterprise that operates out of Australia and New Zealand.

Both operations have been identified by the anti-spam organization Spamhaus as among the largest spammers in the world. Consumers forward unwanted spam e-mail to the FTC, which maintains it in a database. Since January 1, 2004, consumers have complained to the FTC about 490,000 spam messages linked to Phoenix Avatar and 399,000 messages for Global Web Promotions.

“This case marks the Nation's first criminal prosecution under the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act, which went into effect on January 1, 2004,” said Jeffrey G. Collins, U.S. Attorney for the Eastern District of Michigan. “The cyber scam artists who exploit the Internet for commercial gain should take notice. Federal law now makes it a felony to use falsehood and deception to hide the origin of the spam messages hawking your fraudulent wares. Thanks to the great detective work of the Federal Trade Commission, the Postal Inspection Service, and the cooperation of Internet Service Providers such as Microsoft and AOL, as well as other companies and private citizens, we do have the capacity to track unlawful spammers down and bring them to justice."

“Working with law enforcement partners can maximize our impact,” said FTC Chairman Timothy J. Muris. “These cases should send a strong signal to spammers that we are watching their operations and working together to enforce the law.”

FTC Case Against Phoenix Avatar

The FTC charged Phoenix Avatar and its Detroit-based principals with sending illegal spam to sell bogus diet patches. Consumers who wanted to purchase the products clicked on a hyperlink in the message and were connected to one of the defendants’ many Web sites. The agency alleges the defendants were earning nearly $100,000 per month from product sales. The FTC alleges that the claims made for these diet patches are false and that the patches, which sell for $59.95, will have no effect at all.

The spammers hoped to obscure their identities by using innocent third party e-mail addresses in the “reply-to” or “from” fields of their spam – a practice known as spoofing. When spam was undeliverable and bounced back, tens of thousands of undelivered e-mails bounced to unwitting third parties, sometimes getting the third parties mislabeled as spammers, themselves. The spam did not offer consumers the ability to opt-out of receiving future e-mail.

The agency charged that the deceptive claims violate the FTC Act and that the spoofing and failure to provide an opt-out capability violate provisions of the recently enacted CAN-SPAM Act. At the FTC’s request, U.S. District Court Judge James F. Holderman entered a Temporary Restraining Order requiring an end to illegal spamming and deceptive product claims and freezing the defendants’ assets.

Criminal Action in Phoenix Avatar

On April 28, federal criminal authorities executed a search warrant on a residential location in West Bloomfield, Michigan, and arrested Christopher M. Chung and Mark M. Sadek. Arrest warrants are outstanding for defendants James Lin and Daniel J. Lin. In a criminal complaint issued by the U.S. Attorney’s Office, these individuals have been charged with violations of the federal mail fraud laws as well as with criminal violations of the CAN-SPAM Act.

This action was undertaken by the Office of Jeffrey G. Collins, U.S. Attorney for the Eastern District of Michigan, and Yuedele D. Allen, Postal Inspector in Charge of the Detroit Division, U.S. Postal Inspection Service. A complaint is only a charge and is not evidence of guilt. It will be the government's burden to prove guilt beyond a reasonable doubt.

FTC Case Against Global Web Promotions

In the second case, the FTC filed legal charges against Global Web Promotions Pty Ltd., an Australian company that the FTC alleges is responsible for massive amounts of spam in the United States. Global Web not only advertised a diet patch similar to the one in Phoenix Avatar, it also claimed its human growth hormone products “HGH” and “Natural HGH” could “maintain [a user’s] appearance and current biological age for the next 10 to 20 years.” Experts cited by the FTC dispute the claims, and the FTC alleged the claims are false. The products do not contain growth hormone of any sort, according to papers filed with the court. The products are shipped
to consumers from within the United States. The diet patch was sold for $ 80.90 and the HGH products cost $74.95.

In both cases, the FTC introduced as evidence thousands of examples of the defendants spoofing a wide array of victims, including AOL, Microsoft Network, and other companies and individuals. Spoofing involves forging headers on e-mail to make it appear that they came from an innocent third party. Undeliverable e-mail is returned to the innocent victim, often flooding their servers and interfering with normal operations. This process not only is prohibited by the CAN-SPAM Act, it also has worked real hardship on innocent businesses.

The FTC charged Global Web Promotions Pty Ltd., Michael John Anthony Van Essen, and Lance Thomas Atkinson with violations of the FTC Act and the CAN-SPAM Act. The FTC has filed a motion requesting that the Court issue a Temporary Restraining Order barring further illegal spam and stopping illegal sales and shipment of products.

The Global Web Promotions Pty case was brought with the assistance of the Australian Competition and Consumer Commission and the New Zealand Commerce Commission.

The FTC also would like to acknowledge the assistance of the Computer Crime and Intellectual Property Section of the Criminal Division of the Department of Justice.

The Phoenix Avatar case named defendants Phoenix Avatar, LLC doing business as Avatar Nutrition, DJL, LLC; Daniel J. Lin; Mark M. Sadek; James Lin and Christopher M. Chung, doing business as A I T Herbal Marketing.

The Commission vote to file the complaints was 5-0.

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, 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 Nos. 042 3086 (global) 042 3084 (phoenix))