FTC settles with "scareware" defendant for $1.9 million

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A Cincinnati man has agreed to pay $1.9 million to settle charges with the Federal Trade Commission (FTC) for his involvement in a scheme that tricked more than one million individuals into buying rogue anti-virus products.

James Reno and his company, ByteHosting Internet Services, agreed to pay the money, which represents the gross revenue he obtained from the scam, to settle the FTC charges. According to the FTC, Reno provided much of the technical expertise needed to carry out the “scareware” scheme, which tricked users into believing their computer was infected with viruses and subsequently offered them fake anti-virus products to clear up the infection.

Six additional defendants from California, Maryland, London, Belize and Canada were involved in the scam and have pending charges with the FTC, according to the agency. In his settlement, Reno also agreed to never again engage in commercial activity with the other defendants.

Reno and the other defendants carried out the scam by allegedly placing advertisements for “system scans” on many popular websites, according to the FTC complaint filed last December. If users ran the program, it would always report that their computer was infected with a host of viruses, spyware and illegal pornography.

“Although the defendants go to great lengths to make the scans appear legitimate, no actual computer scans take place and the purported virus, spyware or illegal pornography purportedly detected by the defendants' scanners does not exist on the consumers' computers,” the FTC complaint states.

After the scan, the user would be urged to download a program to clear up the problems on their computer after which a second scan would be initiated and would find similar problems. After the second scan, users were offered a fake anti-virus program for $39.95 to fix their problems.

Reno's role was to obtain certain contracts with vendors to keep the scheme up and running, including one vendor that enabled them to distribute high-bandwidth content to internet users. In addition, his Cincinnati company, ByteHosting Internet Services, was used as a "call center" for technical support questions from users who were duped into purchasing the fake AV products, according to the FTC complaint. Staff at the call center would "routinely" mislead consumers about the legitimacy of the fake scans and falsely tell consumers they would be given a refund.

Reno did not respond to an interview request Monday.

Last December, the FTC froze $116,697 in assets Reno obtained from the scheme. As part of his settlement, Reno will forfeit this money -- but the rest of his $1.9 million settlement will be suspended because of his inability to pay, the FTC said.

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