Two internet marketing companies, which were accused of allowing affiliate companies to deceptively market commonly spammed products, have reached a $2 million settlement with the Federal Trade Commission – money that will be used to refund misled consumers.
On Wednesday, the FTC announced the settlement, which was reached after Sarasota, Fla.-based companies Clickbooth.com and IntegraClick were suspected of hiring affiliates to post fake news sites to market products, such as Acai Berry weight-loss products and colon cleansers, John Lemp, the CEO of both businesses, was also named as a defendant in a complaint, filed by the FTC on Tuesday.
Consumers were often duped by websites that falsely pictured reporters or commentators that supposedly tested the weight-loss products with positive experiences, the FTC said in its complaint.
“The sites often include the names and logos of major broadcast and cable television networks, falsely representing that the reports on the sites have been seen on these networks,” said the court document.
The FTC also charged Clickbooth and IntegraClick with designing some of the deceptive sites for their affiliates to use. One of those was Phoenix-based Central Coast Nutraceuticals, a business that in January reached a $1.5 million settlement with the FTC for “deceptive advertising and unfair billing” to sell similar products, a release from the FTC said.
According to the complaint, the companies also failed to clearly disclose, through their affiliate marketers, that consumers could be charged up to $100 for “free” trial samples if they didn't cancel their accounts within the trial period, the FTC alleged. Consumers were also automatically charged monthly for products that shipped to them on a recurring basis.
The companies were also accused with designing websites for Phoenix-based Central Coast Nutraceuticals, a business that in January reached a $1.5 million settlement with the FTC for “deceptive advertising and unfair billing” to sell similar products, a release from the FTC said.
Since last year, the FTC has posted alerts on the suspicious weight-loss advertisements.
In 2009, IntegraClick was ranked the fifth fastest growing company in the country by Inc. magazine. The company was listed as earning $755,547 in revenue in 2005, which grew to $96.4 million by 2008. Lemp founded IntegraClick, Clickbooth's parent company, in 2002 with the company's CFO Amanda Huntington.
On Tuesday, a blog post written by Lemp was published on Clickbooth's website, saying that the FTC contacted the company last December.
“We began to realize that even though we have had, and currently have, over 100,000 partners, [the FTC was] most concerned about just a handful of weight-loss advertisers and advertorial affiliates from three years ago,” he wrote. “These were advertisers and publishers in many cases that our compliance team had proactively shutdown from our network. This handful of advertisers and affiliates accounted for a very small percentage of our traffic over the years, and even though we had never been an advertiser or publisher ourselves like other ‘networks,' they wanted to hold us responsible.”
Lemp added that changes to the company's compliance requirements had been implemented over the past year, which should address the allegations made about its business practices.
SCMagazine.com reached out to Lemp for comment, but did not immediately hear back.