FROM: U.S. FEDERAL TRADE COMMISSION
Federal Court Rules Affiliate Marketing Network and its Parent Company Must Turn Over $16 Million They Received From Deceptive Marketing Scheme
FTC and State of Connecticut Charged LeadClick Media with Operating A Network That Used Fake News Sites to Promote Diet Pills
A U.S. district court has ruled that LeadClick Media, an affiliate marketing network, and its parent company, CoreLogic, Inc., must turn over $16 million in ill-gotten gains they received from a deceptive marketing scheme that sold purported weight-loss products.
In granting the FTC’s request for summary judgment, the court ruled that LeadClick was responsible for the false claims made by affiliate marketers it recruited on behalf of LeanSpa, LLC, a company that sold acai berry and “colon cleanse” weight-loss products. According to the FTC’s Complaint, LeanSpa used a “free trial” ploy to enroll consumers into its recurring purchase program that cost $79.99 a month and that was difficult to cancel.
LeadClick’s network lured consumers to LeanSpa’s online store through fake news websites designed to trick consumers into believing that independent news outlets and independent customers, rather than paid advertisers, had reviewed and endorsed LeanSpa’s products.
“This ruling is good news because it takes ill-gotten gains out of the hands of companies who knew they were promoting a scam and gives them back to the consumers who lost millions of dollars,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “It also makes clear that a parent company cannot retain ill-gotten gains of its subsidiaries.”
The FTC’s case dates back to December 2011, when the Commission and the State of Connecticut first sued LeanSpa and its principal, Boris Mizhen. In January 2014, the FTC and the State of Connecticut settled with LeanSpa and Mizhen, who agreed to stop their deceptive practices and surrender assets for redress to consumers.
In the summary judgment ruling, the court held that the fake news sites developed by LeadClick’s affiliates deceived consumers by using real news organization names and logos along with purported testimonials from users of LeanSpa’s products. In finding LeadClick responsible for the deceptive content on its affiliates’ websites, the court noted that LeadClick recruited the affiliates, had the power to approve or reject their marketing websites, paid the affiliates, purchased advertising space for them, and gave them feedback about the content of their sites. The court also rejected LeadClick’s claim that it was immune from liability under Section 230 of the Communications Decency Act, because it was responsible in part for the fake news sites promoting LeanSpa’s products.
The court ordered LeadClick to give up the nearly $12 million it received from LeanSpa as payment for its affiliate marketing services. It also ruled that LeadClick’s parent company, CoreLogic, must disgorge $4 million in ill-gotten gains it received from LeadClick. LeadClick and CoreLogic are appealing the decision.
Funds recovered from the defendants will be used by the FTC to provide redress to consumers affected by the scam.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.