- DOJ Seeks Restraining Order to Halt Foreign-Based Fraudulent Robocall Scheme
- Alleged Bogus Cure-All Supplement Seller Settles FTC Complaint
- Comparison Shopping Site Settles With FTC Over Deceptive Rankings
- Actor Tom Hanks Calls Out Fake CBD Endorsement
DOJ Seeks Restraining Order to Halt Foreign-Based Fraudulent Robocall Scheme
In what it has called the filing of "two landmark cases," the Department of Justice (DOJ) has charged five voice over internet protocol companies (VoIP) and three individuals for carrying and enabling millions of robocalls that perpetrated "massive" financial fraud on consumers, particularly the elderly and vulnerable populations.
The parties charged in these actions include Ecommerce National, doing business as TollFreeDeals.com, SIP Retail, and their owner-operators Nicholas Palumbo and Natasha Palumbo and Global Voicecom Inc., Global Telecommunication Services, KAT Telecom, and their owner-operator Jon Kahen.
The DOJ alleges that the defendants allowed foreign criminal organizations to use their VoIP services to make hundreds of millions of illegal robocalls in the United States. By using defendants' systems, these organizations were able to make up to, in the case of TollFreeDeals.com, a whopping 720 million calls over a 23-day period. These calls often lasted less than one second, evidencing that the calls were robocalls.
Worse, many of the robocalls made on defendants' systems were used to perpetrate fraud on elderly and vulnerable consumers, according to the DOJ. The robocallers often impersonated government agencies and legitimate businesses to obtain valuable personal information, such as social security numbers, from unwitting victims and used that information to steal the called parties'funds.
The robocallers further utilized the robocalls to scare consumers into revealing this personal information by making false threats of imminent arrest and deportation and termination of social security benefits, by falsely telling consumers that their assets had been frozen, by faking suspicious credit card activity, and through other such manipulations. To evade capture, the robocallers used call spoofing with fake caller ID phone numbers.
According to the DOJ, the defendants were repeatedly warned that their services were being used to perpetrate fraudulent robocalls but ignored the warnings and continued to carry the calls and to "facilitate foreign-based fraud schemes targeting Americans."
"Anyone who engages in deceptive practices like imposter fraud should know, regardless of where they are, they will not go undetected and will be held accountable," said Chief Postal Inspector Gary Barksdale.
Two primary takeaways emerge here: first, as per the DOJ, these are "landmark" cases because the agency is pursuing action against the VoIP carriers facilitating the illegal action in order to get to the root of the problem, rather than going after the robocallers themselves.
Second, as the DOJ points out, this matter illustrates a troubling state of affairs that despite multiple legislative efforts to control illegal robocalls, the "astronomical" number of robocalls and increasing use of them by foreign actors not only to illegally market goods but also for fraud shows that the robocall industry is going strong.
Alleged Bogus Cure-All Supplement Seller Settles FTC Complaint
In an oft-repeated tale about a supplement company making extensive, unsubstantiated health claims about its products and then settling with the Federal Trade Commission (FTC), this month yet another company peddling a nutritional supplement it claimed could cure everything from brain damage to wrinkles agreed to cease its exaggerated and false claims.
Defendant Maria Gutierrez Veloso started selling the supplement in question in 2014. In 2016, Arizona-based Quantum Wellness and its CEO Fred Auzenne purchased the assets of the company and took over sales of the product. Throughout this time, the product was marketed online, through direct mail campaigns, and via postcards and emails.
According to the FTC's complaint, the defendants sold a supplement pill called ReJuvenation, claiming it could cure or repair pretty much any age-related ailment, including heart attack damage, heart disease, blindness, brain damage, Alzheimer's, Parkinson's, hearing loss, and Crohn's disease. The defendants also claimed the product could reduce the appearance of wrinkles and improve cognitive function.
How was the product able to do all this, according to its marketers? Ads for ReJuvenation, which is made of amino acids and herbs, claimed it could reverse aging and repair cell damage by increasing the amount of human growth hormone (HCG) and stem cells.
The complaint alleges the defendants made these claims without any scientific or clinical evidence to back them up. Touting that ReJuvenation provided a "stunning age reversal and three-fold increase in lifespan!" and that it was a "reset button," defendants also falsely claimed that reputable sources such as Time Magazine and the Mayo Clinic endorsed or supported the product, according to the complaint.
Andrew Smith, director of the FTC’s Bureau of Consumer Protection, characterized ReJuvenation as just "another company promising older adults an anti-aging wonder drug that reverses the effects of disease."
The order settling the complaint against Quantum Wellness and Auzenne imposes a judgment just short of one million dollars that will be partially suspended if the defendants pay $60,000. The order settling the claims against Veloso imposes a $2.4 million judgment that will be partially suspended if Veloso pays $600,000. The FTC said it would use these funds to reimburse consumers affected by the misrepresentations.
Substantively, the orders prohibit the defendants from misrepresenting their products are "clinically or scientifically" proven to treat any of the age-related conditions the defendants claimed the products could treat. This essentially obligates the defendants to cease making the long list of false marketing claims they made about ReJuvenation.
This matter is a reminder about the importance of backing up health claims with reputable scientific evidence. This is important not just for the National Advertising Division (NAD), where this topic comes up repeatedly, but also for the FTC. We can see from this case that the FTC will pursue action against companies (and individuals) that make health claims that are unsubstantiated by reliable scientific evidence.
"If you make those kinds of claims, you’d better have credible science to back it up or the FTC is coming for you," noted Smith. The FTC’s complaint offers some guidance on the types of scientific evidence the FTC expects to see—and the type of evidence it finds insufficient—to back up health claims:
"Defendants have not conducted any clinical trials to substantiate the advertised health claims for ReJuvenation. Nor are there any competent and reliable human clinical trials of equivalent products. Existing studies of individual ingredients contained in the above products are not competent and reliable scientific evidence supporting the advertised health claims because such studies: do not take into account potential interactions among ingredients; test different dosages of the ingredients; are unrelated to the health claims advertised; or have critical flaws in methodology, such as improper controls or randomization."
Comparison Shopping Site Settles With FTC Over Deceptive Rankings
Moving from the deceptive statements of supplement marketers to the deceptive statements of consumer review sites, the FTC also recently settled an administrative complaint against a comparison shopping website featuring allegedly impartial consumer reviews of financial products over allegations the company misrepresented the impartiality and veracity of those reviews.
LendEDU is a consumer rankings website that claimed to provide independent crowdsourced reviews of financial products such as student loan financing providers, insurance companies, and credit card companies. The company portrayed the financial product information on its site as "objective," "accurate" and "unbiased," according to the administrative complaint.
The company encouraged visitors to its site to use it "confidently," assuring users that they would "save time by comparing your opinions." LendEDU even went so far as to specifically represent that its reviews were not based on compensation, highlighting that "editorial staff and independent contractors do not receive direction from advertisers on our website" and "are not rewarded in any way … for publishing favorable or unfavorable reviews."
In actuality, says the FTC, the company and its principals Nathaniel Matherson, Matthew Lenhard, and Alexander Coleman posted higher rankings and better reviews on their site from companies that paid for those rankings, despite billing itself and its reviews as impartial consumer reviews. LendEDU even intermittently solicited higher payments from companies for higher rankings on the site, alleged the FTC.
The company is also accused of misrepresenting that reviews on the site were crowdsourced from impartial consumers. In fact, most of the reviews on the site were not only posted in exchange for remuneration from advertisers but were drafted by employees of LendEDU and their family and friends.
In order to increase the perception of reliability the company touted, employees for the company posted fabricated positive reviews of LendEDU at the company’s direction on review platform websites like TrustpPilot, which ranks the veracity and reliability of other companies.
"LendEDU told consumers that its financial product rankings were based on objective and unbiased information about the quality of the product being offered, but in fact LendEDU sold its rankings to the highest bidder," said Andrew Smith, Director of the Bureau of Consumer Protection. "These misrepresentations undermine consumer trust, and we will hold lead generators like LendEDU accountable for their false promises of objectivity."
The proposed settlement order bars LendEDU from making the same types of misrepresentations it is charged with making on the complaint. The order also assesses a fine of $350,000 on the company.
The FTC has always been particularly keen to pursue marketers who "undermine consumer trust," as Andrew Smith described LendEDU’s actions. In this textbook example of false advertising, the FTC reminds marketers who say one thing to consumers and do another that the FTC will take action to shut them down.
Actor Tom Hanks Calls Out Fake CBD Endorsement
Actor Tom Hanks has fired back at a CBD company using his likeness to endorse CBD products without his authorization, calling the ad a "false and intentional hoax" on his Instagram and Twitter accounts.
The ad in question claims to be an endorsement by Hanks of a product called Cannapro CBD and attributing to Hanks a ringing endorsement of the product: "The advances Doctor Oz has made in the CBD industry are remarkable. I wouldn't believe it if I hadn't had the chance to try it out for myself. After using Cannapro CBD for two weeks I was already feeling like a new me."
Hanks says he never endorsed the product and has no connection to the product or the company.
Several other celebrities who say they've been the target of similar scams have piped up in response to Hanks' post. Dr. Oz, also referenced in the ad, took the opportunity to distance himself from the fake endorsement as well, tweeting in response that he "could not agree more with [Hanks]. This is a fake and misleading advertisement intended to take advantage of consumers using false claims and our likenesses illegally. I am not involved with any cannabis companies." Katie Couric also commented on Hanks' post, revealing that scammers have targeted her to sell wrinkle cream.
This is not the first time scammers have used Hanks as a spokesperson for CBD products without his permission. In July 2019, Hanks called out another company on social media for using his likeness to sell its products. In that ad, a company called Cali Naturals attributed to Hanks the statement that "after using Cali Naturals for two weeks I was already feeling like a new me." At the time, Hanks said the experience made him even more "skeptical of CBD" than he had already been.
Hanks has taken the affirmative step of calling out the false endorsement on social media. Other celebrities such as Ellen DeGeneres and Sandra Bullock have been the target of similar false endorsement scams by companies using their names and likenesses to sell anti-aging and weight loss products without authorization, but have opted to pursue the culprits via litigation.
However, that tactic has been challenging as many of these companies evade detection by hiding behind layers upon layers of entities and websites, making it nearly impossible to ascertain and pursue the real perpetrators.