FTC Acts to Stop Unauthorized Billing Scams, Halting Over $200 Million in Fraudulent Charges

Defendants Allegedly Engaged in Unauthorized Recurring Billing Scheme Involving CBD and Keto Products

FTC warns against subscription tricks and traps, steps up enforcementThe Federal Trade Commission (FTC) has filed a complaint against two groups of defendants involved in unauthorized billing schemes that have defrauded consumers of over $200 million. The defendants allegedly enrolled consumers into subscription continuity plans without their knowledge, repeatedly charging them for CBD and Keto-related personal care products they did not agree to purchase.

A continuity program is a type of subscription model where a company offers consumer merchandise or services on a regular basis, often monthly, without advance notice. The consumer’s credit card is charged automatically with recurring payments unless they cancel their subscription.

The FTC claims that the defendants misled consumers with advertisements for “free” CBD and Keto-related products. Many consumers were billed for products they did not consent to purchase and enrolled in unwanted continuity plans, resulting in unauthorized debits from their bank accounts. The FTC also claims that some defendants laundered credit card payments by setting up bank accounts for shell companies using straw signers.

“These defendants bilked consumers out of millions of dollars by repeatedly charging them for products they never ordered or agreed to purchase,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC is committed to aggressively pursuing companies and individuals involved in these unauthorized billing scams.”

The complaint names two groups of defendants. 

  • The first group includes U.K. resident Harshil Topiwala, Florida resident Kirtan Patel, and their companies Legion Media, LLC, KP Commerce, LLC, and Pinnacle Payments, LLC. 
  • The second group consists of Florida resident Manindra Garg and his company Sloan Health Products, LLC.

The FTC’s complaint details two types of unauthorized billing scams operated by the Legion Media defendants.

  • The first involved marketing products that supposedly offered health benefits, such as weight loss and clear skin. Consumers who purchased these products were charged more than the advertised price and enrolled in continuity plans without their consent.
  • The second scam involved business impersonation, where consumers were misled into paying small shipping fees for “free” gifts, only to incur recurring unauthorized charges on their cards.

Per the FTC, Sloan Health collaborated with Legion Media by labeling and shipping the deceptively marketed products and handling customer returns. They shared in the scheme’s profits and distributed the products under the generic name “Fulfillment Center,” providing no identifying information to consumers.

The FTC’s eight-count complaint charges the defendants with violating Section 5 of the FTC Act for misrepresenting that consumers would receive free products, unfairly charging consumers without their consent, credit card laundering, and business impersonation. Additional charges include violations of the Restore Online Shoppers’ Confidence Act (ROSCA) and the Electronic Funds Transfer Act.

The Commission’s vote to file the complaint was unanimous at 5-0. The complaint was filed under seal in the U.S. District Court for the Middle District of Florida, Tampa Division, and has now been unsealed.

INSIDER TAKE

Cases like these are troubling, but they also highlight the importance of vigilance and regulatory compliance. For subscription industry leaders, the key takeaways from this case include:

  • Regulatory Vigilance: The FTC’s increasingly proactive measures emphasize the need for compliance with consumer protection laws. 
  • Consumer Trust: Building and maintaining consumer trust is essential. Unauthorized billing practices erode trust, leading to reputational damage and potential legal consequences. 
  • Risk Management: The involvement of shell companies and straw signers in credit card laundering schemes highlights the need for robust risk management practices. Subscription businesses should conduct thorough due diligence on third-party partners and implement stringent financial controls to prevent fraudulent activities.
  • Technological Safeguards: Utilizing advanced payment processing systems and fraud detection technologies can mitigate risks associated with unauthorized billing. Investing in secure and reliable payment infrastructure is essential to protect both the business and its customers.

The FTC’s complaint serves as a reminder that deceptive practices have far-reaching implications. This case underscores the necessity for ongoing vigilance and adherence to regulatory standards to safeguard the subscription industry’s integrity.

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