On The Case

FTC is hoping to catch ghosts in new COVID consumer fraud case

(Reuters) - The Federal Trade Commission detailed a truly black-hearted alleged fraud scheme in a complaint and motion for a temporary restraining order filed Wednesday in federal court in Akron, Ohio.

The alleged fraudsters, according to the FTC’s filings, set up websites under more than two different names, purporting to sell hard-to-find Clorox and Lysol products. Ads for the websites would show up in pop-ups and in Google searches, offering discounts on the sought-after disinfectants. When customers went to the sites, they saw pictures of Clorox and Lysol products, complete with the companies’ logos. When customers paid, often by PayPal, they received confirmation emails and links to track their packages.

You can guess what happened: The packages didn’t arrive, or, when they did, turned out to contain some other product instead of the requested disinfectants. (One customer, cited in a declaration from an FTC inspector, reported receiving a hair tie.) Those tracking links turned out to be for unrelated packages, some non-existent, some already received. Phone calls to the numbers listed on the websites went unanswered. Emails bounced back. PayPal accounts that had received payments were shut down days after they were opened. And the only physical address associated with the websites turned out to belong to an unrelated business in Hudson, Ohio.

Consumers complained in droves to the FTC and the Akron Better Business Bureau. The FTC investigated hundreds of reports from fleeced customers across the country between July and October. So did a BBB investigator. But they couldn’t find an actual person or group of people behind the alleged scheme. The FTC’s investigators amassed a list of about 50 emails associated with the websites, some apparently based in Russia and others with records written in Chinese. But the alleged scamsters were smart: They’d open and shut PayPal accounts fast, processing less than $20,000 per account, to make it tough to track them down.

What’s the FTC to do when it doesn’t know who to sue?

Bring a case against “one or more unknown parties,” that’s what. The government’s filings yesterday make clear that it has not identified the people running the alleged Clorox and Lysol scam, despite investigators following the obvious trails. Nevertheless, the FTC asked U.S. District Judge Sara Lioi of Akron to shut down the defendants’ websites and freeze their assets. On Thursday, the judge granted the commission’s motion for a temporary restraining order.

I asked the FTC why it brought a case against defendants it cannot identify. The commission said it felt compelled to stop alleged scammers who are taking advantage of consumers in the midst of the pandemic. Judge Lioi’s order, after all, enjoins not just the unknown website operators but also the search engines, social media sites and internet marketing companies that have enabled the unknown defendants. The order also instructs those businesses to notify the FTC if they hear from the alleged fraudsters. Ultimately, the FTC said, the goal is to use the litigation to gather enough information to identify the defendants.

That’s what happened when the FTC sued unknown defendants in 2009 for operating websites that duped consumers into paying for mortgage modification services that the federal government was offering for free. The commission filed its suit and TRO motion in May. By July, it had identified eight actual defendants. And by June 2010, it had obtained a settlement banning 16 marketers from offering mortgage modifications and requiring one of them to pay $11.4 million.

Perhaps this week’s suit will produce similar results. In the meantime, if you see an ad for cheap Clorox wipes or Lysol sprays, think twice or three times before you click.