FTC broadens case in $275 million 'BadCustomer.com' scam
Agency goes after family of alleged ringleader, his mansion, silver coins
By Martin Merzer
The other shoe is falling in what federal regulators say was
a colossal, $275 million scam that entrapped millions of credit card customers,
repeatedly charged their cards for goods and services they did not buy -- and
then arranged for hundreds of thousands of them to be blacklisted when they
The Federal Trade
Commission announced Wednesday that it is seeking
court permission to charge three additional people -- the wife and parents of
Jeremy Johnson, the scam's alleged ringleader -- and five additional companies with shielding or
illicitly diverting to the trio's use $22 million in ill-gotten gains.
Among the allegedly transferred assets: A multimillion-dollar
mansion and $1 million in silver bars and coins.
"The case is
important because it involves a massive Internet marketing scheme that lured
millions of consumers to pay millions of dollars based on misrepresentations," says Frank Dorman, an FTC
Ten other people, 10 other corporations and 51 alleged shell
have been charged or implicated in the alleged scheme that revolved around
a company called I Works Inc. of St.
George, Utah, and an allegedly related website with the intriguing and menacing
name of BadCustomer.com. Johnson is the president of both.
In a nutshell, the FTC
has charged that, between 2006 and 2010, I Works and related companies lured 5 million
credit card holders and bank customers into buying fictitious products and
services or "trial" memberships for bogus services. In most cases,
the consumers then were enrolled in what enforcement officials call "negative
option" or "continuity programs" that place them on the hook for an unending series
of future purchases that they never intended to make.
When customers realized they had been bilked, many filed
complaints. That landed them on lists of people deemed "bad credit risks" by
BadCustomer.com. And that,
in turn, diminished the credit card holders' ability to use their cards for
No consumer should be sucker-punched into making payments
for products they don't know about and don't want.
"No consumer should be sucker-punched into making payments
for products they don't know about and don't want," FTC
Chairman Jon Leibowitz said when the original charges were filed in December
2010. It's a big prosecution for the FTC -- big enough for the agency to boast about it in its 2011 annual report. And at its heart is the big fish, Jeremy D. Johnson, a man described by the FTC
as the "mastermind" of the alleged scam and the sole owner of I Works.
says he has pocketed more than $48 million in illicit proceeds.
Before his arrest, Johnson was a big political contributor to Utah politicians and known as a millionaire philanthropist, his exploits chronicled early in 2010 by The Associated Press, CNN and others after he flew relief supplies to Haiti.
Johnson was arrested June 11, 2011, at the Phoenix airport
as he awaited a flight to Costa Rica. He has been charged with mail fraud. After
spending three months in jail, he was released on $2.8 million in bail.
Political payoff alleged
In another development, The Salt Lake Tribune reported allegations by Johnson that, in 2010, he made a down payment of
$250,000 to John Swallow, now Utah's attorney general, in the belief that those
funds -- and more -- would go to U.S. Senate Majority Leader Harry Reid. Johnson
says he was led to believe that Reid could terminate the investigation into I
Works before charges were filed. Swallow and Reid denied the allegations, according to the newspaper.
Jeremy Johnson of Utah drew laudatory media coverage in early 2010 for his work in earthquake-ravaged Haiti, but the Federal Trade Commission charges his largesse came from defrauding American credit card holders.
In any event, the FTC
now wants to add Johnson's wife, Sharla Johnson, to the list of defendants. Also
on the newly amended list of "relief defendants" are Jeremy Johnson's father
and mother, Kerry and Barbara Johnson, and five newly identified companies.
frequently names relief defendants in its complaints," Dorman said. "Relief defendants
are different from liability defendants [such as Jeremy Johnson]. Relief defendants
are persons or entities that have received funds from the liability defendants
to which the relief defendants have no rightful claim."
In the amended
complaint, federal regulators say the three were not active participants in
the I Works scheme, but that Jeremy Johnson made "numerous gratuitous transfers
of significant assets," valued at $22 million or more, to those relatives and
companies, presumably in an attempt to protect them from seizure.
Among the assets in question: Jeremy Johnson's
20,000-square-foot mansion in St. George, which was deeded to his wife in 2009;
large amounts of cash; and "roughly $1 million in silver bars that were
purchased with proceeds of defendants' deceptive acts and practices" and
allegedly transferred to Jeremy Johnson's father in the form of silver bars and
The agency is asking a judge to order the new defendants to
"disgorge all funds and assets ... , which are traceable to defendants'
unlawful acts or practices." Dorman said the FTC
often takes this course of action "in
order to increase the amount available for consumer refunds, should the FTC
win its case against the liability defendants."
The remaining assets of Johnson and as many as 61
corporations he allegedly controlled already have been frozen by court order. A
receiver has been appointed to return, upon resolution of the case, as much
money as possible to consumers who were victimized by the alleged scheme, the FTC
See earlier stories: BadCustomer.com a very bad company, FTC says
, 'Continunity billing scams cause constant credit card pain
, 'How credit card charge-backs land you on a blacklist
Published: January 24, 2013