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 complained.
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 spokesman.
Ten other people, 10 other corporations and 51 alleged shell companies already 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 legitimate purchases.
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. The FTC 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.
"The FTC 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 coins.
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 said.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
- FICO’s Scott Zoldi: Card-not-present fraud a growing threat – FICO analytics chief Scott Zoldi discusses the state of fraud protection amid the EMV shift and the use of trended data ...
- Supreme Court considers credit card surcharges – If New York's surcharge ban falls, other states could domino, bringing retailers a step closer to charging extra to use plastic ...
- Credit bureaus to refund $17.7 million for score marketing – TransUnion and Equifax lured consumers into buying costly credit scores not really used by lenders, consumer watchdog says ...