- Created on Wednesday, 12 September 2012 21:47
- Written by Lesley Fair - FTC
Washington, DC - Coleadium, Inc. The corporate name sounds like tropical foliage or a precious metal on the Periodic Table of Elements. But the moniker more familiar in the world of affiliate marketing networks - Ads4Dough - puts the FTC’s law enforcement action into perspective.
The FTC’s complaint against Ads4Dough and Jason Akatiff is the agency’s latest foray against deception conveyed to consumers via affiliate marketing - in this case, those ubiquitous phony “news reports” touting acai berry diet pills and colon flushing products. You’ve seen them hundreds of times. Using domain names like nbcreports.com and mastheads that say “MSNBC” or “USA Health News,” the ads appear to be investigations into the product at issue with the journalist concluding (surprise, surprise) that it really works. But the ads, the claims, the testimonials, the media affiliations: Fake, fake, fake, and fake.
How does the business work? According to the FTC, companies like Ads4Dough enter into contracts with companies that market the products and then get commissions or other payments for driving people to the sites that actually sell the stuff. In this case, the FTC says the defendants recruited a network of affiliate marketers to act on their behalf and controlled their activities by deciding who could participate, monitoring consumer traffic, and tracking the revenue each affiliate generated. The affiliates disn’t have direct contact with the companies actually selling the products. That was the job of Ads4Dough.
Under the FTC settlement, Ads4Dough will pay $1 million and will have to monitor affiliate marketers in their network to make sure they’re complying with the law. For example, they’ll have to promptly review and approve affiliates’ ads, immediately stop processing payments generated by affiliates that use deceptive ads, and sever ties with affiliates who use misleading tactics.
If you’ve been following FTC developments involving affiliate marketing, the case shouldn’t come as a surprise. Last year the FTC filed 10 law enforcement actions against fake news site operators, resulting in 8 settlements with financial remedies totaling more than $2 million. One of those news site operators, known as Copeac in the business, also ran an affiliate network and paid more than $1.3 million to settle an FTC lawsuit. In another recent case, acai berry merchant Central Coast Nutraceuticals paid $1.5 million to settle FTC charges. As part of a separate FTC settlement, affiliate entrepreneur Jesse Willms surrendered corporate and personal assets, including bank accounts, an Escalade, a fur coat, and artwork.
What should members of the affiliate marketing industry take from all this activity? First, basic truth-in-advertising principles apply across the board to affiliate marketers, companies that organize the networks, and the outfits selling the bogus products. Second, deception doesn’t pay. Assuming that substantiation is someone else’s responsibility is the easiest way to wind up in legal hot water.