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Kevin Trudeau: Back to Jail?

By Internet Lawyer

For the Internet marketers running for the hills because of the crackdown by the Federal Trade Commission (FTC) on deceptive marketing practices, the saga of Kevin Trudeau is scarier than that of Perry Belcher. Trudeau made the stupid mistake of telling his cult followers to e-mail the judge handling his case.

The response? Trudeau faces sentencing for criminal contempt, has had to post $50K bail, and surrender his passport. Regardless of how sentencing goes, Kevin Trudeau risks financial ruin. The only question is whether he will be able to hide enough assets from the government.

The cynic in me believes that like a cockroach in an nuclear blast, Trudeau will find a way to survive. Wouldn’t surprise me in the least to see him find religion and bilk the same gullible people out of money using his new-found belief in the “Secret” or the Great Green Arkleseizure.

Yet you have to wonder how well Trudeau would have done over the long term if he had actually bent the rules but not broken them. What if he had delivered value to clients without lies or misrepresentations? Was the time he already spent in prison worth it? How about the reputation as a fraud and convicted felon?

Some would say that Trudeau’s brushes with the law aren’t relevant to Internet marketing.

Oh really? Note that the FTC guidelines don’t distinguish between online marketing and infomercials.

Hat tip: Mitch Lipka

February 19, 2010 Update – The judge sentenced Trudeau to 30 days in jail for contempt. Trudeau also forfeits his $50,000 bond but will be appealing the judge’s decision. Go figure. It remains to be seen how much Trudeau will be ordered to pay in the underlying lawsuit.

Hat tip: Reuters

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Website Attorney: Don’t Lose Your Merchant Account

By Internet Lawyer

merchant-account-website-attorneyAs a Website attorney, I’ve noticed that both the U.S. Federal Trade Commission (FTC) and credit card companies are now cracking down on deceptive trade practices involving Internet marketing and billing practices. New guidelines and rules are being issued. Some top Internet marketers have even lost the ability to process credit cards (at least temporarily) because of their past conduct that MasterCard, Visa, and others consider to be unacceptable.

The changes will affect your ability to use pre-checked boxes in offers, free trial offers, deferred billing, up-sells, cross-sells, and numerous other marketing and billing practices. Transparency and informed consent are going to be key…if you want to accept credit cards and debit cards for payment.

Here are 7 free resources for you to use to make sure you’re handling credit and debit card transactions properly in your business. Your Website attorney can help you by answering specific questions.

  1. FTC – Could Free Trial Offers Be ‘Fee’ Trial Offers in Disguise? (PDF file)
  2. Visa – Deceptive Marketing Explained
  3. FTC, Visa, and BBB Partner to Educate Consumers About Free Trial Offers and Online Scams
  4. MasterCard Rules (PDF file) – Be sure to read Section 5.9.7 about Illegal or Brand-damaging Transactions
  5. MasterCard Chargeback Guide (PDF file)
  6. MasterCard Merchant Security Rules and Procedures (PDF file)
  7. Visa E-Commerce Merchants’ Guide to Risk Management (PDF file)

Like many big Internet marketers, I recommend and use PowerPay to handle credit card processing for my business ventures. In an e-mail received a couple days ago, PowerPay described the changes this way…

PowerPay wants to inform every one of changes expected from the Payment Brands regarding practices that are considered “Brand Damaging”.  As you may be aware, both Visa and MasterCard are taking action in response to increases in consumer disputes related to card-not-present and direct response products and services.  PowerPay is endorsing the adoption of Best Practices to support our merchant base in conducting business in a manner that protects both businesses and consumers from fraud.  To date no formal announcement has been received, however PowerPay is issuing this communication now in an effort to educate and assist our agents/merchants in complying with anticipated Payment Brand mandates and actions.

MasterCard has recently warned the Acquiring community that “Negative Option” enrollment will be considered a “Brand Damaging” business practice. “Brand Damaging” is a very broad term and is still being defined, but in light of recent fines to our counterparts, we must be proactive. Indications are that MasterCard will require immediate termination of merchants identified as using this business practice, along with any other practices considered “Brand Damaging”.  This follows recent policy changes from Visa regarding descriptor formats and disclosure of corporate entities related to Direct Response offers, with the intent to enforce all chargeback and transaction monitoring programs as defined by the associations.

PowerPay cannot accept merchant applications for products and/or services employing “Negative Option” enrollment, in addition to the following practices:

Marketing models that employ “Free-Trial”, “Deferred Billing” and/or “Shipping Only”.  Customers must be receiving a tangible good or contracted service in exchange for charging of payment cards.  Incentivized discount offers are acceptable when the cardholder is receiving something in exchange for payment, however we will be unable to support accounts engaging in hidden or delayed charges and ‘free’ offers that are not truly free.

“Cross-Selling” and “Up-selling” business practices.  All sales should be directly between the business entities (merchant) processing the transaction and the cardholder, with cardholder authorization for all purchases.

Per Payment Brand guidelines, the use of multiple merchant accounts, billing descriptors and merchant processors may be viewed as an attempt to avoid chargeback monitoring programs and is prohibited.  Perceived non-compliance has led to termination of processing relationships.  PowerPay will review the business consideration for opening multiple merchant accounts to ensure compliance with Payment Brand guidelines.

Transactions generated from internet traffic and all other lead sources must be managed and monitored for potential fraud using an approved system.  Third Party service engagement may be a requirement for account approval.

The FTC has recently published guidelines regarding “Negative Option” enrollment programs and is taking a very aggressive position against merchants utilizing/employing this business practice.  Recommendations take in part from the FTC’s website may include but are not limited to the following:

Material terms should be disclosed in a clear, concise manner.  Unnecessarily long or inconsistent terms are viewed as an attempt to mislead the consumer.

Terms should be disclosed in a conspicuous manner, clearly placed and labeled on websites in a location that indicates the importance and relevance to the transaction.  Fonts and colors must be easy to view.

Material terms must be disclosed prior to completion of the transaction and before a financial obligation is incurred by the consumer.

Customers must provide afbusinessative consent to any offer, examples include a mandatory “I Agree…” statement checkbox, where the client is acknowledging the Terms and Conditions of the offer and consents to be entered into continuity program as a result of completing the transaction.  Pre-checked boxes do not qualify as afbusinessative consent.

Merchants must not discourage or make difficult in any way the disclosed cancellation procedures and all cancellation requests must be honored in accordance with the stated terms of the transaction.

This is not unique to PowerPay. Internet marketers using other services sent me nearly identical language they had received from their credit card processing companies.

Some of the Internet gurus who lost their accounts will now try to pretend they’re experts on the subject of ethical billing practices and offer you teleseminars, webinars, and maybe even sell you an info product or two about how to avoid getting nailed like they did.

What’s the guilty guru’s motivation for this new interest in doing the right thing?

  • Rebuilding their public images after losing their merchant accounts?
  • Selling you more products?
  • Teaching you how not to get caught?

The motives don’t have to be pure but you should always question the intent behind it. If someone tells you they’ve created a “compliance system” or “best practices” that guarantees you won’t get in trouble with the FTC or lose your merchant account, run the other way. Sometimes hype crosses the line into outright deception.

I don’t expect you to be an expert in credit card billing. Talk to your Website attorney. However, it is your responsibility as an online business owner to keep up with the legal and contractual requirements of accepting credit and debit cards as payment for your products and services.

Note that some of the Internet marketers who have lost their credit card merchant accounts didn’t know they were engaging in marketing practices that could get them into trouble. Don’t use a broad brush to paint them as con artists. Some deliver real value but inadvertently goofed up and are now paying the price. Everyone makes mistakes. If perfection is the standard by which marketers are to be measured, none would meet it.

Just as success leaves clues, so does integrity. Perform due diligence before you invest in products or services from anyone.

Additional Recommended Reading:

Free Trial Offers: Are They Good Deals?

Internet Marketing On Life Support

Just In From Visa MasterCard

To your success!

-Mike the Website attorney

Amazon Affiliate Tax: Jerry West Has A Bad Solution

By Internet Lawyer

affiliate-arrestedLike many Internet marketers, it took Jerry West losing 40% of his affiliate commissions to suddenly realize that there are some big legal issues facing online marketing. This is known as cleaning up a mess after the fact rather than taking reasonable steps to avoid the problem in the first place.

For an overview of the affiliate tax mess, check out:

Internet Taxes Threaten Your Online Business (May 2008)

Internet Taxes: State Governments Want You to Become Their Tax Collector (May 2009)


Special Report: The Future of Affiliate Marketing (June 2009 PDF file)

After consulting with his lawyer and accountant, Jerry claims that he has found the “Amazon Affiliate Tax Solution.” Although this might be the solution for Jerry (and I’m certainly not going to offer legal advice in this blog post), his solution is a horrible idea for many affiliate marketers because it exposes them to additional taxes and even potential personal liability.

Although you can watch his video at the link above, Jerry’s affiliate marketing solution in a nutshell involves setting up a foreign corporation in a state where you do not live that doesn’t have Internet affiliate taxes (Nevada was used as an example) and hiring a virtual office “for about $200 per month” to field all your affiliate mail and transfer incoming phone calls directly to you in the state where you live and actually run your business operations. You run the rest of your business using a second corporation based in your home state.

The main flaws in Jerry’s solution were pointed out by me last year in a special report “Scam Artists and Your Business” (PDF file).

Here are some of the key dangers created by the scheme:

(1) Affiliate program operaters can still be required to collect affiliate taxes because the out-of-state company is essentially a sham or alter ego of your in-state company.  At best, you’re engaging in unethical conduct. At worst, you’re engaging in fraud. Want to explain explain as an affiliate or as a defendant in a lawsuit the scheme and claim you were only acting unethically rather than illegally? Who do you think affiliate program operators will go after when they get stuck with tax bills because of your conduct?

(2) State governments where both of your corporations are based can argue that Company 1 should be registered to do business in State 2 (where you don’t live) and Company 2 should be registered to do business in State 1 (where you do live). Think of the joys of paying franchise and income taxes in two states for two companies, both in the state where each company is incorporated and in the other state as a foreign entity.

(3) The failure to observe corporate formalities can lead to personal liability because the corporate shield gets pierced. Going to run separate bank accounts for two businesses in two states? Not going to commingle the funds, are you? How about meetings of directors and shareholders? Corporate resolutions? Like to travel alot? How about paying for lawyers and accountants in two states to handle the mess of paperwork?

Unfortunately, people want a quick fix for their problems. If that’s what you’re looking for, Jerry West offers it with additional risks to your ethics, your business, and your personal assets…plus you’ll always be wondering if either a state department of revenue or your affiliate program operators will catch you.

What’s the best solution until the courts sort out the affiliate tax?

Move your online business operations to a state that doesn’t impose affiliate taxes. That doesn’t mean pretending to move and hope you don’t get caught.

A final few things to note.

1. This is not an attack on Jerry West. He’s got a good rep for delivering for StomperNet.

2. Virtual offices (and executive suites) do provide Internet marketers with valuable services. Just don’t use them for unethical or illegal purposes.

3. Yes, these affiliate taxes are a raw deal and the politicians who voted for them should be tarred and feathered. But railing against the unfairness of the taxes won’t solve anything. Take legal (hint: see a qualified Internet business lawyer) appropriate action to protect your business and then vote for your financial self-interest in the next election.

07/18/09 Update: Jerry West has subsequently revised his content to respond to this post. Of course, he does some gratuitous lawyer-bashing because he’s ticked off for being called out for giving bad advice to his fanboys/sheeple.

Profit: 2 Simple Ways to Increase the Money You Make On The Internet

By Internet Lawyer

Internet profitsI spoke last month at Eric Louviere’s MemberSnap event in Austin. It was easy to see who really ‘gets it’ when it comes to online marketing. As Eric pointed out, if you’ve got a good product or service you’re selling online, if you’re not making as much as you want, it pretty much boils down to traffic and conversion.

1. Increase the traffic to your offer.
2. Boost the conversion rates.

Instead of doing this, most online marketers focus on the latest get-rich-quick or black hat method of gaming the system for a fast buck. Jacks-of-all-trades instead of mastering one.

I’ve yet to meet a long-term successful marketer who has mastered everything necessary to run an online business. Focus on your core strengths and outsource everything else instead of trying to (poorly) reinvent the wheel.

Good at product creation but lousy at web design? Do the former and outsource the latter. It is insanity to devote your time to designing sites when your skills lie elsewhere. Hate client service but love setting up profitable pay-per-click (PPC) campaigns? Why do both? Spend that time on PPC and get some people-friendly independent contractors to handle your client service.

Online Marketing: 10 Bad Tactics You Should Avoid

By Internet Lawyer

Just held a contest where I identified 5 deceptive online marketing practices and selected 5 more winners from submissions by online marketers. If you’re involved with Internet marketing, read the following to learn the 10 deceptive tactics. These are things that you should avoid doing in your online business and think twice before buying a product or service from an Internet marketer who uses them. While everyone can make a mistake now and then, the seller who applies one deceptive practice probably does others too.

I appreciate all those who submitted their complaints about bad
online marketing practices. It took several hours, but I read
every single one. Took a couple more hours to select the best from
a very competitive field. Here they are…

***The 5 Winning Submissions***

Here’s the five selected as the best Read More