Five individuals and six companies are accused of violating “virtually every portion of the CAN-SPAM Act” and other federal regulations, in a case involving hundreds of thousands of un- or deceptively-labeled e-mail messages promoting Adult Websites, the FTC announced formally January 11.
This is the sixth FTC-raised CAN-SPAM case but the first involving the Adult Internet since the law took affect at the beginning of 2003, the FTC said.
Eileen Harrington, the FTC’s associate director for marketing practices, told a January 11 press conference that the six companies – Global Net Solutions of Las Vegas, Global Net Ventures based in London, Wedlake of Latvia, Open Space Enterprises of Las Vegas, Southlake Group of Las Vegas, and Reflected Networks of Las Vegas and Chicago – were accused of recruiting some affiliate marketers to promote their sites and other businesses by way of spam.
The individuals named in the case were Dustin Hamilton, the director of GNV and an officer of GNS and Reflected Networks; Philip Doroff, an officer of Reflected Networks; Open Space director Tobin Banks; Southlake officer and director Gregory Hamilton; and Paul Rose, a Webmaster affiliate who is accused of sending spam promoting GNS Websites.
FTC representatives were seen on the Internext show floor January 6, the show’s final day, presenting papers to Reflected Networks. An unidentified sales representative at the company’s Chicago office told AVNOnline.com that they believe their involvement was a mistake.
“We have our lawyers working on it,” the representative said. “We expect it to be dropped very soon.”
Hamilton founded Reflected Networks with Doroff as the company’s chief technology officer. An AVN Online magazine profile published last June described a company that “earned itself a reputation as a reliable, stable host, both on the boards and off. The company promises its customers all the hosting services they could possibly need, with a personal touch some feel may be missing from many larger firms.”
"We can go after more of the not-so-major customers more effectively," Doroff told AVN Online at the time. "Where [larger hosting companies] have thousands of customers per employee, we’re in the dozens-of-customers-per-employee range. So people will call and get the same person that they talked to yesterday. We can actually build relationships with customers. If they're small right now, we can grow with them."
But Hamilton and Doroff are not exactly obscure names to the spam-watching world, it turns out. Spam-fighting group Spamhaus.org – who has criticized the CAN-SPAM Act as the “YOU-CAN-SPAM Act” because it uses opt-out rather than opt-in, and thus allows a spammer at least one entrée to an inbox – described him, on its Registry of Known Spam Operations, as a “hard-core spammer coming up through the ranks. Proxy hijacker, netblock hijacker, criminal spammer. Does a lot of porn spam. The spam comes via relay/proxy hijacking to deliver the spew, then they provide the bulletproof webhosting to support it. Websites don't die, they just play musical IPs.”
Management at neither Global Net Solutions nor Southlake Group were available for comment before this story went to press.
The two Hamiltons, Doroff, and Banks are suspected of controlling “a network of companies that own and operate” the spammed Websites, pay systems, and servers used to promote and sell the sites, while Rose “is an individual who lives in Arizona and is an affiliate Webmaster and also sent out a good volume of the spam,” Harrington said.
The FTC asked for and got a temporary restraining order barring the defendants from any further such practices and freezing assets pending preliminary hearings, in a federal court filing January 3 in Nevada. Harrington said the commission expected a preliminary injunction to arrive January 11.
“If you’re using a business model that recruits others to market your Website, you are strictly liable under the CAN SPAM Act for those third parties,” Harrington said. “It’s not just the people who push the button to send the spam that can be held liable.”
The FTC accuses the companies and the individuals in a case involving hundreds of thousands of e-mails sent forth without the CAN-SPAM required “SEXUALLY EXPLICIT” warnings and with false transmission headers in subject lines, as well as failure to disclose that the e-mails were advertisements. Other CAN-SPAM violations alleged in the complaints are failing to include functioning opt-out mechanisms or any opt-out mechanisms, failing to identify the spam as advertisements at all, never mind sexually explicit materials, and failing to include valid physical postal addresses.
The defendants also accused of violating section 5 of the Federal Trade Commission Act by misrepresenting some site accesses as being free when consumers in fact learned after disclosing or confirming their e-mail addresses that the accesses weren’t free, Harrington said.
Harrington stressed that the target in this case was not adult Internet entertainment but spam, and she added that adult and any Internet companies should consider this case a warning regarding their affiliate workers and partners.
“There’s a message here,” she said. “And part of that message is that you need to monitor closely what your third parties are doing. But monitoring doesn’t immunize you against the CAN-SPAM Act. CAN SPAM is very clear regarding liability. If businesses are going to use affiliate programs, they’d better be all over those programs and make sure no third party is sending spam on their behalf. I think Congress sent a very clear message in the language of CAN-SPAM. There really is no distinction between those who push the button to send the spam and those who create the marketing that [creates it].”
Harrington said the FTC first began investigating the companies when they began receiving complaints about certain sexually explicit e-mails forwarded to the commission by angry consumers in spring 2004. She said there were between ten and 20 actual Websites involved in this particular case, but the sites have not been shut down, since the question was the marketing and not the sites themselves.
The FTC case list can been seen here.
