The two principals of the Apex Capital Group Internet marketing operation and the 12 corporate defendants they controlled (the Apex Capital defendants) have agreed to court orders settling the Federal Trade Commission’s allegations related to their alleged operation of a multi-national scheme to defraud consumers via deceptive “free trial” offers and negative option continuity plans.
Under two separate court orders, the Apex Capital defendants will be barred from the illegal conduct alleged in the FTC’s complaint, and will surrender assets valued at likely more than $3 million—and which may yield over $6 million—depending on the sale of certain assets.
According to the FTC’s 2018 complaint, Apex Capital Group, LLC, Phillip Peikos, David Barnett, and related entities marketed supposed “free trial” offers for personal care products and dietary supplements online, but instead billed consumers the full price for the products and enrolled them in negative option continuity plans without their consent.
To further the scheme, the defendants allegedly used dozens of shell companies and straw owners in the United States and the United Kingdom to obtain the merchant accounts needed to accept consumers’ credit and debit card payments. Processing charges through other companies’ merchant accounts is known as “credit card laundering,” an illegal practice that some unscrupulous merchants use to bypass credit card associations’ monitoring programs and avoid law enforcement.
According to the FTC, the Apex Capital defendants also manipulated chargeback levels in those merchant accounts to evade credit card chargeback monitoring programs, including by artificially spreading sales transactions across multiple merchant accounts (load balancing) and running low dollar value sales through the merchant accounts that did not reflect actual sales to consumers (microtransactions).
The Apex Capital defendants conducted the alleged online subscription scam since early 2014, and marketed and sold a variety of products to consumers before the court issued an order in November 2018 halting the scheme at the Commission’s request.
The court orders settle the FTC’s charges against the Apex Capital defendants. The orders against Peikos and the 12 corporate Apex Capital defendants and Barnett permanently ban the Apex Capital defendants from using negative option features to sell dietary supplements, cosmetics, foods, or drugs, or using negative option features in connection with the sale of products on a trial basis or as an add-on to a sale of another product. If the Apex Capital defendants use a negative option feature to sell other products, they are required to provide enhanced disclosures, secure consumers’ express informed consent before purchase, and provide a simple mechanism to stop recurring charges, using the same mechanism that the consumer used to purchase the product.
The orders also require the Apex defendants to improve their supervision of affiliate marketers. Finally, the orders bar the Apex Capital defendants from credit card laundering and from engaging in tactics to avoid fraud or risk monitoring programs, including load balancing and microtransactions.
The order against Peikos and the Apex Capital corporate defendants imposes a financial judgment of $60.3 million, which will be partially suspended after these defendants surrender their interests in substantially all of their assets, including all of the corporate defendants’ liquid assets, Peikos’ house, certain of his personal assets, and his financial rights in various companies.
The order against Barnett imposes a financial judgment of $47.3 million, which will be partially suspended after he surrenders his interest in nearly $1 million in liquid assets, as well as certain of his personal assets. All told, the anticipated recovery from the Apex Capital defendants is likely to be more than $3 million, and possibly more than $6 million, depending on the sale of certain assets.
The Commission vote approving the proposed stipulated final orders was 4-0-1, with Chairman Joseph Simons recused. The FTC filed the proposed orders in the U.S. District Court for the Central District of California, and they have now been entered by the court.
Earlier this year, the FTC filed an amended complaint adding two defendants to the case: SIA Transact Pro (Transact Pro), a Latvian financial institution and payment processor; and the company’s CEO, Mark Moskvins. Litigation continues against these defendants.
NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.
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