FTC Tries to Stay One Step Ahead of Internet Fraud


The FTC’s recent settlement with a California-based Internet marketer may provide a good example of why the Commission is revising its online advertising guidelines. The FTC announced last Thursday that it has reached a settlement with Jaivin Karnani, his company, Balls of Kryptonite, and several associated companies. The settlement resolves charges that the FTC brought against the Karnani in 2009 for allegedly deceptive tactics in marketing products to consumers in the United Kingdom. The defendant allegedly misled British purchasers that his company, which sold a variety of electronics online, was based in the U.K. The ruse was accomplished by tactics like using foreign website domains ending in .co.uk, listing prices in British pounds, and asserting that good purchased would be shipped via “Royal Mail.”

British purchasers consequently believed that the websites were U.K.-based and therefore covered by Britain’s strong consumer protection laws for sales over the Internet (which, for instance, allow for return of purchases within seven days of receipt and full refunds for cancelled transactions and returned goods). Purchasers also believed that products would be covered by full warranties (which did not, in fact, apply to overseas purchases).

Among the terms of the settlement, Karnani and his companies will no longer be able to pose as U.K.-based.

The case highlights new complications faced by consumers and regulators in dealing with Internet sales and marketing. Just as people can create fictional personalities online through avatars and the like, so too can companies create artificial existences. How easy it is to create a false front when you don’t need to start with bricks and mortar! Karnani’s alleged shenanigans and manipulation of domain names provide a good example of the many things regulators and consumers need to look out for.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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