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Federal Trade Comm'n v. Atkinson, FTC File No. 072 3085 (N.D. Ill. filed Oct. 6, 2008).

Factual Background[]

On October 6, 2008, the FTC filed a complaint under seal and requested a temporary restraining order against the defendants. According to pleadings, the defendants deceptively marketed a variety of products through spam messages, including a male-enhancement pill, prescription drugs, and a weight-loss pill.

One product called “VPXL” was touted as an herbal male-enhancement pill. Advertised as “100% herbal and safe,” it supposedly caused a permanent increase in the size of a user’s penis. The agency alleged that not only did the pills not work, but they were neither “100% herbal” nor “safe,” because they contained sildenafil — the active ingredient in Viagra. At the FTC’s request, the pills were tested by the FDA. According to medical experts, men taking nitrate-containing drugs — which are commonly prescribed to treat diabetes, high blood pressure, high cholesterol, or heart disease — can experience an unsafe drop in their blood pressure when they also take sildenafil.

The defendants also used spam e-mail to sell prescription drugs. They claimed that the medications came from a bona fide, U.S.-licensed pharmacy that dispenses FDA-approved generic versions of drugs such as Levitra, Avodart, Cialis, Propecia, Viagra, Lipitor, Celebrex, and Zoloft. In fact, the defendants did not operate a U.S.-licensed pharmacy. They sold drugs that were shipped from India. The drugs had not been approved by the FDA and were potentially unsafe. FTC staff made two undercover pharmacy purchases and were not asked to provide verification of a prescription. The drugs they received contained no dosage information or doctor’s instructions.

The FTC also alleged that the defendants made false claims about the security of consumers’ credit card information and the other data they were required to provide to buy goods. In operating the online pharmacy, which was called “Target Pharmacy” and later “Canadian Healthcare,” the defendants’ website assured potential consumers that “TARGET PHARMACY treats your personal information (including credit card data) with the highest level of security.” The website went on to describe its encryption process, which supposedly involved “Secure Sockets Layer (SSL) technology.” FTC investigators, however, found no indication that the websites were encrypted using SSL technology.

The FTC also challenged claims made for a weight-loss supplement pill purportedly containing Hoodia gordonii, a cactus-like plant found in southern Africa that supposedly could cause users to lose up to six pounds a week. The FTC charged that the claims were false and violated federal law.

According to papers filed with the court, the defendants recruited spammers around the world to send billions of spam messages directing consumers to websites operated by an affiliate program called “Affking.” By using false header information to hide the origin of the messages, failing to provide an opt-out link, and failing to list a physical postal address, the defendants violated the CAN-SPAM Act of 2003.

Some security researchers believe that at one time, nearly one-third of the world’s spam e-mail came from a network of compromised computers, often referred to as a "botnet," that sent spam promoting the defendants’ websites. Their enterprise included participants in Australia, New Zealand, China, India, Russia, Canada, and the United States.

The defendants include two individuals — Lance Atkinson, a New Zealand citizen living in Australia, and Jody Smith of Texas — and four companies they control: Inet Ventures Pty Ltd., Tango Pay Inc., Click Fusion Inc., and TwoBucks Trading Limited. The complaint alleged that both Atkinson and Smith were liable for the spamming. It sought to hold Lance Atkinson responsible for all product claims, and Smith liable for claims made for the pharmaceutical products.

In June 2005, the FTC obtained a $2.2 million judgment against Atkinson and another business partner for running a similar spam affiliate program that marketed herbal products.

Trial Court Proceedings[]

At the request of the FTC, the court issued a temporary injunction prohibiting defendants from spamming and making false product claims, and has frozen the defendants’ assets to preserve them for consumer redress pending trial. Authorities in New Zealand also took legal action, working in tandem with the FTC.

On November 30, 2009, a federal judge ordered Atkinson to pay $15.15 million in a default judgment for his role in what was identified by the anti-spam organization Spamhaus as the largest “spam gang” in the world. Atkinson, a New Zealand citizen and Australian resident, admitted his involvement in the spam network to New Zealand authorities in December 2008, and had already paid more than $80,000 (nearly $108,000 New Zealand dollars). Atkinson’s accomplice, U.S. resident Jody Smith, agreed to an order requiring him to turn over nearly all of his assets to the FTC, to settle FTC charges.

In addition, the FTC obtained a settlement agreement with the remaining individual defendant.