On August 18, following a bench trial, the United States District Court for the District of Nevada found defendants Terrason Spinks and his company, Jet Processing, Inc., jointly and severally liable for $280,911,870 in consumer injury caused by violations of the Federal Trade Commission Act (“FTC Act”) and Electronic Fund Transfer Act (“EFTA”).  This case should serve as a reminder to all payment processors, independent sales organizations, service providers, or any other entity involved in processing payments from consumers, to ensure that due diligence on merchant accounts is performed and chargebacks are monitored.

The defendants are among dozens of individuals and shell corporations that took part in an online scheme dubbed the “IWorks scheme.”  Specifically, the company unlawfully enrolled consumers in membership programs without clearly disclosing that it would charge their accounts on a recurring basis until the consumer canceled their membership.  In addition to the monetary judgment, the Court’s order bans Spinks and Jet Processing from selling grants or similar governmental financial assistance, online memberships that must be affirmatively canceled or rejected by a consumer, and online memberships as an automatic upcharge to another product.

In 2010 the Federal Trade Commission charged ten individuals and dozens of companies for involvement in the IWorks scheme, which lured consumers into signing up for trial memberships for fake government grant and money-making opportunities.  The websites offered “free” information to consumers, but asked them to provide credit or debit card numbers for a small shipping and handling fee.  Once the consumers entered the information, IWorks charged a large one-time fee of up to $129.95 and a recurring monthly subscription fee of up to $59.95 for access to the programs, and various other monthly fees that consumers did not agree to pay.  In this case, the Court found that Spinks and Jet Processing participated in creating the IWorks’ money-making product.  Specifically, Spinks and Jet Processing obtained merchant accounts in 51 shell company names that allowed IWorks to continue charging consumers when payment processors were closing IWorks accounts due to high chargeback rates.  These shell company merchant accounts allowed Spinks and Jet Processing to circumvent the closure of other IWorks merchant accounts and continue charging consumers.  The practices resulted in millions of dollars in fines for excessive chargebacks and prevented consumers from being able to access their credit card banking information.

Spinks and Jet Processing were the only defendants to go to trial.  The remaining nine individual defendants and over fifty shell corporations settled with the FTC.