The Federal Trade Commission (FTC) has reached a settlement with Nexway, Inc. (Nexway), its affiliated companies, and officers for allegedly facilitating tech support scams in violation of Section 5 of the FTC Act and the Telemarketing Sales Rule (TSR). Nexway allegedly used its merchant account to knowingly process consumer payments for third parties engaging in these scams to help the third parties “evade detection by the card brands.”
According to the complaint, which was filed by the U.S. Department of Justice on behalf of the FTC, the multinational payment processing companies and their officers violated Section 5 of the FTC Act by submitting credit card charges through Nexway’s merchant account for an entity that made false statements to consumers. The complaint pleads in the alternative that the defendants violated Section 5 because they misrepresented, directly or indirectly through third parties, that consumers had significant performance, security problems, or viruses on their computers.
The complaint states that the defendants violated the TSR because, “it is a deceptive telemarketing act or practice . . . for a merchant to present to or deposit into, or cause another to present to or deposit into, the credit card system for payment, a credit card sale draft generated by a telemarketing transaction that is not the result of a telemarketing credit card transaction between the cardholder and merchant.” Nexway is alleged to be a “seller” under the TSR because it provides or arranges for others to provide goods or services to the customer in exchange for consideration. The complaint states that it is a violation of the TSR for a seller, such as Nexway, to make a false or misleading statement to induce a consumer to pay for goods or services. The complaint summarizes that by “work[ing] with telemarketers who made misrepresentations to consumers about the performance and security of their computers in connection with the sale of bogus technical support services,” the defendants violated applicable law.
As an example, the complaint alleged that one of Nexway’s clients used a pop up to “ensnare” consumers. The pop up would deceptively state: “Your Windows Computer is Infected with Four (4) Viruses.” It would recommend scanning and cleaning the computer to prevent further system damage. When the consumer hit the proceed button, it would download software that when run would indicate that the computer had hundreds of unwanted items and provide a support number to call. When consumers would call the provided number, they would be asked for their credit card number and charged hundreds of dollars. Nexway allegedly submitted these charges through its own merchant accounts. Nexway would then receive the money for the charges and, after deducting its commission, forward the money to the scammer.
In the stipulated judgment, Nexway, its affiliates, and officers, neither admitted nor denied the allegations in the complaint. In addition to imposing a monetary judgment of $16.5 million, the stipulated order includes a prohibition on credit card laundering, a prohibition on payment processing or assisting tech support scammers, and a requirement to screen and monitor “high-risk clients.” The monetary judgment is largely suspended based on the companies’ inability to pay.