As a result of a Federal Trade Commission lawsuit, the owner of a series of companies that charged consumers millions of dollars in undisclosed and recurring subscription fees for skin creams has agreed to a lifetime ban on negative option marketing and will turn over his funds and assets to the FTC.
The FTC sued Gopalkrishna Pai and eight companies he owned in 2019, charging that he marketed a number of skin creams online, selling them for a nominal “shipping and handling” fee, usually $4.99. Consumers who bought the products were not aware that they would later be charged the full price for the products and a recurring monthly charge.
“Our proposed order banning defendants from the subscription marketing business and ordering the return of assets is a big win for consumers, and it should send a strong message to other unscrupulous marketers,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC will continue its crackdown on junk fees and subscription traps.”
In its complaint, the FTC alleged that Pai and his companies charged consumers tens of millions of dollars in fees they didn’t consent to, noting that the supposed disclosure of these fees was hidden behind a small link on the sales websites, and that consumers’ attempts to cancel were often unsuccessful, even when they returned the products unopened. The FTC also alleged that Pai created hundreds of shell companies to facilitate payment processing for the scam.
In 2022, Pai pled guilty to separate charges brought by the U.S. Attorney’s Office for the District of Puerto Rico related to his actions.
The proposed settlement order in the FTC case, includes a number of requirements:
- Permanent ban on negative option marketing: Pai and his companies are permanently banned from participating in any negative option marketing.
- Prohibition on deceiving consumers: The order would also prohibit Pai and his companies from deceiving consumers about any other good or service they sell or market.
- Turn over funds and assets: The order would require the settling defendants to turn over the contents of numerous bank accounts and a retirement account. It also requires Pai to assign his interest in a promissory note secured by real property to an FTC-appointed liquidator. The order also notes that Pai has already surrendered more than $500,000 to the United States as part of the federal criminal suit against him. The relinquished assets will be used by the FTC to provide refunds to consumers harmed by the scam.
The order contains a total monetary judgment of $34,081,6073, which is partially suspended based on the settling defendants’ inability to pay the full amount. If the settling defendants are found to have lied to the FTC about their financial status, the full judgment would be immediately payable.
The Commission vote approving the stipulated final order was 3-0. The FTC filed the proposed order in the U.S. District Court for the District of Puerto Rico.
NOTE: Stipulated final orders or injunctions have the force of law when approved and signed by the District Court judge.
The lead staff attorney on this matter was Michelle Schaefer of the FTC’s Bureau of Consumer Protection.