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FTC charges companies with CAN-SPAM porn violations
By Grant Gross

The U.S. Federal Trade Commission (FTC) has charged a network of six adult entertainment companies and an affiliate marketer that sent unsolicited sexually explicit e-mail on its behalf with violating a federal antispam law.

The six companies, operating up to 20 adult Web sites, plus four executives and the affiliate spammer, are accused of violating several sections of the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act, including a requirement that unsolicited adult-themed e-mail include a "SEXUALLY-EXPLICIT" label in the subject line.

The action announced Tuesday is the first case the FTC has brought against defendants alleged to have violated the adult-labeling rule, which went into effect in May. The defendants could face prison sentences of up to five years and fines of up to US$6 million for CAN-SPAM violations alleged by the FTC.

The companies and Arizona-based affiliate e-mail marketer Paul Rose violated "virtually every core provision" of the CAN-SPAM law while sending out hundreds of thousands of pieces of unsolicited e-mail, said Eileen Harrington, director of the FTC's marketing practices division. Many of the e-mail messages didn't include a valid postal address for the companies, as required under CAN-SPAM, and many included false e-mail header information and false subject lines, both prohibited under CAN-SPAM, Harrington said.

In addition, many of the e-mail messages falsely promised free access to adult Web sites in a violation of the FTC Act's prohibition against deceptive and unfair marketing practices, and many of the messages didn't included working opt-out mechanisms, as required in CAN-SPAM. In much of the e-mail that included opt-out mechanisms, recipients had to scroll through explicit adult pictures to find the opt-out link, Harrington said during a press conference.

Defendants named in the FTC case include Rose; Global Net Solutions, based in Las Vegas; Global Net Ventures, Ltd., based in London; Wedlake Ltd., apparently based in Riga, Latvia; Open Space Enterprises Inc., based in Las Vegas; Southlake Group Inc., based in Las Vegas; and WTFRC Inc., based in Las Vegas. Also charged are Dustin Hamilton, Tobin Banks, Gregory Hamilton and Philip Doroff, executives in the network of companies.

Most of the companies did not have phone numbers listed; a message to Southlake Group was not immediately returned.

Affiliate marketing, the practice of hiring another person or company to market your products, is common on the Internet, especially among adult Web sites, Harrington noted. CAN-SPAM clearly allows prosecutions of both the affiliate marketers and the company whose product is being marketed when the law is violated, she said.

"It's not just the people who push the button who send the spam who can be held liable under CAN-SPAM," she said. "If businesses are going to use affiliate marketing programs, they had better be all over those programs in terms of close monitoring to make sure no third party is sending spam on their behalf that violates the CAN-SPAM Act."

The FTC filed a complaint against the defendants Jan. 3 in U.S. District Court for the District of Nevada. The court granted a temporary restraining order requiring the defendants to stop their e-mail marketing practices, and a hearing to extend the restraining order is scheduled for later Tuesday.

Posted January 11, 2005 11:24 PM |