'Free' electronics claims cost advertiser $650,000

The FTC is cracking down on claims of "free" electronics, such as an Xbox 360 or an iPod, fining a major advertising company $650,000 for its deceptive marketing tactics.

You've seen them before: e-mails and online banners promising a free iPod simply by clicking an ad. But those who do take the bait quickly discover they must first wade through a series of third party promotions, and then are forced to sign up for offers before being eligible for the gift.

The Federal Trade Commission is beginning to take note of such scams, and with the help of the Department of Justice, has charged Adteractive -- which operates as FreeGiftWorld.com and SamplePromotionsGroup.com -- with violating the federal CAN-SPAM Act and the FTC Act.

"Participation in these promotions requires consumers to do such things as purchase products, take out a car loan, subscribe to satellite television service, or apply for multiple credit cards," the FTC said in a statement.

According to the Commission, Adteractive used e-mail subject lines including, "Test and keep this Flat-Screen TV," "Test it ??" Keep it ??" Microsoft Xbox 360," and "Congratulations! Claim Your Choice of Sony, HP or Gateway Laptop." The company's banner ads claimed, "Participate Now and You'll Receive a FREE SONY PLAYSTATION."

As part of a settlement agreement with the FTC, Adteractive will pay $650,000 in civil penalties, and must clearly display what obligations a user must fulfill to receive a prize. The company is also barred from sending e-mails that violate the CAN-SPAM Act.

Interestingly, one FTC Commissioner dissented in the final settlement vote of 4-1. He said the $650,000 penalty is too low compared to other CAN-SPAM cases, and will not deter other companies from violating the law in the future.

Previously, CAN-SPAM related punishments have ranged from Kodak's $26,331 penalty for sending 2 million unsolicited e-mails, to a recent conviction of two spammers who face over five years in prison for sending millions of pornographic e-mails.

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