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(SAN FRANCISCO) – Attorney General Bill Lockyer today announced a $2.4 million settlement to resolve a joint state-federal lawsuit that stopped a major California-based spam operation from bombarding individuals and businesses across the country with unlawful email ads that pitched mortgage services, car warranties, travel deals, prescription drugs and college degrees.
“It’s bad enough that spam pollutes our email boxes and invades our privacy, but the consumer protection and economic problems it creates go much deeper,” said Lockyer. “Con artists use spam as a high-tech crowbar to open the door to fraud and ID theft. And this computerized junk mail costs businesses billions of dollars every year. Fortunately, my office and the Federal Trade Commission were able to shut down this operation, which in just one year flooded computers with almost 2 million spam messages. I will continue to work cooperatively with federal regulators, the high tech industry, businesses and others to try to stem the spam tide.”
Lockyer and the Federal Trade Commission (FTC) today filed the proposed settlement in U.S. District Court for the Northern District of California. The court must approve the settlement before it becomes final.
Lockyer and the FTC in April 2005 filed the 13-count joint lawsuit against Los Angeles residents Rick Yang and Peonie Pui Ting Chen, and the spam operation they ran under the corporate names Optin Global, Inc. and Vision Media Limited Corp. After the lawsuit resulted in a freeze on their assets and temporary restraining order stopping their unlawful spam, the defendants went out of business.
In the proposed settlement, Lockyer and the FTC ask the court to enter a judgment of $2.4 million for damages, civil penalties, and recovery of fees and costs. However, the defendants will not have to pay the full $2.4 million if, within five days after court approval of the settlement, they pay $277,000 in civil penalties, $100,000 to cover fees and costs and execute $500,000 promissory notes on two pieces of property. The full $2.4 million will be due if those conditions are not met.
The defendants then would have to put the two pieces of property – one in Las Vegas, Nevada and the other in Adams, Massachussets – up for sale on the open market. The defendants would provide the net proceeds of the sales to the state as an additional civil penalty. Officials estimate the net proceeds from the two sales will total roughly $90,000.
The case marked the first joint state-FTC action brought under a federal anti-spam law that took effect January 1, 2004. Lockyer also brought the lawsuit under California’s anti-spam law. Though largely preempted by the federal statute, the state law provides additional remedies by allowing the Attorney General to seek civil penalties and liquidated damages for violations.
Known as the CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography and Marketing Act), the federal statute generally prohibits sending unsolicited commercial emails after recipients request to not receive them. The CAN-SPAM Act also requires spammers to provide recipients a workable means to make opt-out requests, include a valid postal address in their messages and clearly identify their emails as ads. Additionally, both the CAN-SPAM Act and state law prohibit commercial emails from containing false or deceptive header information or subject lines. Lockyer and the FTC allege the defendants violated all these provisions of federal and state law.
The defendants’ spam advertised such products as auto warranties, pharmaceutical products, online college degree programs and mortgage services, the complaint alleged. The emails typically contained hyperlinks to defendant-operated web sites that promoted the products and services, according to the complaint. The defendants used mailing addresses in several countries, including China and Canada, and Internet domains registered in Switzterland.
From March 2004 to April 2005, Lockyer and the FTC alleged, consumers across the country forwarded to the FTC more than 1,870,000 spam messages that advertised web sites linked to the defendants. In California, Lockyer’s office received from consumers more than 4,000 such emails from January 2004 to April 2005. Internet service providers (ISPs), including Microsoft, cooperated with Lockyer’s office and the FTC in the investigation.
Many of the defendants’ spam messages, according to the complaint, marketed mortgage services. When directed by hyperlinks to the defendants’ mortgage services web sites, consumers were asked to provide personal information, ostensibly to be shared with mortgage brokers or banks. In fact, the complaint alleged, the defendants sold the personal information to “lead” companies, which then sold the information to other “lead” companies. Ultimately, the information wound up in the hands of mortgage lenders and brokers. The lenders and brokers then contacted consumers and offered mortgage services, according to the complaint.
Despite the best efforts of law enforcement, regulators and ISPs, spam remains a growing, persistent and costly problem. The spam portion of all email has risen steadily, increasing from eight percent in 2001, to 62 percent in March 2004, to nearly 70 percent in March of this year. In 2005, experts estimated spam cost U.S. businesses about $17 billion in lost productivity, and screening and other expenses.
Californians who receive spam at their email addresses should send examples to the Attorney General’s Office at email@example.com . Consumers can find out how to file a spam complaint with the FTC at www.ftc.gov, or send spam to the FTC at firstname.lastname@example.org.
PLEASE NOTE: The court approved the settlement shortly after it was filed. The signed version is attached.