This past Friday, I had the opportunity to speak to Graham Gibson, of Central Coast Nutraceuticals , who is the target of a FTC investigation charging, among other things, with deceptive advertising and consumer fraud. He had reached out to me that day, wanting to make sure that his side of the story was told. I have to admit that at the time I wasnt sure I wanted to call him before the FTC revealed its case against him. Weve seen the press releases every time some peddler is charged with a crime, they all say the same thing they didnt do this, they didnt commit these crimes, they didnt defraud consumers, the FTC has it all wrong. So, while I was going to call him eventually to get his side of the story, I wasnt in any hurry. Im glad I called because Mr. Gibson has a real story to tell, and strange enough doesnt completely deny the charges against him and his company.
Central Coast (BBB “F” Rating Here) sells Nutraceuticals which is a made up word for diet and supplement related products that fall under a wide-berth of products from stuff to flush out your rear-end to berries that make you constantly erect supposedly. They are not to be confused with Neuticals, which are a brand of testicle replacement for Dogs. The comapny should also not be confused with Central Coast Pharma which Gus from Psych works for. For while they employed over 150 people in Phoenix Arizona and were one of the top suppliers of Acai related diet products. The model at one time was pretty simple people would sign up to get a free trial, paying only a small fee for shipping and handling. After they received the product, a large percentage wouldnt return it or cancel the subscription and thus be charged on a monthly basis for the product to be sent to their home, regardless if they actually took the product, or wanted it. Ive covered this model, often called continuity marketing or negative option marketing.
Gibson told me that on Tuesday, August 10th, he was raided by the FTC along with a group of Federal Marshals, local police and attorneys following a two year investigation of the company that included numerous interviews with his employees, customers and advertising partners. He was presented with a very large packet of materials that detailed the accusations and accused him and his company of a variety of things from consumer fraud to deceptive marketing to being the guy on the grassy knoll. Lets put it this way: on Tuesday you would rather be the subject of a pigmy porn film than be in Mr. Grahams shoes. Despite this, Mr. Gibson on the phone was very contrite, honest and REALLY wanted to share his side of the story.
According to Gibson, he had already taken steps to change his business and was on the front line of making changes to the industry. He had already settled with the Arizona State Attorney General a year earlier and for almost two years had changed his business model, had taken steps to be fully compliant and even hired FTC experts to advise him on what was legal, legit and compliant. The charges the FTC were accusing him were from over two years earlier, and many of those issues had already been fully resolved and that some of the specific complaints were from customers that had already been refunded. I run one of the most honest businesses in the industry, claimed Gibson and have even been working the last year on an organization that would help other companies in the industry compliant. The FTC is trying to make an example out of us, because we were one of the leading companies in this part of the industry. There are ads all over the place that are much worse.
Mr. Gibson then made it clear that he felt the industry was rife with fraud and deception. He pointed out that currently there are tons of ads on mainstream sites like MSNBC through ad networks such as Pulse360 that make obviously misleading claims. He pointed out that if you go to those sites, you will get tons of links to fake blogs or flogs, a practice that according to him, he did not allow. It was very clear that while he accepts some of the responsibility, he changed his practices 18 months ago but even then many of the issues came from his advertising partners. Mr. Gibson even went as far to call himself a victim of the scummy practices of affiliate marketing companies and their partners. He points out that you can go to many major properties right now and see really deceptive advertising that is promoting both direct response companies and sometimes major brands without the explicit consent of the advertiser. He is very honest about his complaint: that no matter what he did, display and affiliate networks would consistently violate his instructions over and over again.
Whether or not you believe Mr. Gibsons story, he brings to light the issue that we have all talked about. In our industry, who is responsible for the actions of publishers, affiliates, websites, ad-networks? Every time the New York State, California or Florida Attorney General goes after the dozen or so Scam Kings we hear the same thing coming out of their mouths: we werent responsible, it was rogue partners Its the same type of deniability we hear in organized crime trials. Perhaps there are some companies that genuinely are not responsible, but at what point when month after month, year after year when your partners are committing fraudulent practices, can you continue to pretend to know nothing? If someone is generating millions of dollars in revenue, are we really to believe that you are clueless how? Those in the industry who have been around as long as I have all know that this deniability is often nothing but complete nonsense. Do I honestly believe that Mr. Gibson never knew that his affiliates and ad networks were doing questionable things? Probably not. However, I do believe that at one point he made it clear after being sued by the AZ Attorney General that these practices should stop and found that many of his partners just kept on promoting his product anyway they pleased not caring if they burned him.
For those that dont know, this week is the Affiliate Summit in New York, gathering of all sorts of performance based marketers. Affiliate Marketing, while at one time was the realm of Amazon readers recommending to friends what books to buy and getting a commission from this, has turned into something else. The idea that the industry is hundreds of thousands of affiliates making money for companies is incorrect. Anyone who is in this industry knows that often even on the CPA/Affiliate networks it is just a few people, often less than 1% of the applicants who actually make the money for the network. Yes, there are great opportunities for anyone who wants to be innovative and in long hours to make a great living in this industry and a large part of Affiliate Summit and the affiliate industry is based on that, providing real services. Still, there is a huge part of the industry that is only about making the quick buck, screwing the consumer, hurting the client, and then moving on. How many times do we need the same scummy players in our industry brought into court for participating in the same scummy acts?
Here is what is going to happen, if we dont make the changes industry wide and refuse to work with these companies. The FTC and various Attorney Generals will rightly continue to go after anyone involved with these schemes, scams and devious practices. Unfortunately in these suits, sometimes innocent people, such as affiliates who may not know better will be hurt. Advertising networks that just take the advertisements and pretend not to know what is happening on the back end will be named in these suits (as they have already). Great companies will be harmed because they are part of the same industry, because they have a similar product, no matter how legit they might be. As is already happening, companies like Facebook will continue basically ban affiliate networks, ban performance based marketing. If you didnt know, Facebook over a year ago banned display ad networks on their site, after testing them, and finding an overwhelming amount of complaints based on viruses, popups and other issues. Now not a single display network can be involved with Facebook because of the actions of a few ad networks. More and more companies in the future are going to follow Facebook. With news coming out in the media of reputable marketers hacking Google and major dating sites spamming Craigslist, it is no wonder that more and more companies are banning outside advertising.
What needs to be done to wake us up enough that we pay attention to the immense fraud in our industry? Do we need to wait until the FTC requires all marketers to have licenses and pass ethics exams? Do we need background checks? If we do not wake up now, the FTC, the government will take action and force us to make changes. Until then, expect me doing more and more interviews with marketers who businesses have been shut down by the government.