Utah man charged in federal Internet fraud case
 
The Associated Press
Las Vegas Sun
 
The Federal Trade Commission is accusing a Utah pilot of using his companies to scam consumers out of millions of dollars through fraudulent credit card charges.

IWorks Inc. owner Jeremy Johnson of St. George and nine others were named in a civil complaint filed Wednesday in the U.S. District Court in Las Vegas.

Federal investigators said Johnson's company lured consumers into product memberships for government grants and other moneymaking programs, then charged credit or debit cards for ongoing services.

Investigators said hundreds sought to have the charges reversed, landing Johnson in hot water with credit card companies. That led to millions of dollars in fines and the termination of some merchant accounts, through which Johnson's companies had billed consumers.

In court papers, investigators said that to get around the problem, Johnson and others formed more than 50 shell companies using "mail-drop addresses and straw-figures as owners and officers" and applied for new merchant accounts through third-party payment processing firms.

"They have also attempted to drive down their chargeback rates by threatening to report consumers who seek charges to an Internet consumer blacklist they operate called "BadCustomer.com" that will 'result in member merchants blocking (the consumer) from making their purchases online,'" court papers said.

Johnson is a well-known Utah philanthropist who has used his personal aircraft to aid state law enforcement agencies with search-and-rescue operations. He has donated generously to charities, including funding a St. George home for boys allegedly pushed out of Utah polygamist sect.

A $50,000 donor to the Utah Attorney General Mark Shurtleff's campaign, Johnson also used his personal fortunes to purchase a plane and fly food, doctors and other critical goods to Haiti following the devastating Jan. 12 earthquake.

Johnson's Mark Schamel disputes the FTC allegations and said the civil complaint lacks any real evidence.

"iWorks is a legitimate company that is involved in legitimate marketing for legitimate products," Schamel, of the Washington-based firm Womble Carlyle, told The Associated Press on Thursday.

Schamel said some of the issues raised by the FTC are related to the business practices of third-party companies used by iWorks. Before Thursday's filing, Johnson had been in discussions with FTC investigators for about a year, Schema said.

iWorks uses negative option marketing, a widely-used system that requires consumers to specifically opt out of services if they don't want to continue to pay for it. Such marketing systems are legal and guidelines are provided by the FTC.

"iWorks intends to get the entire story in front of a judge and we expect favorable results," Schamel said.

The FTC allegations are not Johnson's first legal troubles related to his business marketing practices.

The Utah Division of Consumer Protection hit iWorks Inc., with dozens of citations between 2006 and 2007 for allegedly engaging in deceptive and fraudulent practices. The cases were dismissed after the company, which sold "how-to" programs to people seeking government grants or loans, agreed to change its sales tactics and gave refunds to unhappy customers.

The Better Business Bureau has given iWorks an "F," its lowest rating, following 30 complaints in 36 months. All but one of those has been resolved, according to the bureau's website.

In February 2001, the Securities and Exchange Commission charged Johnson with making false statements, after he recommended that investors buy stock in a company without divulging he was a stockholder. The case was settled without an admission of wrongdoing.
 
LasVegasSun.com
Originally published Thursday, Dec. 23, 2010
 
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