Why was a scam company able to raise $76 Million Series B? • Hacker News Board

Re: Why was a scam company able to raise $76 Million Series B?

#171

Post by dsl » Mon, Oct 01, 2012, 1:06 AM UTC

tlogan wrote: post #134

reitzensteinm wrote: post #7

So I went through their checkout process, and up until the credit card stage there is zero indication that it's a membership site (I read everything on every page). I've uploaded the credit card section here: http://i.imgur.com/3di93.png It says you'll be billed month per month on the right hand side under the VIP membership program, but I think it's pretty clear that the page is engineered to be misleading. It looks…

I wonder how this company (and these kind of companies) can keep their merchant account open for so long. There has to be some trick here. For example, maybe they keep enough to funds for last 6 months of chargebacks and have some special kick-back to bank? Or maybe the game plan is to always open a new merchant account after the first one is closed? Or maybe the bar is so low and they never need to worry to lose the…

You sign up for what is called a "High Risk" merchant account.

Porn sites, bail bonds, check cashing locations, dating sites, weight loss centers, and dozens of other types of businesses use this category of services which has a very high tolerance of chargebacks.

The sad part is if you get enough chargebacks you can actually bake in a higher transaction cost and not have to pay per-chargeback fees like other normal merchants do.

Re: Why was a scam company able to raise $76 Million Series B?

#172

Post by pbreit » Mon, Oct 01, 2012, 1:36 AM UTC

rory096 wrote: post #135

pbreit wrote: post #56

Earlier quoted context omitted.

But its not like any other subscription sites I'm aware of. The huge differences is that you have to visit the site each month or you'll be billed and receive NO product. I was prepared to disagree with OP but the model does seem a little customer-hostile.

The grandparent's link says "Each credit can be redeemed for any JustFab style on the site." Seems to me that they're saying if you're a member but didn't make your decision for your free (sunk cost) product by the 6th, they charge you and turn it into store credit. It's not like they're charging you and saying "too bad, you don't get anything."

Ok, I see. So that's probably reasonable. And it's now even more clear that the whole thing is somewhat confusing.

Re: Why was a scam company able to raise $76 Million Series B?

#173

Post by jyothi » Mon, Oct 01, 2012, 3:08 AM UTC

reitzensteinm wrote: post #7

So I went through their checkout process, and up until the credit card stage there is zero indication that it's a membership site (I read everything on every page). I've uploaded the credit card section here: http://i.imgur.com/3di93.png It says you'll be billed month per month on the right hand side under the VIP membership program, but I think it's pretty clear that the page is engineered to be misleading. It looks…

They must be seeing a large number of chargebacks which means visa or mastercard would be behind them to get this set right by the 2nd or 3rd month.

I wonder how they managed to have the site up for so long - may be some kind of a high risk merchant account provider who approved their payment gateway.

Re: Why was a scam company able to raise $76 Million Series B?

#174

Post by kamaal » Mon, Oct 01, 2012, 3:43 AM UTC

Vivtek wrote: post #51

jonnathanson wrote: post #8

This business model reminds me of those fly-by-night mobile subscription services from the early 2000s. The ones who'd make you think you were buying a single ringtone, and the next thing you knew, you'd been surreptitiously signed up for a $29.99/month subscription. I remember evaluating the books for one of those companies back in the day. It was wildly successful at the surface level. But if you dipped below the s…

That business model is alive and well in Hungary. A single SMS was sent from my phone in August (nobody in the family knew anything about it, so we can only assume it was sent by somebody else who may have gained access to the phone while the kids took it to day camp). This SMS "authorized" three different companies to send me "premium SMSs", each of which cost $2.50 (roughly, converted to USD). My phone's a prepaid,…

This scams are happening big time here in India.

Sometimes they are enabled without your permission. My mom's phone number auto-magically gets subscribed for 'premium SMSs'. She doesn't understand how to send SMS's and cant use the phone interface apart from dialing a few numbers. Yet she often complains of money getting deducted from her pre paid account.

Called the customer care numerous times and every time all we get is - 'We are sorry sir, may there was an error in our system'.

Needless to say these mobile company thieves make millions from these 'errors in the system'.

Re: Why was a scam company able to raise $76 Million Series B?

#175

Post by lakeeffect » Mon, Oct 01, 2012, 4:36 AM UTC

reitzensteinm wrote: post #7

So I went through their checkout process, and up until the credit card stage there is zero indication that it's a membership site (I read everything on every page). I've uploaded the credit card section here: http://i.imgur.com/3di93.png It says you'll be billed month per month on the right hand side under the VIP membership program, but I think it's pretty clear that the page is engineered to be misleading. It looks…

Definitely unethical. The reason to buy says, "over half a million subscribers save hundreds a year". This statement could burn them in court if proven to not be a factual statement. I would surmise that it could be shown that the half a million subscribers paying $480 a year each, (240 million total) may not save hundreds a year. The least they would have to show for a forgiving jury would be that subscribers saved a total 100 million in personalized boutique purchases and general shipping. A demanding jury would require 340 million in savings. I would wager that argued by a savvy attorney the statement could be read as a misrepresentation in advertising. It would also be based on how it read at the time of original subscription, so there wouldn't be much value in changing the statement now and only provide more validity toward it being a misleading statement. The defense would argue that people read the the info on the right, understood the terms and checked the box in agreement. The prosecution would argue that the claims in bold of so many saving so much resulted in more making the purchase, which was a false misleading statement. Sales people make these types of claims all the time over the phone or in person to get a sale, putting it in writing is a huge mistake, and online retailers shouldn't be so brash.

Re: Why was a scam company able to raise $76 Million Series B?

#176

Post by lakeeffect » Mon, Oct 01, 2012, 4:36 AM UTC

reitzensteinm wrote: post #7

So I went through their checkout process, and up until the credit card stage there is zero indication that it's a membership site (I read everything on every page). I've uploaded the credit card section here: http://i.imgur.com/3di93.png It says you'll be billed month per month on the right hand side under the VIP membership program, but I think it's pretty clear that the page is engineered to be misleading. It looks…

Definitely unethical. The reason to buy says, "over half a million subscribers save hundreds a year". This statement could burn them in court if proven to not be a factual statement. I would surmise that it could be shown that the half a million subscribers paying $480 a year each, (240 million total) may not save hundreds a year. The least they would have to show for a forgiving jury would be that subscribers saved a total 100 million in personalized boutique purchases and general shipping. A demanding jury would require 340 million in savings. I would wager that argued by a savey attorney the statement could be read as a misrepresentation in advertising. It would also be based on how it read at the time of original subscription, so there wouldn't be much value in changing the statement now and only provide more validity toward it being a misleading statement. The defense would argue that people read the the box and understood the terms. Sales people make these types of claims all the time over the phone or in person to get a sale, putting it in writing is a huge mistake.

Re: Why was a scam company able to raise $76 Million Series B?

#177

Post by yaronsamid » Mon, Oct 01, 2012, 5:05 AM UTC

This is classic case of deceptive "negative option billing" (http://en.wikipedia.org/wiki/Negative_option_billing). At BillGuard (http://billguard.com) we see 10's of thousands of people fall into these kind of shady business models and its our mission to end such deception and financial abuse. It's pretty amazing that this is still legal and that VCs are throwing money at it. Even the famed post transaction scam by Web Loyalty Group was backed by a very prominent VC. Money sells.

Re: Why was a scam company able to raise $76 Million Series B?

#178

Post by true_religion » Mon, Oct 01, 2012, 6:09 AM UTC

columbo wrote: post #132

true_religion wrote: post #126

Earlier quoted context omitted.

Well all their copy tells me that they're a personalized "boutique" aka personal shopper who chooses items for you based on your style. I'd expect that to be a re-occurring cost. I suppose it may be out of the norm of some people, especially the HN crowd, but this kind of thing isn't really unusual. Brick and mortar stores have VIP programs all the time.

> Brick and mortar stores have VIP programs all the time. Yes. But you can also show up and buy a pair of shoes. I don't believe what you are describing is a fair analogy. When I order a pair of shoes I expect a pair of shoes. I don't expect a hat, jacket, or a personalized VIP shopper. On this website if I pretend to order a pair of shoes there isn't anything to indicate (aside from the fine print) that I'll be rece…

I don't really think so. When I visited the website, the first thing (it took up 50% of the page) that I saw was a call out asking you to rate items, and reveal your fashionable interests so you'd get personalized advice. Then it asked me to join their VIP program.

Honestly, I'd have to click around a little bit to even figure out how to just search something without first joining them and going through the VIP program upsales processs.

Re: Why was a scam company able to raise $76 Million Series B?

#179

Post by Confusion » Mon, Oct 01, 2012, 10:17 AM UTC

mseebach wrote: post #130

Confusion wrote: post #125

Earlier quoted context omitted.

They'll argue you checked the checkbox. You'll argue you didn't. It's their word against yours and they will lose, because they can't prove you actually checked the checkbox.

First: You're in court. That's a whole lot more than you bargained for. Second: Are you a lawyer? Is that the guaranteed outcome of such cases? Will it really carry no weight that they can (probably) substantiate their claim that you checked the box with a technically sound argument that their website actually works? A manual release test plan, unit tests, cucumber scripts? That one, single checkbox, and the fact tha…

The first is certainly true, but won't happen if they are bound to lose.

I'm not a lawyer, but I am a programmer. I would never swear that my software works so correctly that I will use the actions of the application as proof that a user did check a box. If he claims he didn't, well, he just may be right. I've seen enough weird things happen not to trust any software to behave correctly all the time.

Now my technical reasons may not be relevant for a judge, but I doubt judges are very trustworthy of technology (they should have heard plenty of cases where technology failed and they will be users of all kinds of awful consumer technology, that sometimes, suddenly fails for no clear reason) and won't think favorably about a company with these kinds of practices. Perhaps I'm naive, but those things combined will lead a judge to believe you over the company.

  That one, single checkbox, and the fact that you have to
  manually check it, is the legality upon which the entire
  business hinges.

It can be entirely legal, while at the same time anyone that claims otherwise should immediately be refunded and let go. In fact, it would be smart to do that, as it prevents bad publicity. Any user that is dissatisfied should be compensated and should be free to leave, always. That saves money.

Re: Why was a scam company able to raise $76 Million Series B?

#180

Post by paulsilver » Mon, Oct 01, 2012, 1:11 PM UTC

tisme wrote: post #148

sylvinus wrote: post #147

Earlier quoted context omitted.

Hasn't Amazon implemented their own?

Do you have an amazon credit card? As far as I know they use GE as the issuing bank, they may have other deals in place. As far as I know - but this may very well be wrong or at least out of date - amazon does not have a banking license and the network used is VISA. This seems to confirm that: http://www.cardhub.com/d/amazon-credit-card-1015c/

I've got an Amazon credit card (in the UK) and it's a Mastercard run by MBNA.

I would guess Amazon have looked at replacing as much of the payment chain as they can and done the parts that are profitable to replace. But they have a long way to go before the enormous hassle of becoming a bank is going to be attractive and possible.