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

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

#51

Post by Vivtek »

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, so this ran the balance down to the minimum $1.50 in short order, but I didn't know whether perhaps somebody in the family had simply used those minutes - so I recharged it with $50. In three days, it was back at $1.50 and it had done nothing but vibrate in my desk drawer occasionally.

The "premium SMSs" were sent as system SMSs so they wouldn't appear in my Inbox; if I hadn't noticed one or two I wouldn't have seen them at all. I thought they were simply SMS spam, not even knowing that a "service" like premium SMSs even existed. They seemed to include a URL and nothing else - on a phone that only supports Internet on GPRS, which is no longer even available in Budapest.

T-Mobile said that for privacy reasons, they can't divulge the identity of those companies. Of course, T-Mobile gets about half of the cost of each premium SMS, so it's not terribly surprising that they're not highly motivated to stamp out scams. I told them to remove my ability to enjoy the premium SMS service, and they obliged, but that's as far as they would go.

(Nothing against Hungary. Same thing happened to me once in America with 900 numbers; the only thing the phone company would say is that somebody must have plugged a phone into our outside service jack - we turned off 900 numbers then and made sure they were off for every subsequent landline we obtained, but a scam's a scam.)

I have no recourse under Hungarian law, incidentally. Since a subscription was entered from my phone, there's nothing I can do to recover that money. It's no great problem for me, but that's a lot of money to the average Hungarian, who is absolutely powerless against a big foreign company like T-Mobile.

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

#52

Post by nsns »

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 agree it's unethical. This is a commercial site, it tries to offer goods in exchange for money, anything that costs money should be emphasized and explained. How would they feel if someone managed to take some of their merchandise by stealth?

I don't think this is some grey area: if you tricked me into paying a sum I never chose to pay, you're stealing money off my pocket.

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

#53

Post by encoderer »

tisme wrote: post #9

Don't ask for a refund, go to your bank or CC company and charge back the 6 months. That'll hit them where it hurts. Little known fact about chargebacks: the merchant pays an administration fee, typically $20 to $50. Per charge! That is why the smarter scammers refund to everybody who complains, not refunding is plain dumb. This scam has been around for a long time, usually it's adult companies that sell you a 'free'…

Another little known fact about chargebacks: You lose some of your rights if you pay charges before disputing them.

Try it, absolutely still try it, and good luck!

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

#54

Post by lopatin »

tehwebguy wrote: post #31
tisme wrote: post #9

Don't ask for a refund, go to your bank or CC company and charge back the 6 months. That'll hit them where it hurts. Little known fact about chargebacks: the merchant pays an administration fee, typically $20 to $50. Per charge! That is why the smarter scammers refund to everybody who complains, not refunding is plain dumb. This scam has been around for a long time, usually it's adult companies that sell you a 'free'…

I cannot stress this enough. If the company continues to receive chargebacks claiming fraudulent charges (which this really does appear to be) they will find themselves in a difficult place with card processors. Some processors drop clients if they crack 0.5% a chargeback rate.

I have no idea how complicated this is, but with 76 million in funding, what are the chances they found a way to process credit cards them selves?

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

#55

Post by htmltablesrules »

nck4222 wrote: post #38

The page clearly says you'll be charged every month. It charges you and applies a credit, implying you can use the credit any time. It doesn't charge you and then not let you use the money. Is it misleading? Yeah slightly, except it says exactly what will happen with a bright pink numbered list. Did they create the program hoping some people will forget about it? Yes definitely. But, this a common tactic employed by…

No, it's not ridiculous.

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

#56

Post by pbreit »

ricardobeat wrote: post #34
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…

Maybe I'm being too permissive, but that screen doesn't look fishy at all. I went through the purchasing/sign-up process, and it goes like this: 1. create a profile (answer questions on style) 2. fill in details, click a *JOIN NOW* button 3. get a "*first month* for 50% off" offer 4. get to this payment screen At no point it implies you are buying a single product, there are no "buy now" buttons or calls to action. T…

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.

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

#58

Post by troels »

cantankerous wrote: post #24
davewiner wrote: post #6

It may be harder than you think to get the credit card company to stop the charges. http://uncrunched.com/2012/08/26/my-undead-credit-card/ Like it or not they have a good business model. And the VCs probably don't care if they're ethical, as long as they get a good ROI.

Some VC information on this page if you're interested. http://www.crunchbase.com/company/justfabulous

As an aside, one of the investors is listed as mpizldqpida - what kind of name is that?

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

#59

Post by patio11 »

This reminds me, more than anything else, of "co-registration" scams where buying a legitimate product on e.g. Digital River would get your CC details sent over to a seedy e.g. "buy our coupon book emails for $9 a month recurring. DigitalRiver went through with it because they offered DR a ~$30 CPA where DRs per-transaction cut was generally below $2. A few other publicly traded companies whose product teams must have at least a room temperature IQ started doing it, wsaying it was aboveboard and value-adding with a straight face, until the FTC said WTF.

This just makes the coregistration first party.

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

#60

Post by tisme »

lopatin wrote: post #54
tehwebguy wrote: post #31

Earlier quoted context omitted.

I cannot stress this enough. If the company continues to receive chargebacks claiming fraudulent charges (which this really does appear to be) they will find themselves in a difficult place with card processors. Some processors drop clients if they crack 0.5% a chargeback rate.

I have no idea how complicated this is, but with 76 million in funding, what are the chances they found a way to process credit cards them selves?

Zero.

The credit card processing chain is quite complicated, with banks, card companies, ISPSs, processors and merchants all having fairly clearly delineated roles. A merchant - no matter how big - implementing the whole chain is unheard of.

Visa, MC and other cc companies care a lot more about their reputation than they'll even care about a company like this.

Much larger fish have been put on the bbq over less substantiated claims of fraud.

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