TECHCRUNCH, a leading technology blog that boasts more than 3 million readers, has accused a company that is currently preparing an IPO of funding its growth by running a scam that gets people to unknowingly bill small recurring payments to their credit cards.
The company, Intelius, is run by Naveen Jain who left his former company InfoSpace (NASDAQ:INSP) in disgrace in late 2002 amid accusations of insider trading and a near-complete collapse of the company, which at its height had a market-cap of $31 billion. Today, the company is worth $300 million.
The TechCrunch story on Intelius is well researched and should prompt the Securities and Exchange Commission (SEC), NASDAQ, the firm’s underwriters, accountants and lawyers to at least reassess the IPO documents filed with the SEC. Deutsche Bank Securities, UBS Investment Bank, Cowen and Company and Oppenheimer & Co. are underwriting the IPO.
Intelius is proposing to list on NASDAQ under the symbol INTL. Coincidentally, I personally have often used INTL by mistake when trying to get quotes for tech bellweather Intel Corp., which actually uses the symbol INTC.
According to TechCrunch editor Michael Arrington, an attorney by training, the scam works like this:
Every time a customer buys a product at Intelius, they are shown a page telling them “Take our 2008 Consumer Credit Survey and claim $10.00 CASH BACK with Privacy Matters Identity.” The user is then shown two survey questions and asked to enter their email and click a large orange button. They can choose to skip the survey by clicking on a small link at the bottom of the page.
Undoubtedly a lot of consumers do the survey and move forward to the next page – it only takes a second. But what most people don’t do is read the fine print, which gives no real details on the $10 cash back (in fact, it is never mentioned again, anywhere). Instead, in light gray small text, users are told that by taking the survey they are really signing up to a $20/month subscription. Intelius forwards your personal information, including your credit card, to Adaptive Marketing. The next day a $20 charge appears on your credit card, and each month afterwards.
Several people commenting on the blog post confirm that they have fallen prey to the monthly bills that they were not aware of. Arrington also refers to consumers having lodged hundreds of complaints against the company.
The article says it appears that the scam is driving most or all of Intelius’ revenue growth. “In other words, without the survey scam, Intelius would have nearly no revenue growth. Companies that aren’t growing don’t go public,” says Arrington.
I have long believed that blogs serve as an important mechanism for investor protection. They give anyone with knowledge of wrongdoing the ability to bring attention to their stories. More importantly, they have enabled experts who previously did not have the ability to publish online an easy way to share their expertise.
In the past, I’ve highlighted blogs like David Phillips’ 10Q Detective Blog and Jeff Matthews Is Not Making This Up as examples of investment experts who are contributing to the education of investors simply by being able to tell their stories on the web.
Recently, the SEC has shown that it recognizes the role that bloggers play in getting information out to key audiences. For their recent XBRL announcement, the commission held two special conference calls with bloggers, including one attended by SEC Chairman Chris Cox.
Dominic (bio & disclosures) is IR Web Report‘s founder and an online investor relations consultant. He advises leading public companies and investor relations service providers worldwide on using the web for disclosure, engagement and profile building. You can contact him via the contacts page.
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