Last April, Jesse Willms celebrated his 24th birthday in a private event room at a resort and casino just outside of Edmonton. He pulled up in a white stretch limo and emerged wearing a bright red suit and black shirt. Inside the casino, more than two dozen of his friends were pounding back drinks and vamping it up for the official party photographer. A DJ worked a set of turntables, a photo slide show played on a projection screen, and guests could sign an oversized birthday card. During the night, Willms cracked open champagne, bit into his cake face-first, covering himself in chocolate, and took the Shake Weight given as a gag and stuck it between his legs. A novelty pendant swung from his neck bearing the words: “IT’S MY BIRTHDAY BITCHES!”
That Willms celebrated at all that night is a testament to his confident, even cocky, disposition. He knew he was under investigation by the Federal Trade Commission in the United States. Officials had been at it for nearly two years, and he had provided them with piles of documents related to his business. Around the time of his birthday, an investigator from the Competition Bureau in Canada working with the FTC even pawed through the trash bins outside of his office searching for more.
Willms operates a company called Terra Marketing Group in Sherwood Park, an Edmonton suburb. On its website, Willms purports to employ more than 200 people, though the reality is closer to 20. The name and glossy logo serve as the public face of a labyrinthine network of companies that have sold a bewildering array of products online, from colon cleanses to credit reports. The operation has made him a wealthy young man. Since 2007, his companies have raked in more than US$467 million in revenue. That’s just a few million shy of what LinkedIn earned over the same period.
About a month after his birthday party, the FTC opted to cripple his operation. The commission filed a lawsuit accusing him of scamming consumers in the U.S., Canada, Britain, Australia and New Zealand by tricking them into free or cheap trials, only to bill them egregiously. The suit alleges he made it virtually impossible for consumers to receive refunds, and hid the number of angry customers from credit card companies to keep processing orders. In court documents, the FTC calls Willms the “poster child” for certain shady practices. The case is before a Seattle court, and none of the allegations have been proven. If the FTC is successful, Willms could be fined and effectively shut down. The Competition Bureau and the RCMP are also investigating, but has yet to press charges.
The court documents provide a glimpse into the operations behind the sorts of ads that are inescapable online. If, when attempting to browse the Internet over the past few years, you’ve been assailed by ads featuring a whitening product to restore yellowing teeth, or an acai berry product to deflate bloated bellies, chances are they could be traced back to the young man in Sherwood Park. The FTC has gone after two other companies in the same field in the past year, and Willms’s operation is by far the largest.
He declined interview requests, as did his lawyer, but issued a statement after the charges were levied. “We believe our business practices are compliant with the law and are working to resolve this disagreement with the appropriate government agencies,” he said. His lawyer, a former FTC attorney himself, argues in court documents the company had more than six million customers, meaning the 4,000 complaints collected by the FTC comprise only 0.067% of the total customers. Much of the case centres on what constitutes fair disclosure of the terms of an online sale. Whereas many European countries impose strict rules right down to font sizes, the U.S. and Canada have looser guidelines. There can be plenty of room for argument.
Had Willms chosen another field, his story could be inspirational: he’s a high-school dropout who built an enterprise with a half billion dollars in revenue. But depending on what happens in court, he could go down as Canada’s most prolific online scam artist.
How exactly Jesse Willms got his start is unclear, but the basic details are that at age 16 he began buying and selling software on eBay and Amazon. Working out of his parents’ middle-class home, he would offer to sell a piece of software on one site before it was in his possession. If someone placed an order, he would pick it up for a lower amount on another site, and ship it. He eventually registered a company, eDirectSoftware, and billed it as a reseller.
At school, Willms was a smart kid and an obsessive athlete. He quickly became one of the best high-school long-distance runners in Alberta. “He ran like crazy,” recalls a friend. “From a young age, he always had a burning desire to just be the best at whatever he put his mind to.” That applied to business, too. His company grew so fast that he dropped out in Grade 12.
His parents donated their credit cards to fund the operation initially, but before he was 20, Willms had moved the business into an office, hired some friends, and earned enough cash to buy a modest home and a Dodge Viper. He was known around town as a guy who could potentially make others rich, and some sought him out for employment. “When you are 18 years old and driving your own Dodge Viper, people tend to want a piece of what you are doing,” writes an acquaintance via e-mail. (Willms later sold the Viper to his sister for $1, and got himself a black Lamborghini.)
At eDirectSoftware, his mother and sister shared receptionist duties, and his dad occasionally brought McDonald’s to the hungry teenaged crew. Willms devoted his time to finding software suppliers, and some of the product was of dubious quality. When a shipment of Microsoft Office products was returned to the office by a customer and examined by staff, the security foil embed ded in the CDs, a feature used to denote authenticity, slid off in their hands.
It is not surprising, then, that between 2005 and 2007, the company was sued by FileMaker Inc., Symantec and Microsoft for selling counterfeit software and products that were not eligible for resale. The FileMaker and Symantec suits were settled, with Willms prohibited from dealing with the company’s products in any way.
He attempted a more elaborate defence with Microsoft, claiming the software was obtained legitimately (he didn’t specify how) and that he had done nothing improper. His legal team even called Microsoft’s anti-piracy hotline, which verifies the authenticity of the company’s products, and provided the serial numbers belonging to the allegedly pirated software. They were told the products were genuine and could be resold, according to a court document. Nevertheless, his company paid more than $1 million to settle. At the time, Microsoft had recently filed nine lawsuits and issued 50 cease-and-desist letters as part of its anti-piracy efforts. EDirectSoftware, Microsoft said in a press release, was one of the largest offenders.
Because the company was founded when Willms was a minor, his mother signed on as a director, and at least one PayPal account was registered in his dad’s name. Both were listed as defendants in the lawsuits. Those close to Willms say his parents had little clue as to the details of the business. “He said he always felt bad about putting them in that situation,” says a former employee. “They have no computer knowledge at all.”
The lawsuits also ruined his business. He quickly reinvented it under the name JustTHINK Media. To find something to sell, he scoured the web to see what sorts of ads and search phrases were popular. He came upon a purported Chinese weight-loss tea called Wu-Long, and then found a private-label “nutraceutical” manufacturer to produce a similar product. Willms and his employees developed the branding, packaging and the advertising strategy, and outsourced distribution and customer service. Willms pushed it as Wu-Long tea until the original maker threatened to sue. He then used the name Wu-Yi exclusively. For marketing, he relied on Google AdWords, which allows companies to purchase keywords so their ads appear next to related search results.
Willms employed rigorous testing to determine what combination of graphics and ad copy resulted in the most sales. Consumers who clicked on an ad would see one of two different order pages, and the company tracked which page was more successful. Willms told the graphics department to make changes based on the results, and a new site was built nearly every day. “That was the number one thing that made Jesse successful versus any other competitor,” says a former employee. “Even now, nobody really puts in the time and energy to continually optimize.”
Over the next couple of years, Willms introduced other products—a teeth whitener called DazzleWhite, an acai weight-loss supplement called AcaiBurn, and colon cleanse marketed as PureCleanse, all of which were made by private-label manufacturers. By then, he had abandoned Google AdWords in favour of affiliate marketing, which essentially outsources advertising to a network of individuals co-ordinated by large Internet ad companies. His products proliferated through these means, and allowed him to get on top of the next health craze. “It was the affiliate networks always pushing the next hot thing,” says a former employee. By 2009, Willms was known as a big player and earned more than $300 million that year alone, according to the FTC. Ads for his products showed up on hugely popular websites, such as CNN, Fox News and ABC News. The success allowed him to buy a new $2.6-million home in Sherwood Park, complete with a fixture on the front lawn to shoot streams of water into the air.
At the office, Willms was an attentive boss who made quick decisions. He rarely solicited input. In fact, he typed up to-do lists for staff and distributed them each morning, and they were to be returned before heading home. He devoured business books, such as those by Donald Trump and Jack Welch, and former employees say he treated his workers professionally. But tensions arose between Willms and a couple of the friends who had been with him from the start. One gradually stopped showing up to work. Another repeatedly staggered in hung-over. Both were let go. Willms, in contrast, kept his personal and professional lives separate. He’s often seen in Edmonton clubs with an entourage, some of whom have travelled with him to Las Vegas, Los Angeles and Mexico—always on a chartered private jet. But according to a former employee, “No matter what he did the night before or where he went, he was there at 8 a.m.”
More damaging than turnover were mounting consumer complaints, which form the substance of the FTC’s allegations. Most products or services were advertised as free or cheap trials. But if consumers failed to cancel within a two-week period and return the product, they were billed for the full amount, typically between $40 and $90. They could also be charged more than $100 for a non-refundable one-year “membership” program to receive the product each month. Some consumers were sent additional products they never ordered, and billed. According to the FTC, none of this was made clear to consumers. The terms and conditions were deliberately designed to remain obscure, displayed in pale, small fonts.
Those demanding refunds were often furious. “I DON’T WANT ANYMORE,” wrote one customer to an online service agent, after being billed more than $140 for what he thought was a one-time trial for teeth whitener. “[I]t never said ANYTHING about getting overcharged and continually sent stuff. you people are criminals.”
Aggrieved customers soon traced a range of products to Willms, and posted his name and picture on consumer-oriented forums. He achieved further notoriety in late 2009, when Oprah Winfrey’s company, Harpo Productions, sued roughly 40 corporations for using her image and that of Dr. Mehmet Oz to push acai products. JDW Media, a company allegedly owned by Willms, was among the defendants. The company initially denied the allegations, but agreed not to use images of the two celebrities in the future.
Willms worried about the effect of negative publicity on his reputation. Searching for “Jesse Willms” on Google brought up a raft of news articles and websites accusing him of fraudulent behaviour. To make these pages less obvious in Google’s results, he hired a search engine optimization company to create personal websites. There is JesseWillmsReport.com, JesseWillmsBiography.com, even JesseWillmsEthics.com. They are filled with articles about business and accounts of his small-scale philanthropy, such as participating in charity runs.
In one post, Willms says his interest in charity developed after meeting former U.S. president George W. Bush at an event last year. The post doesn’t specify where the event occurred or what it was about, but it does feature three photos of Willms posing with the grinning former president. “When I asked him what the most important thing a businessman can do is, he replied ‘give back to your community and make a difference,’” Willms wrote. “I wanted to give back to my community as well and follow his example and become a respected leader.”
While he was fighting a public-relations war on one front, the FTC alleges Willms was also struggling to keep his payment processors and credit card companies in the dark. His merchant accounts experienced double-digit chargeback rates, when credit card companies issue refunds to consumers who dispute transactions. Visa and MasterCard flag merchants with rates as low as 0.5%. To evade detection initially, the company used multiple billing descriptors for its wares. The acai products, for example, were listed as AcaiBurn, AcaiEdge Max, and Detox AcaiBurn, among others.
His core business was also suffering by the end of 2009. The market for health products was saturated, and advertising costs were skyrocketing. Willms ditched the old products, transformed from JustTHINK Media to Terra Marketing Group, and started running penny auctions, which allow people to bid on consumer goods, primarily electronics, for a fraction of retail prices after paying to join. The FTC alleges Willms used the same deceptive marketing and unauthorized billing tactics with these sites, too.
He still had to deal with Visa and MasterCard, however. Both knew of him, and he could become blacklisted with banks and payment processors. So Willms paid others to establish companies abroad. “These individuals are listed as the owners,” says Robert Schroeder, head of the FTC’s Seattle office, “but part of our evidence are contracts signed with Willms that basically give him full power to make decisions and the right to all the monies.” When one such owner named Adam Sechrist started to get hostile questions from a payment processor, he was told by Hernan Ortegon-Rico, Willms’s vice-president of operations, to let a man named Enrique Fuentes handle it, ostensibly another employee. Sechrist later e-mailed, “Hey, is Enrique Fuentes an actual person?…If I’m going to be giving people a [phone] number, I would hope that it works.” Ortegon-Rico specified at one point that Fuentes was a “busy guy” and e-mail was the best way to reach him. (The FTC hasn’t been able to confirm Fuentes’s existence.) Sechrist eventually informed Willms he wanted out, but it did no good. He’s charged in the FTC case alongside three other Americans for helping Willms perpetuate his allegedly deceitful tactics.
The FTC has amassed an extensive case against Willms. “There was more work in this case than in many others,” Schroeder says. But Willms is mounting an equally vigorous defence. His lawyer recently filed declarations from nearly a dozen experts in different fields to refute the commission’s claims. A former FTC official contends the number of complaints entered into evidence is insignificant compared to the company’s six million customers. A corporate financing expert who worked for the Federal Bureau of Investigation for nearly 30 years claims the U.S. corporations and bank accounts were not designed to deceive. Another says the chargeback rates were not indicative of fraud, and a customer service expert says the company’s refund policies were normal.
His lawyer argues his websites were not misleading because the terms and conditions—the recurring charges, the additional products—were clearly disclosed. There is even a declaration from a marketing professor at California State University saying the FTC’s methodology that determined the sites were deceptive is faulty. Former employees contend Willms was burned by the software lawsuits and took care to comply with the law, which is why he retained several lawyers to review the company’s materials.
Whether the court in Seattle will agree is another story. The FTC asked the court to prevent Willms from transacting most business while the case is ongoing, which his lawyer calls “draconian” since the disputed sites are no longer operating. The company’s primary activity now is offering address, phone, genealogical and criminal history database searches. The judge will rule on the matter in September, and has asked that Willms provide more financial information in the meantime as the FTC believes he’s moved money offshore.
Those who have spoken with him say he’s confident about his case. He no longer owns the Lamborghini, however. A friend suspects he ditched it to look humble. Though Willms is silent about it all, a clue to his thoughts can be found in a blog entry posted in April about the importance of reading terms and conditions. “Users blindly agree to offer details and terms of service without reading them, and then are shocked when they are expected to live up to their side of the agreement,” he wrote. “You can hardly blame a company for doing exactly what they told you they would do—and what you agreed to.”