Intelius and the Dubious Art of “Post-Transaction Marketing”

A checkered success during the dot-com bubble, Naveen Jain has come charging back with a new venture—and the complaints are rolling in.

It all started when Scott Bolsins found a lost schnauzer roaming around his suburban Dallas neighborhood. The dog's collar listed a cell-phone number, but when Bolsins called, no one answered. Bolsins, who once had a business selling homemade dog bones over the Internet, was perturbed. "I can't keep this dog, and I sure don't want to take him to the pound," he thought. So he went online to do a reverse lookup of the phone number in order to find the associated address.He went to the Web site of the Bellevue company Intelius, which sells personal information obtained from public records and marketing databases, including addresses attached to cell-phone numbers. He plugged in the number, gave his credit card number to pay the small fee, and received an address in Grapevine, a neighboring city. He then delivered the schnauzer to its teary owners, who had thought their beloved pet was dead. "They're happy. We feel good. Everything's great," Bolsins recalls in a soft Texas drawl."Next thing I know," he continues, "I start getting these charges." Two of them, for $19.95 apiece, showed up on sequential credit-card bills beside unfamiliar names: "Privacy Matters" and "PMIdentity." Bolsins went back to the Web to investigate, and found one phone number for both names. He says he called and was told that he'd signed up for a "service" on the Intelius site. What service, and how did he sign up? It was never clear to Bolsins. All he knows is that Intelius forwarded his credit-card information to another company that ran this "service."He got the charges reversed, but cancelled his credit card anyway to avoid any more mysterious charges. He then filed a complaint about Intelius with Washington State Attorney General Rob McKenna. Almost a year later, Bolsins—himself experienced at running an online business—still seethes about what he considers a blatant "scam."The word comes up a lot in 121 complaints, filed with McKenna's office, against Intelius, many of which detail the same kind of thing that happened to Bolsins. Even during a time when his office is getting more consumer gripes than it has in years, McKenna says, "That's a lot of complaints about one company." Intelius has drawn even more—822 to date—at the Better Business Bureau. On the BBB site, the company is currently listed as unrated, due to "one or more serious complaints" that the bureau has not yet had time to assess.Partly because of concerns about Intelius, McKenna requested legislation this session aimed at stopping what he calls "deceptive" Internet marketing—although the resulting bills didn't succeed in getting scheduled for a vote by last Thursday's deadline. It's the second time McKenna has gone to the legislature in an attempt to curb the company's practices.Last year, Intelius started a service in which you could input a name and for a fee receive that person's cell-phone number. (Intelius declined to tell the Weekly where it gets all that information.) In response, McKenna pushed through a bill that prohibits companies from selling people's cell-phone numbers without their permission. Faced with negative publicity, Intelius eliminated the service before the law took effect last June. The law, however, does not require people's consent to include their cell numbers in reverse directories, which Intelius continues to offer. One reason for the exception is to allow people to identify phone stalkers, the AG says.The company's troubles don't stop with state regulators. In 2006, the Federal Trade Commission launched an investigation of Intelius for possible violation of laws regulating how credit information is disseminated. FTC spokesperson Mitch Katz says the investigation is ongoing. Intelius has also become enmeshed in litigation over fractious business relationships, and has provoked the ire of numerous people who feel the company has violated their privacy or simply provided bad information.In the process, Intelius has become a nexus of all the appeal—and the dangers—of Internet commerce. It provides easy desktop access to information that previously might have required visits to courthouses and state government offices. But some of its practices have reinforced people's worst fears about handing over their credit-card information online. And the sometimes-questionable accuracy of its data has heightened anxieties about the ready accessibility of personal data on the Web.Founded in 2003, Intelius employs close to 200 people. In a filing with the U.S. Securities and Exchange Commission last year in preparation for a public stock offering, Intelius said it had revenue of $88 million and a profit of $11 million in 2007. (Amazon.com, in comparison, was still losing money four years after its launch, though it had nearly twice as much revenue.) The company's site was the 111th most-visited in January, according to Media Metrix. Its success has also been fueled over the years by an array of shifting partnerships, including ones with giants Microsoft, Yahoo, and AOL, all of which at one time used Intelius to provide directory searches on their own sites. Yahoo still does, as well as AT&T, Switchboard.com, and many others."I'm amazed," says Jon Staenberg, a Seattle venture capitalist. Staenberg was an early investor in InfoSpace, the previous start-up of Intelius founder and CEO Naveen Jain. "If the numbers are what Jain says they are, he's been able to build another large company," says Staenberg (who has not put money into Intelius). "Not many entrepreneurs can do that twice."Staenberg's caveat ("If...") is telling. InfoSpace, which also traded in phone directories and other online information, was one of the hot stocks of the dot-com bubble. But after the crash, Jain and other InfoSpace officers became the subject of class-action lawsuits alleging they had misled investors with inflated revenue figures while trading on inside information. According to a 2005 Seattle Times investigative series based on unsealed court records, InfoSpace used a variety of accounting tricks to cover up a financial shortfall, including trading investment in a company owned by Jain's brother for millions returned to InfoSpace as "revenue."Jain was forced out of the company he founded in late 2002, later agreeing to a settlement in which he was to pay his former company $68 million, ending all claims against him. (Insurance companies and the other defendants were to pay $46 million more.) Jain did not admit to any wrongdoing.Despite that fall from grace, the brash, Indian-born Jain has held on to the 12,000-square-foot Medina mansion he bought in 1999, as well as to his Icarian confidence. His personal Web site offers a 1,500-word tribute to himself, subtitled "Wizard of the Information Industry," that begins this way: "An extremely intelligent man with a commanding presence and a track record to turn heads, Naveen Jain has the kind of kinetic personality that sets fire to a room."He also kept his personal credit card, which apparently has a very high credit limit. Shortly after leaving InfoSpace, he used the card to finance his new company. Over the next three years, he charged $14.3 million on Intelius' behalf, with the company paying him back monthly, according to SEC documents.Now that Intelius is attracting complaints, litigation, and the attention of state and federal authorities, a question arises: How much of Jain's head-turning track record is he duplicating?In a lawsuit filed last April in King County Superior Court, Jain is once again accused of inflating financial figures. The accusations come from Thomas Buck Lindsey, who founded Qwil, an Oregon company offering online directory information. In 2005, Intelius acquired Qwil, paying its shareholders largely with Intelius stock.But Lindsey and other shareholders now accuse Intelius of misleading them. According to his briefs, Lindsey later acquired documents from Intelius which showed that the company's income for the first six months of 2005 "was more like half the amount stated in financial statements" given him before the merger. In part, according to Lindsey's complaints, that's because Intelius severely underestimated its tax liabilities for the year. Lindsey's attorney, Anthony Todaro, adds that "the claims go beyond just the taxes."Intelius, in its legal papers, maintains that it provided accurate information, and is suing Lindsey in turn for allegedly misrepresenting the scale of Qwil's Internet traffic and the quality of its database, which Intelius calls "so unreliable as to be essentially useless."Intelius offers "over 100 intelligence services," according to the SEC documents. These range from a simple "people search" that provides an individual's addresses and phone numbers to a background report that promises to reveal any criminal record, liens, and property holdings, among other things. The company conducted an advertising blitz for the latter product a couple of years ago, with eerie spots suggesting that the clean-cut guy you're moving in with, or the sweet nanny you're about to hire, is really a dangerous ex-con.Among the company's fans is the Boys and Girls Clubs of Bellevue, which runs background checks—donated by Intelius—on all potential employees and volunteers. "It's been very helpful," says Kathy Haggart, the Clubs' president and CEO. Before Intelius, she says, the organization had to rely on the Washington State Patrol to search for criminal records, which included no cases outside the state.For some users, Intelius is essentially a less-warm-and-fuzzy Facebook. Customers who have filed complaints with McKenna's office illustrate some of the ways Intelius is used: A retired Boeing engineer named Ralph Ramstad helped his lady friend find someone she grew up with in Latvia. Jo Spencer of Oregon looked for a neighbor who owed her son money. Californian Pamela Taylor wanted to reach her ex-husband so she could get medical history she needed for her son.But Intelius also derives substantial revenue from what's called "post-transaction marketing." One particular company is a key partner in this side of Intelius' business: Connecticut-based Adaptive Marketing. "If our relationship with Adaptive Marketing were to be terminated and could not be replaced, it would likely have a significant impact on our operating results," the Intelius SEC filing says.Adaptive runs an array of membership programs that offer, among other things, retail discounts and identity-theft protection. These programs are offered to Intelius users after they've submitted their credit-card data but before they've received the information they're looking for. A 2007 marketing agreement between Intelius and Adaptive, included in the SEC filings, spells out that consumers do not need to re-enter their credit-card numbers in order for Adaptive to charge them. "Intelius will obtain such customer's consent for Intelius to transfer his or her card-on-file information."But many users apparently fail to realize they are giving such consent, and it's easy to see why. Say you do a "people search" through Intelius, a service that costs $1.95 and provides an individual's phone numbers, addresses, birthday, relatives, and other information. After you enter your credit-card number, a page comes up thanking you for your order in big, bold type. In somewhat smaller and less-bold type, it also says you can get $10 back as a member of ValueMax (an Adaptive program offering discounts at stores like Kmart and Bed Bath & Beyond). In really small, regular type, it tells you that membership will entail your credit card being charged $19.95 a month after a "7-day FREE trial period."Remember, you still haven't gotten access to the information you paid for. To get it, you have two choices: Click on the big orange rectangle, off to the side of all these instructions, that says "YES, and show my report," or click on the small black one-line link that says "No, show my report." The YES button is what gets you monthly ValueMax fees.Intelius also uses this technique to peddle Adaptive's identity-theft program, Privacy Matters. Last May, the business news site TechCrunch wrote a scathing piece about the practice. Intelius pitches its own identity-theft service as well, which purports to monitor public documents and consumer databases for suspicious activity.Stephen Kropp of Renton says he inadvertently signed up for an Intelius identity-theft subscription last summer after purchasing a phone number from the company. Sometime later, he says, he noticed a $19.95 charge on his debit card. Looking through past statements, he realized the company had been charging him for six months, collecting a total of $120. "I just wanted a phone number," says Kropp. "The service they were offering was completely unrelated to what I was asking for" and hadn't provided him any benefits that he could see. He says Intelius initially refused to refund all but one month of the fees, but agreed to return the rest after he wrote to McKenna's office.Like many of those complaining, Kropp is not a computer neophyte. A civil engineer, he works for an environmental consulting firm called Entrix, where he designs salmon habitat restoration projects, among other things—all using software, of course. "I'm pretty much a computer nerd," he says.That's the thing that bothers Brenda Piampiano, a Maine attorney who was hit with $40 worth of charges for an Adaptive service she says she never intentionally signed up for. The service is called "Family Safety," and promises to allow consumers the ability to monitor sex offenders in their neighborhoods. "I'm a relatively savvy person with a law degree, and I use the computer absolutely all the time," she says. "I feel like if I can get taken into these things, anybody can."Adaptive spokesperson George Thomas says the company's offers on the Intelius site are "perfectly clear," and that people who say they didn't realize they were signing up for Adaptive programs must have "forgotten they enrolled." Connie Zimmerman, senior manager of compliance for Adaptive, adds that consumers are sent a confirmation e-mail.Intelius originally declined to speak to Seattle Weekly for this story, citing the "quiet period" following its filing with the SEC. Many businesses choose to say little to the media after filing to sell shares to the public in order to avoid allegations of misleading potential investors. Shortly before this story was scheduled for publication, however, the company made available its executive vice president of sales and marketing, Ed Petersen.Petersen says his company has responded to consumer complaints by sending its own confirmation e-mails, as well as by redesigning its check-out pages to make clear all the services people are buying. About six months ago, he says, Intelius formed a "consumer advocacy committee" of employees and board members, which reviews "everything that goes out on the site.""We've evolved," Petersen says. He maintains that the complaints represent a small part of Intelius' volume of business, and that most customers come directly to the company's site, rather than via partners' sites, because "they have heard good things" about the company. "That says we're doing something right."The company declined requests for an interview with Jain.Intelius is far from the only Web company to use these kinds of controversial marketing techniques. Nor is the Internet the only medium in which they flourish. McKenna recalls the record clubs from the time he was growing up: They'd draw you in with an offer of a half-dozen or more LPs for a penny, then automatically send you another record at full price every month.More recently, McKenna and numerous other attorneys general sued Chase Bank and Trilegiant Corp. for a scheme in which consumers were offered rebates and trial periods for Trilegiant "membership" programs. The offers came attached to Chase mortgage or credit-card statements, and, unbeknownst to many consumers, resulted in monthly fees. The companies agreed to a $14.5 million settlement in 2006.Internet transactions are especially tricky, says Alissa Cooper, chief computer scientist for the nonprofit Center for Democracy and Technology, because you're tempted to click through screens without close examination. And what you're agreeing to "can be buried behind a link or another page that you never thought to go to. Or they can have all these buttons and flashy graphics." Plus, she notes, the Internet allows personal information, like credit-card numbers, to be transferred electronically, smoothing the way for business partnerships that aren't necessarily apparent to consumers.WhitePages.com, a Seattle-based competitor to Intelius, partners with a company called US Search, which employs techniques similar to those of Adaptive in order to push membership clubs and "Reservation Rewards" programs. John Lusk, marketing vice president for WhitePages.com, maintains that post-transaction marketing is "a viable business strategy. Once you've got someone on your site, you should be doing everything to cross-promote and cross-sell."He concedes some companies don't do this in a "straightforward" way. He recalls signing up online for the Vancouver Marathon last year. When it came time to pay, he noticed all these already-checked boxes signing him up for various things, and he thought he'd unchecked them all. Sometime later, however, a $50 charge appeared on his credit card—the fee for a service that was supposed to keep him updated on similar events."This is bullshit," he griped when he called the company.Last year, US Search paid $250,000 in penalties after the New York State Attorney General found the company had "illegally accessed and sold consumer data." Adaptive, too, has had trouble with state regulators. Iowa Attorney General Tom Miller launched a suit in 2006 against Adaptive's parent company Vertrue, charging unfair and deceptive practices in the sales of its membership programs. "Many consumers don't know they are members, are not aware they are being charged yearly or monthly membership fees, and make no use whatsoever of the so-called membership benefits," a press release from Miller's office reads.Two ongoing class-action suits on behalf of consumers, in Texas and Tennessee federal courts, make similar allegations. Thomas, a spokesperson for Vertrue as well as Adaptive, says the allegations "will be shown to be without merit," and a Tennessee judge issued a favorable ruling for Vertrue last year. The case is on appeal.McKenna, known as one of the most active attorney generals in the country on Internet fraud issues, says he can't comment on open investigations, and so won't say whether his office is contemplating similar action against Intelius or Vertrue. But he says that the large number of complaints against Intelius spurred him to push for legislation designed to ensure that consumers give their "informed consent" before they are charged for products."We're basically trying to slow the process down," adds Assistant Attorney General Katherine Tassi, who helped draft the failed bills.Under the bills, companies that acquire people's credit-card numbers would be required to ask customers to re-enter at least the last four digits before charging them for additional services. Businesses would also have to notify consumers at least five days before the first charge is made, a provision especially aimed at companies that offer trial periods that quickly convert to ongoing fees.In addition to the services it sells to consumers, Intelius provides employers and landlords with criminal histories, credit reports, Social Security verification, and employment records on potential employees and tenants. All these services are regulated by the 1970 Fair Credit Reporting Act—"the nation's oldest privacy law," according to Chris Hoofnagle, a law professor at the University of California at Berkeley. The act requires companies that sell such data to ensure that their customers have a legitimate purpose for using it—something that US Search failed to do, according to New York Attorney General Andrew Cuomo. "With the crime of identity theft running rampant across the globe, it is critical that personal data, including sensitive credit-bureau information, not be readily available to anyone with Internet access," he said at the time.Intelius is also being investigated for possible violations of the act, according to the SEC filing. (The FTC won't discuss ongoing investigations.) These violations could be in regard to privacy or accuracy, Hoofnagle speculates.Both issues loom large in the consumer complaints about Intelius filed with McKenna's office, most of which had to do with ordinary people searches. Some correspondents are livid that information such as their birthdate and the names of their relatives is so readily available—even if, as a McKenna staffer often writes back, such information comes from public documents that are already "available to anyone who might request them." Intelius recently hired a "chief privacy officer" to deal with such concerns and "grow the relationship" with advocacy groups, legislators, and regulators, according to Petersen.Many other consumers object to the spotty results. As Intelius itself concedes in its SEC filing, the information it and similar companies sell is often inaccurate and out of date.One West Virginia woman wrote to the Attorney General's office a couple of years ago to say that she paid $69.95 for a background check on a registered sex offender in her neighborhood, only to get a report saying that the man had no criminal history. Another woman in New York wrote to McKenna that she got way more information trolling free Web sites than she did by paying Intelius.Christine Fabris of California says she ran a background report on herself, and was shocked when it listed a 1998 case number under a category called "Criminal Check." She says she had no criminal record, and so thought, "Oh my God, someone's stolen my identity." She was especially concerned since at that time she was undergoing a separate Department of Justice background check as a tutor in the California public-school system. But when she looked up the case file at the Superior Court in Pittsburg, California, she discovered it was not a criminal case at all, but a traffic ticket.Intelius reports contain caveats that information may not be accurate. Fabris' background report, for example, warns of "false matches" that "may not provide confirmation of an individual's criminal background." At times, though, the company seems to be selling something it can't deliver. A TechCrunch reader wrote in to say that he had searched for an obviously nonexistent person with the last name "Bullshit" and the Social Security number 123-45-6789. Intelius did indeed offer to sell him a report on Mr. Bullshit—just as it did when Seattle Weekly repeated the experiment.An Intelius people search on Naveen Jain drives home the kind of information that is and isn't offered. The report lists Jain's birthday, some relatives (including his wife Anuradha, who serves as Intelius' vice president of community affairs), and three addresses, including his home in Medina (especially impressive since property records cite a trust as owner of the home; the Jains' ownership is revealed in other documents). But it doesn't say which address is current; Jain sold one of the listed properties in 1999. And the property value that is supposed to correspond to that house is wildly incorrect. The supposed value: $279,400. The actual value: $856,000. (Jain's current Medina house, incidentally, is valued by the Assessor's office at $16.2 million.)Aware of its PR challenges, Intelius has been stepping up its philanthropy. In January the company issued a press release touting 2008 donations of nearly $210,000 to a dozen local and national nonprofits, including the United Way, Seattle Children's Hospital, and Overlake Service Center. Jain and his wife have personally given even more.The Jains have contributed especially generously to causes related to their East Asian heritage. They gave $250,000 to the newly rebuilt Vedic Cultural Center in Sammamish, making them the largest contributors, according to the Center's executive director Naresh Bhatt. The pink, marble-floored edifice is a gathering place for local Hare Krishnas, a number of them Indian immigrants, like the Jains, in the Eastside's tech community.Bhatt says he and two others from the Center went to the Jains' Medina house to pitch the rebuilding effort. He brought a computer presentation that normally took about 30 minutes. But Bhatt says Jain stopped him after about 10 or 15 minutes with a generous offer, and then moved everybody into the kitchen for snacks.Vijay Vashee, a Zimbabwean native of Indian extraction, knows Jain from the time the two worked at Microsoft. Both have since supported some of the same causes, including the Hindu Temple & Cultural Center in Bothell and an India-based charitable organization called Child Rights and You. Vashee says he and other Seattle Art Museum supporters pressed Jain for a donation to the current Seattle Asian Art Museum exhibit of paintings from Jodhpur, India, and Jain complied. He "seems to be in a mode where he's preoccupied about wanting recognition and being perceived as a leader in the community," Vashee observes.In recognition of the Jains' philanthropy, Overlake Service League, a Bellevue nonprofit, chose the Jains to be "honorary chairs" of its annual March luncheon. "They're just out there in every conceivable way," says Trish Carpenter, Overlake's fundraising director. Not only have the Jains donated tens of thousands of dollars, but they have encouraged Intelius employees to do the same, Carpenter says.She adds that Jain told her recently, "In tough times, if businesses like Intelius don't step in, who will?"On the business front, though, Intelius seems to be having mixed success of late. The company has not said when it will have its long-delayed IPO. (Obviously not anytime soon, given current stock-market conditions.) But Petersen says "all sides of our business are growing gangbusters," and notes that the company is adding a new office in Bothell. In February, Intelius started providing search services for sites run by AT&T, such as YellowPages.com.But Intelius has also lost some contracts. Last year MSN switched from Intelius to WhitePages. WhitePages' vice president of business development, Young Lee, claims his company's service drew more traffic, in large part because it offers all its information for free, including age and household members. (Intelius offered some free information on MSN, but charged for more detailed reports.) The same goes, he says, for AOL, which switched several years ago from Intelius to WhitePages.Petersen responds that "that is a load of crap," saying the switches had to do with larger marketing agreements rather than with customer satisfaction. (Both Microsoft and AOL declined to comment.)In a medium that famously gave rise to the idea that "information wants to be free," Intelius' fee-based model has done remarkably well, but perhaps won't for long. "It is possible that competitors employing an advertising-supported business model with free or low-price information service offerings may emerge," the company wrote in its SEC filing. "Any such development may require us to re-evaluate our business model."Intelius already has one strategy laid out. According to the filing, it plans to increase its focus on post-transaction marketing. Seems like McKenna's office is in for more complaints. Asked whether he plans to take any further action regarding the company besides the current legislation, McKenna only hints: "We'll be talking again."nshapiro@seattleweekly.com

 
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