Classmates.com Settles Lawsuit Over Phony Friends

Hugh Pickens writes "Techflash reports that Classmates.com has agreed to pay up to $9.5 million to its users to settle a lawsuit that accused the social network of sending deceptive emails that made people believe their old friends from high school were reaching out to connect — only to discover, after paying for a membership, that their long-lost buddies were nowhere to be found. Lawyers for the plaintiffs asserted that Classmates had 'profited tremendously from their false or deceptive e-mail subject lines and related marketing tactics.' Under terms of the proposed settlement, Classmates.com members who upgraded to premium memberships after receiving one of the 'guestbook' emails will be able to choose either a $3 cash payout or a $2 credit toward the future purchase or renewal of a Classmates.com membership. Classmates.com is also among companies that have come under scrutiny for their use of 'post-transaction marketing' tactics — in which customers are given additional offers as part of the online payment process, sometimes in such a way that they aren't aware they're also signing up to pay more. A November 2009 US Senate Committee report said Classmates made more than $70 million through its relationship with post-transaction marketing firms. The Classmates Media unit posted $58.8 million in operating profit for 2009, up more than 24 percent from the previous year, making Classmates 'the most profitable social network in the world,' according to CEO Mark Goldston."

Comments

Why would anyone take the $2 credit?

[Anonymous Coward]

Even if you love Classmates.com after they scammed you, why wouldn't you take the $3, apply $2 yourself to your renewal, and spend the other $1 on a hamburger or something.

Re:Why would anyone take the $2 credit?

[Anonymous Coward]

If someone harms you, a very common way of pretending that you weren't harmed is to pretend you wanted it anyway. I suspect that many people who know they were ripped off will be life long subscribers in order to prove to themselves and others that they would have subscribed anyway.

The $2 credit is more convenient. Losing $1 is just the tip of the iceberg.

Re:Why would anyone take the $2 credit?

[sopssa]

And they're both so small amounts that in the end no one will care about it and classmates.com probably needs to spend 0.5% of the amount they were asked to pay up.

Re:Why would anyone take the $2 credit?

[obarthelemy]

'cept the lawyers, who were probably on a % of max payout. Which is why we get a huge total amount, made of negligible individual payouts: lawyers win big, classmates pays nothing besides the lawyers.

Re:Why would anyone take the $2 credit?

[thomst]

Er .. because they're stupid?

This company is owned and run by Mark "NetZero" Goldston, after all. He's made a succession of fortunes from exploiting the gullibility of people who can't do simple math (i.e. - enormously oversubscribed dial-up service == browsing at the speed of a slug on drugs + you get auto-disconnected after an hour online), or, evidently, read. He's repeatedly made it clear that he's a slimeball of Steve Case proportions, so in what world would you expect classmates.com to vary from the Goldston standard model?

His target audience is cretins, so of course they're gonna take the two bucks!

Re:Why would anyone take the $2 credit?

[nomadic]

Class action lawsuits are *never* for the benefit of the actual aggrieved parties. They're simply cash cows for tort lawyers. Bill Lerach actually got caught *paying* people to be plaintiffs in shareholder class action suits - he went to jail for that, but how many others didn't?

Not true; "class actions" are simply lawsuits where one or more parties represents a class of persons because joining ALL those persons would be impractical. You can have class actions that have nothing to do with torts. And the idea that individual class members never benefit is just not so. I've seen class actions where individual class members received millions of dollars. It all comes down to what the nature of the underlying claim is, not whether it's a class action or not.

Who would take the $2 ?

[sackvillian]

Classmates.com members who upgraded to premium memberships after receiving one of the 'guestbook' emails will be able to choose either a $3 cash payout or a $2 credit toward the future purchase or renewal of a Classmates.com membership.

Huh? They're offering a cash payout or 33% less money that you can only spend on the site that scammed you?

Better get working now on a decision-making chart if this applies to you.

Re:Who would take the $2 ?

[mister_playboy]

Indeed. People have a strong psychological bias against doing something for a token reward such as this. Tests have shown that people would rather do a task for free than for a small amount of money. Working for free can be rationalized as being nice and doing a favor, but how can you rationalize doing something for $2? It just makes a person feel cheap and undervalued.

Re:Who would take the $2 ?

[Mistlefoot]

A $3 cheque will cost you $4 in time and gas to cash. There is a bit of sarcasm in that comment, but there is some truth too.

When google adsense first started, they made small payouts in some situations (year end or something, i can't quite remember). I was sent a cheque for $6.48.
That cheque is tucked in a photo album somewhere. It was kind of cool getting that first cheque from google and, although I highly doubt the value will ever be greater then sentiment, who knows.

Regardless. It's not a $6 that I will ever miss.

Re:Who would take the $2 ?

[Like2Byte]

Well, for a little over $3, you can get a cheap fast-food meal. That's lunch!

CM.COM: "OK, so we tried to fraudulently obtain money from you by lieing our asses off about your buddy trying to contact you. Here's lunch. Better now?"
Me: Shove that lunch up your ass!

Why is it that Company X defrauds someone and they only have to pay back 33% of what they collected to the victim; but, if Joe Schmo does it he gets ~1yr jail time or some such judicial or civil penalty?

The Real Scam?

[Anonymous Coward]

The legal system! What kind of justice is this? Classmates.com made $70million for being deceptive ($60million less this judgment) while getting a slap on the wrist, the lawyers get the bulk of the $10million, and what has changed? Nothing! Companies can continue to make profits, abuse customers and the public, and know that in the end all they will lose is just a tiny bit of the profit they made even if they break the law!

Re:The Real Scam?

[fuzzyfuzzyfungus]

The efficient operations of free markets require good information to be available. The further you get from good information, symmetrically available, the further your results will get from any of the ideal free market outcomes. This (in addition to the fact that people generally dislike getting scammed) is why things like false advertising and lying on your SEC filings are illegal.

Neither the economic theory of free markets, nor any of the historical examples of approximately free-market structures, support the notion that free markets will actually adequately control fraudulent actors. If you make some sufficiently optimistic assumptions about the speed with which "word of mouth" works vs. the speed of advertising, astroturf, sneaky rebranding of tarnished firms, etc. you can probably make the models say that it will work; but those assumptions are nonsense).

Even in situations where selection does occur at the firm/brand level(if, for instance, Classmates.com were to falter due to their reputation for false advertising and general worthlessness) that helps you very much less than you might expect. Remember, the "rational actors" are not the firms themselves; but the people behind them. If I can extract enough money from my scam before its inevitable implosion, my scam's implosion will not dissuade me in the slightest from further scamming. Since these ownership relations tend to be quite obscure by the time you get to the consumer level(even the ones that aren't actively secretive can get very complex very fast, and virtually nobody has the cognitive resources to keep up with ownership structures for more than a tiny fraction of the firms they deal with in a day), it is eminently possible for bad actors to move from scam to scam for years, reaping substantial rewards.

Re:The Real Scam?

[KiahZero]

In what universe is 10% "the bulk?"

Also, you have to remember that this is a settlement, not a court decision. A settlement, being a compromise between the plaintiffs and defendants, will naturally be less than what the full value of the judgment could be. Additionally, the lawyers would have gotten much more in fees had the case gone to trial, because trials in class actions can get very expensive very quickly.

Re:The Real Scam?

[Anonymous Coward]

In addition to the one above, there is a second main line of argument in favour of fraud investigation and enforcement being a state rather than market function: specialization of labour.

It is abundantly obvious, in the majority of areas of activity, that specialization increases productivity and efficiency substantially. There are some niches where generalists are quite useful; but specialization and trade are(perhaps only second to fossil fuels) the reason why modern society is wealthy beyond the dreams of prior societies.

Given that, the "well, informed consumers will eventully solve the problem" or "If you'd just been an informed consumer, the scam wouldn't have happened" arguments are economically unrealistic. Depending on the exact flavour of fraud in question, its detection can require any number of skills: forensic accounting, detailed examination of organizational structures, analytical chemistry, electrical engineering, toxicology, investigative reporting, dumpster diving, whatever. There are a lot of different ways to lie and defraud. Most are detectable, often pretty easily, if you know the right things, have the right skills, and ask the right questions(and, since you are dealing with liars, "asking" can require dumpster diving, subpoenas, or a sock full of quarters...) Then, of course, once you've detected the fraud, you have to either shut it down, or advertise that it is a fraud broadly enough for market pressures to shut it down, itself requiring resources and specialized skills to do well.

Because of this, you almost certainly get more fraud prevention per dollar by having a fairly small number of dedicated fraud detectors than by having everybody dedicate a small portion of their time and energy to the matter. Since free-riders on these dedicated fraud detectors would be an issue, there is a good argument in favour of making this fraud detection a state function, along the lines of law enforcement more generally(the one distinction to keep in mind, though, is that while law enforcement is generally an exclusive state function, outside of self-defence, because having vigilantes running around causes real issues; there is no reason why fraud detection needs to be. If TV News Channel 5 can sell attract viewers and sell ads by having an investigative reporter run around town and produce "Fraudbuster!" that's great. If Dell wants to hire some electrical engineers to investigate a possible PSU supplier, good for them.)

Re:The Real Scam?

[clarkkent09]

This is the way capitalism and and open-and-free market works.

Not really. If a company promises and charges you for one thing and then provides another you have every right to sue. It's really just a simple case of fraud. Not even the most ardent supporters of free market capitalism, in which group I count myself, would argue that there shouldn't be laws against fraud.

Re:The Real Scam?

[jareth-0205]

This is the way capitalism and and open-and-free market works. If someone it selling a product, then you are free to purchase it. If the product is bad or does not work as promised, then you never use or purchase their product(s) again.

Huh? Really? I was under the impression (in the UK atleast) that if somebody sells you something, then *that thing* is required to work as advertised.

Why should anyone be able to sell you something fraudulently, even once? It's not government nannying, it's called consumer protection. Your argument doesn't scale anyway, if someone sells you a new car and doesn't include an engine, should you not be entitled to some recourse? Just because the value is smaller doesn't change the principle.

Re:Attorney fees

[Anonymous Coward]

But don't worry, the lawyers will make a bundle. Hmm. I wonder why we have so many lawsuits against big companies.

Re:guest book larger than graduating class

[johnlcallaway]

And .. like most intelligent people .. you weren't fooled by it. So a bunch of stupid people who have no clue were taken in by a deceptive ad. I'll be that's the first time that ever happened. (Now .. where did I put those sarcasm tags...)

I used to pay for a premium membership so I could send emails to former classmates. During that time, I connected with several friends that I had lost touch with and still regularly send emails. One of those high school friends I am married to now. It was worth it those first few years when it was the only game in town.

I haven't paid for a premium membership in years. I watch my list of classmates, and if anyone new pops up that I want to email, I'll try to find them on facebook. And I'm really not interested in who signed my guest book .. I've contacted all of my old classmates that I wanted to that were on the site.

Re:Japanesepod101.com

[Kjella]

They offer a 'free trial' (...) and then persuade you to give them your credit card details

Stop. That's the only two facts you need to know: This is with 99% certainty some form of hidden subscription or renewal. Also here in Norway they can do the same with the cell phone. If they want your credit details and it sounds too good to be true, it's too good to be true.

Re:Japanesepod101.com

[Anonymous Coward]

Which is why one-time-use credit cards is nice. If they keep trying to charge against it, they get investigated for fraud from the CC company.

Re:Similar experience

[Blue Stone]

Please tell us which site this was. I have parents who are interested in the whole genealogy thing and would like to be able to warn them to steer clear of any scam sites.

Re:Obigatory Onion article

[John3]

I immediately thought of this Onion article, especially after I read about how profitable Classmates.com is. I can't believe people subscribe to this service when you have Facebook, MySpace, and even Google to assist in locating old classmates. There are Facebook groups for nearly every school imaginable, as well as groups for each graduating class, even groups within a graduating class. As funny as the article in The Onion is, it appears that the Classmates.com management knows plenty about Facebook and still manages to remain profitable.

Re:Case in point re class action lawsuits

[phantomfive]

The first time I got spam from classmates dot com it took me exactly 2 seconds to evaluate the "service" and decide it was a bullshit operation.

I'll bet if you look at the logic trail you followed to reach that conclusion, you'll find that it was a path the average user won't be able to follow. People who commit fraud should be punished.

Re:Just call your CC company

[mpe]

Sorry, but the (I think 2006) credit card rules revisions do not allow the credit card company to cancel subscription billing. Nor can they cancel the card to stop the charges. The only way out is to get the company that is making them terminate the subscription billing.

This being the same company which asked for the card details as part of a standard one time transaction then used the same details for a "subscription"?