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

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?

[johnlcallaway]

It's social evolution. Only stupid people were taken in by the ads. Now, those stupid people have less money and their friends mock them, so they can't breed, except with other stupid people. Eventually their offspring will be so stupid even breeding won't be possible.

In fact, they are so stupid that they'll think $3 is a great deal.

Thank you Classmates.com for helping get rid of stupid people.

Re:The Real Scam?

[Montezumaa]

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. Once enough people get the word out that a certain manufacturer or service company is not providing a proper product, then they end up losing their business because of lack of customer interest.

It seems that Classmates.com is either providing a service that many people enjoy or they are doing some heavy black-market work to keep up their failing business(which is unlikely). Sure, there are some that were probably scammed through these emails(of which I got a few, but ignored), but it seems that there are more than a few people that like the service they are receiving. If Classmates.com continues to provide a faulty service, then their revenues will start to decline and the end of said service will come rather quickly.

It is not up to the government to be your nanny or mother; you have to decide what is best for your money. Spread the word that Classmates.com is providing a bad service and "nature will take its course", so to speak.

Re:The Real Scam?

[Anonymous Coward]

Eventually their offspring will be so stupid even breeding won't be possible.

Obviously you have never been to Alabama.

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?

[bmajik]

I agree that specialization in fraud investigation is a good thing.

However, why do you conclude that this must be undertaken by government actors? You posit that NGO fraud detectors exist and are a good thing, but conclude that free-riders make government answers preferable.

When comparing government vs. non-government actors, the government connotation means just a few things:
- the government acts coercively
- the government tends to forbid competiting actors in that space
- the government has few or dubious performance metrics and oversight processes

Private regulatory agencies are quite successful, except as they are replaced by government actors. UL, Good Housekeeping, Consumer Reports, etc are all Non-government ratings agencies that have provided tremendous value to folks over their histories.

A great personal example of this is IIHS.org. The government has been doing crash testing for a long time, but I never even bother looking at it, because IIHS does _Better_ testing and publishes the raw data of those tests, including photographs.

This page: http://www.iihs.org/about.html explains how and why IIHS is funded.

It's exactly what you'd expect market actors to do: figure out how to do something that helps their bottom line. For every car company with an incentive to skimp on engineering to make more profit on a car, there is someone at the IIHS with an incentive to see that nobody is buying cars that hurt people.

If you spend time trawling through the IIHS data, the survivability of new cars is amazing vs. designs of just 5 years ago. As you move out to the 10 year timeframe its startling how much better new cars are in terms of safety cage deformation and dummy kinetic loads. There is no law that requires BMW to build a stiffer, more survivable car than Dodge. But BMW does, and BMW's customers pay more for a better product.

Unlike a law saying "cars must be built like this", and the simplistic "stars" rating of the government tests, consumers can look at the IIHS technical data and see just HOW MUCH MORE of their left shoulder is going to get crushed in a side-impact hit in a 5 series vs. a Neon. They can then make a cost vs. risk decision that fits their situation appropriately.

I never put much stock in car-saftey talk until I looked at the photos and the numbers. The "centimeters past drivers centerline" number in side impacts is most illuminating.

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:The Real Scam?

[fuzzyfuzzyfungus]

I think that your examples illustrate the fact that there is a spectrum(if not quite a continuum) from purely state to purely private actors. And, more specifically, there is no reason that something that is a state function cannot be accomplished in substantial part with private entities. As your examples demonstrate, the private sector is quite decent at coming up with standards for various things, and at doing various sorts of testing. Trying to replace them with a Federal Ministry of Testing would make about as much sense as mandating that police departments start manufacturing their own uniforms and equipment.

For instance, the IIHS is, as you note, private, and funded by a collection of insurance companies(presumably because lowering risk lowers payouts at least slightly faster than it lowers premiums). So far, so private. However, automobile insurance is somewhere between strongly encouraged and legally mandatory, for anybody who hopes to drive legally, in virtually every state(I think that NH might be an exception, and various other states have alternatives of greater or lesser theoreticalness; but it is virtually compulsory for most of the US driving population). There we go. State intervention has, albeit probably not by design, effectively eliminated the possibility of any substantial number of free riders on IIHS data at the consumer level. It would be interesting to know what is done to discourage free riding at the insurance company level; but individual car buyers almost certainly face legal compulsion away from free riding.

In the case of UL, their standards design and testing services are indeed private and voluntary. The fact that UL certified components are one of the recognized ways of complying with most state and local fire and building codes, which are neither private nor voluntary, definitely helps sell them, though. Being on OSHA's list of Nationally Recognized Testing Laboratories probably doesn't hurt either.

Good Housekeeping and Consumer reports do do (generally) excellent work in product testing and have enough institutional spine and brand clout that they can remain reasonably free of regulatory capture(there are some "independent" certifications, the various trendy "green", "organic", "sustainable" ones tend to be especially problematic, that are almost wholly controlled creatures of the industries they purportedly regulate, so clout and independence really matter). They don't do much on the fraud side(it is only in the context of trademark law that the Good Housekeeping Seal is anything more than some nice box art).

There are some other interesting examples of mixed state/private responses to regulatory issues, some fairly effective, some less so. Financial fraud, for instance, is pretty clearly a law enforcement problem. However, actually availing yourself of law enforcement assistance can be pretty hard for Joe Consumer, particularly if it involves small transactions. As a competitive measure, to increase their market share vs. cash and others, the credit card companies have been fairly aggressive about offering protection services to their customers. Since(at least in the US) the credit card market is somewhere between an oligopoly and a duopoly, they are in a strong position to do so, and being able to "chargeback" is far easier for the user than trying to take things to court. For larger issues, the credit card guys can exercise their comparative advantage in dealing with legal stuff, and tackle large fraud cases and the like. That has, arguably, been a fairly effective arrangement for dealing with the fact that many of the rights that one, legally speaking, enjoys during the course of a transaction are difficult and expensive to actually exercise in the face of a fraudulent opponent.

On the other hand, the somewhat sordid matter of commercial Institutional Review Boards gives us an example of a situation where private sector handling of a part of a state function (rather predictably) fell flat on its face. IRB approval is required fo

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.

Similar experience

[johnw]

I've experienced something very similar with a genealogy site in the UK. I signed up to have a look (in the course of which I gave them my name, date of birth and town of birth) and a little later I received an e-mail saying that I was probably in someone else's family tree - all the details which I'd given matched, plus they'd added the hospital in which I was born. It's a sufficiently small hospital that there couldn't have been two people with the same name born there on precisely the same day. And yet I know my family tree very well and there's no way the person purporting to have me in her tree could actually be related.

Sure enough, when I tried to get more details they wouldn't give any details unless I paid, and then after I'd searched a few times the purported relative disappeared from their hits.

The extra information is exactly what they could have got from the register of births marriages and deaths. It was enough to make me cancel my whole subscription.

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.

Obigatory Onion article

[WD]

http://www.theonion.com/content/news_briefs/classmates_com_employees

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.

Japanesepod101.com

[bananaendian]

Japanesepod101.com and other language learning websites run by Innovative Language Learning also practice similarly deceptive marketing.

They offer a 'free trial', access for a month to their language learning website and then persuade you to give them your credit card details so that they can send you a 'free gift' (you only pay for the postage). However if you do this, you have just signed up to their subscription which will begin automatically charging your credit card and renewing your subscription every month ones the free trial is over. To opt-out you need to follow the websites instructions which tell you where to stop the renewal. However this only works after you have singed up again to one of their paid accounts, giving you access to the actual menu under which the opt-out is ... or you can just send their sales department an email and get the automatic subcription terminated.

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: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.

I suppose ...

[PPH]

... the next thing you are going to tell me is that all these hot girls in my neighborhood advertising on various web sites aren't real either. That would be a tragedy.

After being stood up by a bunch of high school friends that never gave be the time of day when I was there, I was looking forward to some female companionship just to sooth my bruised ego.

Fraud?

[shentino]

Excuse me, but where are the punitive damages?

Re:Fraud?

[ffflala]

The settlement also calls for Classmates.com to pay attorneys for the plaintiff up to $1.3 million in fees, with the court determining the actual amount. The lead plaintiffs in the case, Anthony Michaels and David Catapano, would each receive $2,500 as part of that provision.

It's a settlement; these aren't damages and Classmates.com is admitting no wrong doing.

What has happened here is that the two guys who bothered to bring suit against Classmates.com have been paid $2500 (and their attorney fees have been covered). Considering that it was a ~$10 fraud, that seems like relatively steep punitive damages in their case. Everybody else who was similarly deceived --but who didn't bother doing anything about it-- will get a whopping $3.

I'm not saying these terms are fair, just that the lead plaintiff aspect in class action lawsuits is supposed to encourage people to complain.

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!

Case in point re class action lawsuits

[PingXao]

There are many class action lawsuits that end up being complete BS like this one. The lawyers made a ton of money and the people scammed get $2. Not that classmates dot com deserves any sympathy whatsoever. IMO they should be forced out of business, because the only thing this will do is make them get even more "creative" with their advertising and spam.

At the same time I haven't got a lot of sympathy by anyone taken in by the classmates scam. Darwin should be allowed to work his magic at some point. 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.

Having said all that, I wouldn't want to see class action lawsuits go away entirely. The laws that govern them do need an overhaul IMO.

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.

Still doing it

[Plekto]

These lawsuits take months or years to grind through the courts and yet I had one of these pieces of spam just a couple of days ago from them. You'd think that they would at least stop the activity while they are being sued. But from the looks of it, they are going to pay the fine and continue doing it anyways as it's cheaper than stopping their illegal activity.

Meetup.com

[DrFalkyn]

Yeah, i think meetup.com would do this. I remember tying to start a pickup soccer group a while back.. we had maybe a dozen people confirm a meeting, and then two showed up.

Re:Meetup.com

[Bill Dimm]

If you are accusing meetup.com of having phony people RSVP to your event, I kind of doubt it. What purpose would it serve? You've already paid for the subscription before anyone signs up for your event, and having a bunch of fake sign-ups certainly isn't going to help encourage you to renew your subscription in the future since you'll know they are no-shows before your next payment is due (in sharp contrast to classmates.com, where the fake stuff is used to grab your initial payment). I belong to several meetup groups, and I've never gotten the impression that the no-shows weren't real; they're just flaky people.

Re:Why would anyone take the $2 credit?

[rekoil]

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?

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.

Re:Just call your CC company

[cdrguru]

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.

Subscription billing was introduced fairly recently and is an incredible revenue producer for companies. Many people will utterly ignore the charge month after month and keep getting whatever it is they subscribed to get. And there is nothing you can do about it other than following the cancellation procedure for the company making the charges. The new rules absolutely guarantee that.

Re:guest book larger than graduating class

[johnlcallaway]

hehe .. I never have a problem.

I have a Bank of America credit card I use for things like this. BofA lets you create a 'fake' credit card number that is tied to your card, but that you have absolute control over. I can cancel it at will, change the limits up to my card limits, and set the expiration date to any period up to my own credit card expiration date. The cool part is you can also extend them if you choose to, and they are tied to one and only one merchant.

Whenever I buy anything online, I create a new number with a two month expiration date, and a limit that is $10 more than what the fee is. So next year, the card is no good and they have to come and ask me for a new card number.

Works GREAT!!! I wish more credit card companies offered it.

Re:Why would anyone take the $2 credit?

[rtb61]

Something is better than nothing, at least they are paying some kind of penalty. For example how much do you get back when someone goes to prison, hmm, nothing in fact you get a bill for keeping them there. Fraud is fraud though, paying back the money really isn't enough, those corporate executives responsible for the decision should be given the opportunity to spend a bit more of our money, the cost of the rehabilitative accommodations. They lied, cheated and stole, where are the punishments for them, they lock up shoplifters and pick pockets that steal a couple of dollars, these people steal millions and there is a civil suit, now that is just bullshit, especially as there is all this evidence floating around of their criminal activities, especially when false perceptions of profitability based upon criminal activities can be used to attract investors.

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"?