When serial entrepreneur Naveen Jain left the company he founded, InfoSpace, in disgrace in late 2002, a lot of people thought he would never be trusted by the financial markets again (see this three part series from the Seattle Times that talks extensively about the rise and fall of Jain at Infospace and details his violations of insider trading laws). At its height Infospace was worth $31 billion. Today it’s worth less than 1% of that.
But memories are short, it seems. After leaving InfoSpace Jain started a new company, Intelius, across the street from his old offices in Bellevue, Washington. The company sells background information on people - they describe themselves as an “information commerce company.” They’ve grown rapidly and now claim that over four million people have purchased products from them. Revenue has grown from $18.1 million in 2004 to $88.5 million in 2007. In their most recent fiscal quarter, ending March 31, 2008 the company had $31.8 million in revenue, a nearly $130 million run rate. They are also very profitable, with $22.5 million in EBITDA in 2007.
It’s no surprise that the company’s revenue growth and profitability have led them to pursue an IPO. Well known investment banks Deutsche Bank and UBS are underwriting the deal, which was first filed with the SEC on January 10. The most recent version of their registration statement, filed on May 19, is here.
Given Jain’s history, you’d think he’d go out of his way to be squeaky clean at his most recent startup, particularly as the company is going public and under significant scrutiny. But that may not be the case.
Intelius has been on the receiving end of hundreds of consumer complaints alleging fraud, many of which are around a partnership the company has with Adaptive Marketing and a “product” they offer called Privacy Matters Identity.
Every time a customer buys a product at Intelius, they are shown a page telling them “Take our 2008 Consumer Credit Survey and claim $10.00 CASH BACK with Privacy Matters Identity.” The user is then shown two survey questions and asked to enter their email and click a large orange button. They can choose to skip the survey by clicking on a small link at the bottom of the page.
Undoubtedly a lot of consumers do the survey and move forward to the next page - it only takes a second. But what most people don’t do is read the fine print, which gives no real details on the $10 cash back (in fact, it is never mentioned again, anywhere). Instead, in light gray small text, users are told that by taking the survey they are really signing up to a $20/month subscription. Intelius forwards your personal information, including your credit card, to Adaptive Marketing. The next day a $20 charge appears on your credit card, and each month afterwards.
Here’s a screen shot of the offer. Click to see the full size version as it appears during the check out process.
Of course you never hear from Adaptive Marketing again (why take a chance that you’ll wonder who they are). Instead, the credit card charges keep coming, and the company obviously hopes you never notice.
This survey is quite literally a complete and total scam. And since users continue to pay forever (or until they try to stop it), the contribution to Intelius’ revenue grows significantly over time.
And it also appears that the scam is what’s driving most or all of Intelius’ revenue growth. It’s not clear what percentage of the $20/month is given back to Intelius (it’s been redacted from the agreement they filed with the SEC). However, the company had $17.2 million in revenue in Q1 2007, and Adaptive Marketing accounted for just 1.5% of that. In the most recent quarter they had $31.8 million in revenue, and Adaptive Marketing contributed a whopping 38.9% of that total. Revenue grew by $14.6 million/quarter in the last year. The Adaptive Marketing scam contributed $12.4 million of that gain, nearly all of it.
In other words, without the survey scam, Intelius would have nearly no revenue growth. Companies that aren’t growing don’t go public.
How did I track all this financial data down? It’s all listed in the publicly available registration statement, prepared by the company and its bankers, accountants and lawyers.
All of these parties, (Deutsche Bank, UBS, Karr Tuttle Campbell (company counsel), Fenwick & West (underwriters counsel) and BDO Seidman (accountants), have a responsibility to conduct due diligence and ferret this kind of stuff out. Apparently, no one noticed. Perhaps now they will.
Update: Naveen Jain’s son responds to this post here.
Mike next time please tell me personally so I can short the company BEFORE you roast a company.
The way the thing is set up is a bit deceiving, however its hardly a scam compared to the ring tones. I looked at it and it explains everything, you even do get the 10 dollars off of the monthly Fraud program, just not off of your original purchase. The service isn’t too bad either, they emailed me like a week after I signed up notifying me of the service, before they ever charged me, and the email gave me a website where I could monitor my credit card activity and get credit reports and a handful of other things.
I think michael just has his panties in a bunch because he wasn’t clever enough to figure out what he was getting himself into from the beginning.
That said, you wright a fairly convincing one-sided blog, i’m an avid reader. I have a feeling your going to be a bit surprised by this IPO as well.
great reporting…keep up the great work
Newsflash to Flashcard, you can’t short a non-public company. Nice try at humor though.
If Michael’s analysis of the Intelius revenue is accurate this seems like it’s worth reporting on. I’m not familiar enough with the company to know if others have raised similar red flags.
The rest of the post however smacks of a hit piece and any praise that is deserved for pointing out the revenue red flags is lost with the sensational headline.
Maybe the Privacy Matters Identity upsell is done in an ethically questionable way but a lot of companies do similar things.
The Intelius service itself is not a scam. I have used it and similar services like US Search and have always been satisfied. They are very clear that the information in the reports may not be 100% accurate and nobody reasonable would expect it to be.
A scam would be taking my money and not giving me what I paid for. If I buy a report from Intelius without any warranty that the information in it is going to be 100% accurate I know what I’m getting into.
Where’s the scam?
To everyone that has commented so far….
If you want to see how sobering Web 2.0 and social networking really is…. check out how far you are from Intelius via your LinkedIn profiles.
great work Mike, this is an A grade scam: get you card on one pre-text and authorize it sales on another.
Woah and Deutsche Bank going with it !!!!!!!!!
Mike, thanks for the good detective work and good article.
I don’t understand why my previous posts (and some others) were deleted though? That actually personally offends me and makes me skeptical of comments in general.
AH…nice !!:)
@50 Former I-Banker
Indeed.
On another note I would venture to guess there may be a class action lawsuit coming that will shelf this deal.
Does anyone know if there is a class action lawsuit that is being organized against Intelius or its executives? I am actually personally interested in this.
@ Markus,
I feel like editing your words ever-so-slightly to say:
“Hey Naveen,
AOL called and they want their M.O. back.
Seriously, ever tried to cancel an account with those douchebags? They try every trick in book to shovel unwanted add-ons down your throat. It’s sickening.”
The first thing I thought of reading through this was the similarity of Intellius’ MO to AOL’s.
The second thing I thought of is the sympathy I have for anyone who was ripped off by Naveen. It’s a huge Interent saga with no happy ending for Naveen’s partners and business associates who we all know will never be compensated. My thoughts really are with each one of you…
And Naveen has got to be the worst person on Earth to be running a background-checking agency - I wouldn’t trust that sonofab@*tch with details about my hamster - he’s just plain untrustworthy.
I’ll agree with other commenters here, MA - one of the best posts you’ve ever written about anything. Thanks for uncovering his latest scams.
Thank you so much for publishing this story. I got scammed by Intellius and adaptive marketing just a few months back.
I was trying to track someone down and started with a search on yahoo. My yahoo search turned up no results for the person, but the results page on yahoo also included a link to the intellius page and said that contact information that I was looking for was available on Intellius page.
I clicked on that link to go to the Intellius page, it said that it the information was available for $49.00. I put in my credit card info. You may laugh but I figured that these guys at Intellius had to be legit because they were partnered with Yahoo. Next thing I know there is a sign offering me $10 if I will take a survey (just as you describe in your post, Michael). I click yes to get the $10 back. Just to be clear, an earlier poster wondered how somebody could fall for the scam. Well, the point is, you put your credit card number in BEFORE you get to the “survey” page. I thought I was paying for a search for contact information. But once they had my credit card data for that, they scammed me with this fake survey, and claimed that by taking the survey I had agreed to sign up for their stupid “privacy protection plan” at $20 per month or something.
When I noticed the charges on my credit card, I called my credit card company. They said they got several complaints per day about Intellius. So, then, with the credit card rep on the phone, together we called Intellius customer support. The woman at Intellius started out with a series of BS questions “sir, I can help you with that, but first I need to get some basic background information from you. Did you read all the terms and conditions before you agreed to sign up for this program? Did you understand that when you clicked on the survey, you were signing up for this monthly consumer protection program?” I cut her short and said that their site was a scam, and that at no time did I intend to sign up for any monthly program from them. They did reverse the charges and I’ve had no more bills from them, but I think these guys are complete scum. Their entire business model depends on scamming people and hoping they won’t notice. I don’t believe that they have a single satisfied customer anywhere. I am extremely disappointed that Yahoo is doing business with them.
Either forbes or crunchbase got his education info wrong.
http://www.forbes.com/finance/.....ype=Person
http://www.crunchbase.com/person/naveen-k-jain
Great post Mike.
Bastards ha
Them fuKking banks want to shot too.
To add more fuel to the Naveen Jain fire:
A quick scan of the Wikipedia discussion and history pages for the “Naveen Jain” entry shows edit battle between reputable members and someone coming from IP addresses 63.231.16.57 and 70.103.74.5. A whois indicates that the former is owned by Naveen Jain himself and the latter is owned by Intelius.
All edits made by these two IP addresses are to either 1) remove negative, sourced content, or 2) add fluffy, resume-like, unsourced content.
Seems to fit the Naveen picture quite well!
Michael you deserve a Pulitzer prize! I also agree with the general sentiment here that Intelius’ conduct is shocking, but the greed of Wall Street is even more shocking. My cousin was affected by Mr. Jain in his prior life in a very negative manner which I am not at liberty to write about here. But I thought that I could trust Deutsche Bank. Michael you have motivated me to write a letter to Josef Ackermann (CEO of Deutsche Bank) which I will send tomorrow. I doubt he will write me back or even read it but you never know.
@64 Looks like Forbes got it wrong (or Jain wrong info to them).. CrunchBase rocks!
I miss Sam Sethi. Where is he ?
Great post. Aftter losing big as a shareholder in INSP, it’s no suprise to see this post. This guys spam, and spam a lot. Shady.
Ryan
lessons in brevity: http://www.mofata.com
@63 I agree. Yahoo should not be partnered with these guys. Maybe this article will make many of intellius partners drop them.
It is interesting that Michael is deleting comments. I would assume they are all coming from the same IP address.
Is anyone really surprised by this? Naveen is incredibly lucky he isn’t doing pushups in a 5X9 box. As a writer once said about another Seattle favorite Rick Neuheisel, he simply “has no ethics reflex.”
System down!
…sadly when you grow up in a country where bribes/corruption are a fact of life thre is no right or wrong but rather the acceptance of the various shades of gray in between.
Great article - very interesting and thorough.
Guys like this should be exposed. I am disappointed (yet again) in the posts, endemic to blogs unfortunately, saying “the scammees should have known better”. Often that is the case, but it doesn’t excuse the scammer. And I think that this particular scam is very insidious and I wouldn’t disparage anyone for falling for it.
I hope this article gets the attention of those who can pull some strings.
Hardly surprising that investment banks and lawyers will stick their heads in the sand and ignore his track record….they have their bonuses to think about.
Good old American style tarring and feathering. I agree with almost all of the negative comments on this company, this IPO, and on the man himself. However I hope that he is not made an example of, while others are not. I hope that some broad actions are taken to reduce the web services market, and wall street, of this type of scam. Public action, legislation, broad enforcement of the law.
Thank you, TechCrunch, for helping to expose such scams.
Typos above. I hope it is clear what I was saying, however.
hey mike nice post
Surprised that many of you feel cheated for not having read what was right their on your face for reading, i am not sure if this can be classified as a scam. If they had just given the “No Thanks” button right there in the top near the survey it would have saved them a lot of trouble.
ram - it’s a scam. for example, i still cannot find any way to claim the $10 cash back that is promised in huge type at the top of the page. The rest of it, subscription, etc., is just purely misleading and lame. And I can’t figure out if the service actually does anything at all, literally, other than bill you $20/month.
I thought you might be interested to know that this would actually be illegal in the UK. The Office of Fair trading (a government institution) which protects consumer interests has prosecuted companies who do exact this, regarding the fine print. They issued a directive a number of years ago to combat websites that place “material information” in the small print. Any website that does not bring any material/key information to the direct attention of the user is subject to prosecution, and the contract is null and void. It can be a grey area as to what “material information” means sometimes, but any type of charge, the price, the length of a contract, auto-renewal, fees, cancellation terms are *very* clearly defined by the OFT as material to the contract.
“Its in the small print” is not an excuse you can use. So at least in the UK, these guys would be toast. I don’t thing the OFT would have any juristiction over these guys, but they potentially could stop them trading in the UK and if they were a public company I’m sure they would have even more recourse.
The only thing necessary for the triumph of evil is for good men to do nothing.
Good work Mike.
What am I missing? Either sign up for it, or skip it, but either way, the terms are right there, so how is it a ’scam’?
If you’re not with it enough to read fine print these days, then either break the prozac in half, or kindly step away from the computer before you hurt yourself… seriously folks, stop playing the victim and take some accountability in this life.
I worked on an off with Naveen from 1993 - 1997. The man is a complete and utter sleazeball. He’ll lie to your face at the drop of a hat, he is 100% focused on himself and is very close to delusional. I sat in a bar in Long Beach and watched him try to pick up woman after woman by telling them he was Bill Gates. He finally finds one either stupid or drunk enough to go back to his room, which he advertised as the “Presidential Suite”, but was in fact a regular room, booked for him by Microsoft Travel.
He lived in my neighborhood, in the most tasteless, “Look at me I’m rich!” faux mansion complete with tacky fountain in front.
He’s hurt people his whole life and is way too self-centered to notice. Ankar, your father is a scumbag, you need a better role model.
Ingenious! A credit card scam based off of selling people protection from credit card scams! Why can’t I come up with great ways to steal money like this? I need to spend less time trying to make actual products and more time thinking about how to take advantage of those without critical thinking capabilities. All my business plans will begin with a market trends slide showing the average intelligence of the American consumer over the last 30 years — talk about a secular trend that can be leveraged!
Naveen Jain is a complete con-man, a crook plain and simple.
But hey, America loves con-men! And love gurus..!! AND hot yogis…!!!
yada yada yada
Is there a way to somehow organize a mass public boycott of Intelius corp, its products, its websites, and its forthcoming IPO? Sheehan-style maybe?
Folks have no appetite these days for such grass-roots change what with the economy in the toilet etc., but it maybe worth the effort if only to teach these crooked companies and their Wall St. cohorts an expensive lesson.
What say, Michael you game for such stuff?
@85 - yea, phony to the core.
His stupid wife was quoted in a rag as saying, “We have so much money and we have bought so many things, we don’t know what more to buy”. LOL
Wow.
If true, possibly the best blog post that I’ve ever read. How could all the advisers miss something that appears to have been right in front of their faces.
Especially when you consider the past history of at least one of the people leading the company.
Great Stuff.
This is great journalism, not just great blogging - and I complement you on that. One of your best posts ever Mike.
I asked him once if one could over lead to the point that they under execute. His response was you could never over lead. Obvoiusly leading to him meant marketing. Whether the marketted principles follow through in the execution are of no matter…
I’ve used Intellius 2 or 3 times to look up old school buddies. I think I paid about $7 per search and got a fairly comprehensive list of phone numbers and addresses that let eventually led me to getting a hold of the person. Didn’t have any issues with credit card being overcharged, etc. So I don’t think it’s fair to call the entire service a scam. But…..the website does pull EVERY trick in the book to try and trick their customers into giving them more $$.
Personally, I think their marketing plan is terrible because Intellius does not appear to be a legitimate website. I was EXTREMELY hesitant about using their service the first time I used them and I would NEVER recommend the service to a friend or family member because of all the BS they put you through.
Someone should look into the (significant) number of confidential payoffs that Naveen/InfoSpace/Intellius has made over the past 10 years or so to women that Naveen has sexually harrassed. It’s amazing that none of these women ever went public. I know at least one personally and she just wanted to get as far away from him as she could and not have anything to do with him again, so she opted not to publicize (and didn’t take the money).
Now THIS is what we need more of in the blogosphere (especially from the A-Listers, who have the resources to actually DO it).
Real investigative reporting, with real-world relevance.
WELL DONE, TC
Please do more…
good article. nice job Michael.
My question:
What are some legitimate sites for getting background info? i.e. what do most companies use to do background checks when hiring new employees?
thanx
As all publications point out advertisements - so should all web site point out sell throughs.
Thanks for reporting on this. Just goes to show how corrupt Naveen Jain and the capital markets are. And, evidently mainstream media.
As for “standard stuff” - I totally disagree. Buyer beware is for corrupt countries. Our economy is built on some basic, fundamental level of trust.
Intelius is worthless anyway as stated in their terms and conditions.
section 7
quote:
“Neither Intelius nor any of our data suppliers represents or warrants that the Information is current, complete or accurate.”
I just wanted to state that I was also scammed by intelius / 24protectplus. I have been reading your posts. I consider myself pretty intelligent, but I do feel like an idiot right now , because I must have missed some fine print somewhere when i did a reverse phone lookup on intelius for $4.95 on May 13. I did NOT sign up for the $10.00 rebate. i did NOT fill out some survey? I was NOT looking for something for nothing. I was doing a $4.95 phone search and that’s all. I cannot figure out what i must have done or not done? I am normally very careful about reading fine print or clicking on anything. But I discovered the $19.95 charge on my credit card bill a week after i had done the phone search. As others commented, i had never heard of 24protect plus until I searched the web after I found their charge on my credit card bill. I called 24protect plus today. The person i spoke to said I agreed to sign up with them when “you typed your email address twice “, when, I thought, I was confirming intelius’ use of my card for the phone search. She stated they will cancel my “membership” and will take the charge off my credit card bill within 2 business days. I have been trying to call calling intelius customer service to hear what they have to say about their association with 24protectplus, and to tell them what i think of them, but have not been able to get a real person on the phone yet.
I want to do all i can do to stop such underhanded business. Thanks for all the info on this site. and to all who do anything to expose these crooks.