After federal lawmakers concluded that Affinion Group preyed on the public, the post-transaction marketer is now asking the public to become an investor. Last month, Stamford, Conn.,-based Affinion filed for an initial public offering.
Affinion said in documents filed with the Securities and Exchange Commission that it is seeking to raise $400 million. According to The Wall Street Journal, Affinion has yet to set a price range or date for its IPO.
Last year, U.S. lawmakers launched an extensive investigation and found that the practices employed by Affinion--as well as competitors Webloyalty and Vertrue--were a "scam." All three were accused by federal lawmakers of duping millions of Web shoppers into joining membership programs and then charging their credit cards up to $20 every month.
I have written at length about how these companies paid well-known retailers, such as Buy.com, Orbitz, Priceline, Continental Airlines, Classmates.com, FTD.com, and others to gain access to their customers' credit card information. I could go on about the innocuous ads that the marketers presented shoppers with during the transaction process that were stuffed with fine print or how the marketers threw up obstacles to make it hard for people to get money back.
But perhaps it's better to point out that, at least for Affinion, these dubious practices haven't appeared to pay off. According to the Journal story, Affinion is saddled with $1.7 billion in debt, hasn't reached profitability, and the number of members in its loyalty programs "has been trending down."
Perhaps some of the lawsuits the company has been slapped with over the years have taken a toll on profitability. The company has been sued by more than a dozen state attorneys general, including those in Maine, California, and Florida.
The scandal involving Webloyalty, Affinion, Vertrue, and their retail partners is easily one of the worst to hit e-commerce. These are the kind of horror stories that will keep shoppers offline and undermine the credibility of e-tailing for honest merchants.
With all that debt, the stock doesn't appear to be a very attractive investment. But investors should bypass these shares because it's the right thing to do.