Online advertiser Adteractive will pay $650,000 to settle charges that it used deceptive spam messages to lure people to its Web sites.

The company ran e-mail and Web ads offering free Sony Playstations, laptop computers, and even a $1,000 check, implying that consumers had been selected as secret shoppers and would receive the free gear or cash after they tested the products, the FTC said in court filings.

The U.S. Federal Trade Commission (FTC) has been investigating this behavior, called "promotion-based lead generation," in the advertising industry for several years now. It is also taking a look at online advertiser ValueClick. It announced the settlement with Adteractive on Wednesday.

The Adteractive promotions contained offers such as, "Test and keep this flat-screen TV," and "Test it - Keep it - Microsoft Xbox 360," and "Congratulations! You've been chosen to receive a free $1,000 check," the FTC said.

But actually collecting the freebies proved to be complicated. "After the consumer navigates [Adteractive's] 'optional' promotions -- often taking up five or six consecutive computer screens, each with multiple offers -- he or she eventually reaches a link that, when clicked, takes the consumer to the first of three tiers of offers in which the consumer must participate to obtain the free merchandise," the FTC said.

In order to get the really good prizes, consumers would have to do things like take out a one-year subscription to satellite TVs, or sign up for CD or DVD deliveries. "In most instances, it is impossible for the consumer to qualify for... free merchandise without spending money," the FTC said.

Founded in 2000, Adteractive was earning $118 million in revenue in 2005, and boasted clients such as Blockbuster, Netflix, Club Med, BMG and Citibank, according to an article in the San Francisco Business Times.

The company has been cooperating with the FTC since 2006 and is happy with the settlement, which spells out how the company can run these promotions in the future, said Greg Wharton, Adteractive's general counsel.

Online advertisers now have better guidelines on how to present their promotions to consumers, Wharton said. "The FTC has offered some guidance on how to use the word 'free' in advertising," he said. "At the end of the day, we're actually pleased to get this resolved."

The IDG News Service is a Network World affiliate.