Markets Wired

A federal district court has ordered the marketers of three dietary supplements to pay more than $15 million for deceiving consumers about the products’ safety and effectiveness. The court imposed the final monetary judgment and permanent prohibitions against the marketers in December 2008, after granting the Federal Trade Commission’s motion for summary judgment last June.

The court found National Urological Group, Inc. and several other corporate and individual defendants liable for more than $15.8 million in deceptive sales of Thermalean, Lipodrene, and Spontane-ES. Thermalean and Lipodrene are purported weight loss treatments. According to the defendants’ advertisements, they were clinically proven to cause substantial weight loss, including a 19 percent loss in total body weight. Spontane-ES is a purported treatment for erectile dysfunction. According to the defendants’ advertisements, it was clinically proven to safely and effectively treat 90 percent of men with erectile dysfunction. The court permanently barred the defendants (except now-dissolved National Institute for Clinical Weight Loss) from engaging in deceptive conduct in the future and also ordered Terrill Mark Wright, M.D., to pay $15,454 for his deceptive endorsement of Thermalean.

“These defendants are old-fashioned snake oil salesmen who retooled their pitches to cash in on 21st century concerns,” said Lydia B. Parnes, director of the FTC’s Bureau of Consumer Protection. “They led people to believe that the supplements they sold to treat weight loss and erectile dysfunction were safe and effective treatments, when nothing could be further from the truth.”

Of note, the court held the three corporate defendants liable based on their operation as a “common enterprise,” given that the same group of individuals controlled all the companies, shared expenses and advertising for the same products, and worked together to achieve profitability. The court rejected the defendants’ arguments that the advertising was protected commercial speech under the First Amendment or that it was mere puffery. The court held that the FTC’s requirement calling for “competent and reliable scientific evidence” is not unconstitutionally vague, pointing to the FTC’s dietary supplement guides as evidence that an ordinary person could understand the definition of the term as outlined in the guides. The court also rejected the defendants’ argument that the FTC’s challenge to the advertising was precluded by a consent decree that the defendants had entered into with the U.S. Food and Drug Administration.

The final order against the principal defendants – National Urological Group, Inc. as well as Hi-Tech Pharmaceuticals, Inc., National Institute for Clinical Weight Loss, Inc., Jared Wheat, Stephen Smith, and Thomasz Holda – imposes a $15.8 million judgment. The final order against medical endorser Terrill Wright imposes a $15,454 judgment. The orders also place restrictions on the defendants’ future conduct. These orders were issued last month by the U.S. District Court for the Northern District of Georgia. They prohibit the defendants from claiming that their products treat obesity or erectile dysfunction, are clinically tested or scientifically proven to be safe or effective, or have other health or safety benefits, unless the claims, including endorsements, are true, not misleading, and based on reliable scientific evidence. In addition, the defendants are banned from misrepresenting the existence, validity, results, or conclusions of any test or study. The orders also contain standard record-keeping provisions to allow the FTC to monitor compliance.

Copies of the June 2008 decision and December 2008 court orders are available on the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. 022-3165)
(Civil Action No. 1:04-CV-3294-CAP)