Markets Wired

The Federal Trade Commission has charged the Coleadium, Inc. affiliate network which uses the name “Ads4Dough,” and its owner, with recruiting affiliate marketers that made deceptive claims on fake news sites to promote acai berry supplements, and so-called “colon cleansers,” as weight-loss products.

According to the FTC, in addition to misleading consumers about the effectiveness of the supposed weight-loss products, the marketers recruited by the defendants also promoted “free trials” of the products, in which consumers were tricked into signing up for additional shipments of products, and were billed monthly.

Under the agreed-upon settlement, the defendants will pay $1 million, and will be required to monitor affiliate marketers in their network to ensure that their statements are truthful and in compliance with federal advertising law.

The FTC’s complaint against California-based Coleadium and its owner, Jason Akatiff, alleges that they acted as intermediaries between online merchants who sold the purported weight-loss products and the affiliate marketers who used websites designed to look like objective news reports to promote the products and draw consumers to the merchants’ sites.  The products advertised included the acai berry supplements AcaiOptimum, AcaiBurn-Force Max, Acai Tropic, Acai Fit, and Acai Elite Blast; as well as colon cleansers Natura Cleanse, Smart Colon Flush, Advanced Colon Max, and Colo Flush.

As part of its ongoing crackdown on bogus health claims, the FTC brought 10 cases against fake news site operators in April 2011.  Eight have been resolved, with the defendants paying collectively more than $2 million.  One of those news site operators, Intermark Communications, Inc., doing business as Copeac, also ran an affiliate network.
Coleadium and Akatiff allegedly assembled a network of affiliate marketers, approved the affiliates to market the products, monitored the traffic the affiliates generated through fake news sites, and paid the affiliates commissions based on the traffic generated.  The complaint alleges that the defendants, through their affiliates:

• made false or unsupported claims that use of the acai and colon cleanser products would cause rapid and substantial weight loss, including as much as 25 pounds in four weeks;
• falsely represented that the stories on the fake news sites were objective news reports written by real reporters who conducted independent tests of the products, and that the comments following the stories represented the views of independent consumers;
• failed to adequately disclose that the content on the fake news sites was authored by affiliate marketers who, along with the defendants, received payments from the merchants; and
• failed to adequately disclose that consumers who sign up to receive a trial supply of the advertised products but who do not return the products and cancel quickly will be charged for the products, and will be shipped more products and billed on a recurring basis.

Under the settlement order, in addition to paying $1 million to the FTC, Coleadium and Akatiff are barred from making any material deceptive representations, including deceptive claims about weight loss and health, and about relevant studies, tests and research.  They also are barred from failing to disclose any material connection between themselves or others marketing or selling products, and the endorsers of the products; that the content of a “news” website or other publication was not written by an objective reporter but is an advertisement placed for payment; and that consumers may be subject to recurring charges when they sign up for trial supplies of the products.

Also under the settlement, the defendants must obtain adequate information about the affiliate marketers they hire, provide the affiliate marketers with a copy of the settlement order, monitor all their affiliate marketers who are selling any good or service, promptly review and approve the affiliate marketers’ advertisements, immediately stop the processing of payments generated by any affiliate marketer using deceptive advertisements, and terminate any affiliate marketer engaged in such conduct.

Supposedly derived from acai palm trees that are native to Central and South America, acai berry supplements often are marketed to consumers who hope to lose weight.  In other recent settlements, acai berry merchant Central Coast Nutraceuticals was required to pay $1.5 million, and merchant Jesse Willms was required to surrender corporate and personal assets, including bank account funds, a Cadillac Escalade, a fur coat, and artwork.  In 2011, the Commission, together with the State of Connecticut, brought suit against another online acai berry marketer, LeanSpa, LLC.  In that case, the FTC obtained a preliminary injunction barring the defendants from engaging in the charged deceptive practices.

The FTC helps consumers recognize and avoid deceptive claims made by fake news sites that market acai berry supplements for weight loss.  To learn more, see the consumer alert THIS JUST IN: Fake News Sites Promote Bogus Weight Loss Benefits of Acai Berry Supplements, and the video Free Trial Offers, which explains how free trials are often used to market acai berry supplements and other products.

The Commission vote authorizing the staff to file the complaint and approving the proposed consent decree was 5-0.  The FTC filed the complaint and proposed consent decree in the U.S. District Court for the Northern District of Illinois, Eastern Division.  The Court entered the consent decree on September 4, 2012.

NOTE:  The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the defendant has actually violated the law.  The consent decree is for settlement purposes only and does not constitute an admission by the defendant that the law has been violated.  Consent decrees have the force of law when approved and signed by the District Court judge.  

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 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.