Markets Wired

Marketers of green coffee bean extract weight-loss supplements, male enhancement products, and skin care products will forfeit assets totaling approximately $9.2 million, and have already turned over a Ferrari to settle the Federal Trade Commission’s court action brought against them in October 2014.

The proposed stipulated final order bans individual defendants Danelle Miller and Jason Miller and 42 corporations the couple controlled (the Health Formulas defendants) from advertising or selling weight-loss supplements and negative option sales plans, making unsupported health claims for other products, and debiting consumers’ bank accounts without their consent.

“The defendants made misleading claims about their products, locked people into recurring charges, and debited bank accounts without permission, said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “As a result of their outrageous behavior, they’re now banned from using continuity programs or selling weight-loss products, and they’ve surrendered millions of dollars.”

The FTC’s action alleged that Health Formulas, LLC, its related entities, and principals used telemarketing, the Internet, print, radio, and television advertisements to deceptively pitch a variety of dietary supplements and other weight-loss, virility, muscle-building, and skin cream products.

The defendants tricked consumers into disclosing their personal financial information through the use of a “free trial” or discount program with undisclosed costs, and then enrolled them, often without their authorization, in a negative option program in which defendants automatically charged consumers for monthly shipments.

The defendants also failed to provide a way for consumers to stop the automatic charges, and failed to disclose material facts about their refund and cancellation policy. In addition, the FTC alleged the defendants had no basis for the extreme weight-loss claims they made for their weight-loss products. The FTC charged defendants with violating the Restore Online Shoppers’ Confidence Act (ROSCA), the FTC Act, the Commission’s Telemarketing Sales Rule, and the Electronic Fund Transfer Act (EFTA).

In addition to the bans on negative option and weight loss marketing, the final order against the Health Formulas defendants prohibits misrepresentations regarding evidence used to support product claims, requires clear disclosures during any sale regarding the material terms and conditions of the transaction, cancellation and refund policies, and requires substantiation for any claims made about the health benefits or efficacy of any food, drug, or dietary supplement.

The order also bars the defendants from the telemarketing violations alleged in the complaint. The remainder of the $105 million judgment will be suspended after the defendants surrender over $9 million in personal and business assets based on the defendants’ inability to pay more.

Late last year, defendants Chapnick, Smukler & Chapnick, Inc.; Brandon Chapnick and Keith Smukler, and several other corporate entities they controlled (the CSC defendants) agreed to a court order settling the charges against them.

That order, which the Commission approved by a 4-0 vote, bans the CSC defendants from negative-option sales (with minor exceptions) and from advertising, promoting, or selling dietary supplements, prohibits them from making sales misrepresentations, requires them to provide clear disclosures during any sale regarding the material terms and conditions of the transaction, cancellation and refund policies, and prohibits a range of deceptive and abusive telemarketing practices. The order also imposes a judgment of $105 million, which was suspended upon payments to the Commission totaling more than $664,000.

The Commission vote approving the proposed stipulated final order against the Health Formulas defendants was 3-0. It was filed in the U.S. District Court for the District of Nevada. This settlement will conclude the action against all the defendants charged in this case.

NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.

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