Articles Posted in FTC Consumer Protection Highlights

The FTC filed complaints on January 4th, in four separate cases alleging that weight-loss and weight-control claims were not supported by competent and reliable scientific evidence. Marketers of the four products -Xenadrine EFX, CortiSlim, TrimSpa, and One-A-Day WeightSmart -settled with the FTC, surrendered cash and other assets worth at least $25 million, and agreed to limit their future advertising claims.

Xenadrine EFX

Two marketers of Xenadrine EFX will pay at least $8 million and as much as $12.8 million to settle FTC allegations that Xenadrine EFX’s weight-loss claims were false and unsubstantiated. The funds will be used for consumer redress. In a bankruptcy case not involving the Commission, the defendants also agreed to pay at least an additional $22.75 million to settle claims brought by creditors and consumers, including personal injury claims for an earlier ephedra-based product.

At the request of the Federal Trade Commission, on December 20, a federal court shut down a payment processing operation that allegedly helped fraudulent telemarketers take millions of dollars from consumers’ bank accounts. According to the FTC’s complaint, since at least January 2003 the operation has aided at least nine Canada-based, advance-fee credit card schemes that induce consumers to allow an electronic debit of several hundred dollars from their bank account in exchange for an unsecured credit card; but consumers never receive a credit card or, at best, they receive a “benefits package” containing relatively worthless items.

The complaint alleges that the defendants debit funds from consumers’ bank accounts, deduct their processing fees from the gross proceeds, and forward the balance of the proceeds from the deceptive scheme to the telemarketers. According to the complaint, the defendants also provided customer service and complaint handling, order fulfillment, list brokering, and other services.

The complaint alleges that the defendants process payments on behalf of clients whose sales scripts plainly indicate that they intend to violate the FTC’s Telemarketing Sales Rule (TSR) and industry rules that prohibit processing electronic banking transactions for outbound telemarketers; that they draft, edit, review, and approve sales scripts; and that they process transactions without first obtaining adequate information about the clients and their business practices, or when evidence demonstrates that illegal activity is contemplated or ongoing. According to the complaint, the defendants often receive complaints about their clients from consumers, law enforcement, and the Better Business Bureau concerning deceptive and abusive business practices, such as the failure to provide promised credit cards. They also receive such complaints while handling customer service for clients, including receiving and responding to consumer inquiries and refund requests.

On December 14, operators who promised Spanish-speaking consumers “designer” merchandise but delivered knock-offs and outdated electronics will give up approximately $235,000 to settle FTC charges that their scam violated federal laws including the Do Not Call Rule. The telemarketers called Spanish-speaking customers, telling them they had been selected to get a valuable “prize,” such as a laptop or digital video camera.

They told consumers that to get the prize, they would have to purchase “designer” merchandise, such as watches and fragrances. The FTC alleged that all consumers received for their payment of $213 to $250 were cheap knock-offs and outdated electronics. The FTC also charged that the operation called phone numbers listed on the National Do Not Call Registry.

The settlement with Del Sol, LLC and its principal, Fernando Gonzalez Lopez, prohibits them from making misrepresentations in the advertising or sale of any product or service and prohibits them from violating any provision of the Telemarketing Sales Rule, including the Commission’s Do Not Call Rule. A $1.6 million judgment against the defendants is suspended based on their inability to pay. They will give up approximately $235,000. If it is found that the defendants misrepresented their financial status, then they will be liable for the full amount. The Commission vote to authorize staff to file the stipulated final order was 5-0.

On November 28, a Florida business and its owner, who marketed purported height-enhancing pills for kids and young adults, agreed to pay $375,000 to settle charges that their advertising claims were deceptive. The Federal Trade Commission charged the defendants with making false and unsubstantiated claims for HeightMax, as well as for two other supplements, Liposan Ultra Chitosan Fat Blocker and Osteo-Vite.

The operation advertised HeightMax dietary supplements in English and Spanish on the Internet and radio. Ads also appeared in the back pages of magazines such as Newsweek, Rolling Stone, and Maxim. The FTC complaint charged that claims for the pills were unsubstantiated or false and that the defendants invented William Thomson, a supposed expert who appeared in the ads. According to the complaint, the ads for HeightMax Concentrate and HeightMax Plus misrepresented that:

A company that sent unsolicited commercial e-mail after consumers asked it to stop agreed to pay a $50,717 civil penalty on November 6 to settle Federal Trade Commission charges that it violated federal law. The FTC charged Yesmail Inc., doing business as @Once Corporation, with sending e-mail on behalf of its clients more than 10 business days after recipients asked it to stop.

According to the FTC’s complaint, Yesmail offers e-mail marketing services, including sending commercial e-mail and processing unsubscribe requests from recipients. The FTC’s complaint alleges that Yesmail’s spam filtering software filtered out certain “reply to” unsubscribe requests from recipients as “spam,” which resulted in Yesmail failing to honor unsubscribe requests by sending thousands of commercial e-mail messages to recipients more than 10 business days after their requests.

The CAN-SPAM Act requires commercial e-mailers to give recipients an opt-out method and honor such requests within 10 business days. The Act also bans false or misleading header information, prohibits deceptive subject lines, requires that commercial e-mail be identified as an advertisement, and requires the sender to include a valid physical postal address.

On November 3, Zango, Inc., formerly known as 180solutions, Inc., one of the world’s largest distributors of adware, and two principals agreed to settle Federal Trade Commission charges that they used unfair and deceptive methods to download adware and obstruct consumers from removing it, in violation of federal law. The settlement bars future downloads of Zango’s adware without consumers’ consent, requires Zango to provide a way for consumers to remove the adware, and requires them to give up $3 million in ill-gotten gains.

According to the FTC, Zango often used third parties to install adware on consumers’ computers. The adware, including programs named Zango Search Assistant, 180Search Assistant, Seekmo, and n-CASE, monitors consumers’ Internet use in order to display targeted pop-up ads. It installed on U.S. consumers’ computers more than 70 million times and displayed more than 6.9 billion pop-up ads. The FTC alleges that Zango’s distributors – third-party affiliates who often contracted with numerous sub-affiliates – frequently offered consumers free content and software, such as screensavers, peer-to-peer file sharing software, games, and utilities, without disclosing that downloading them would result in installation of the adware. In other instances, Zango’s third-party distributors exploited security vulnerabilities in Web browsers to install the adware via “drive-by” downloads. As a result, millions of consumers received pop-up ads without knowing why, and had their Internet use monitored without their knowledge.

In addition, the agency alleges that Zango deliberately made it difficult to identify, locate, and remove the adware once it was installed. For example, Zango failed to label its pop-up ads to identify their origin, named its adware files with names resembling those of core systems software, provided uninstall tools that failed to uninstall the adware, gave confusing labels to those uninstall tools, and installed code on consumers’ computers that would enable the adware to be reinstalled secretly when consumers attempted to remove it.

On October 5, an Internet business that advertised and sold consumers’ phone records and records of credit card accounts to third parties agreed to settle Federal Trade Commission charges that it violated federal law. The settlement bars the defendants from obtaining or selling consumers’ confidential phone and credit account records unless authorized by law or court order’ and requires that they give up the money they made selling phone records in the past.

In May 2006, the FTC filed federal court complaints charging five Web-based operations that obtained and sold consumers’ confidential telephone records to third parties with violating federal law. The FTC’s complaint against Integrity Security & Investigation Services and its principal, Edmund Edmister, also alleged that the company obtained and sold consumers’ credit card purchasing information. The agency asked the courts to order a permanent halt to the sale of the phone records, and asked the courts to order the operators to give up the money they made through their illegal operations. The settlement announced with ISIS and its principal ends the litigation with those defendants. The four other cases are still in litigation.

The settlement bars the defendants from obtaining or selling consumers’ phone records or personal information unless authorized by law or court order. It bars them from pretexting – obtaining records using false pretenses – or hiring others who pretext to obtain phone or financial records. Under the terms of the settlement, the defendants will give up $2,700 in ill-gotten gains – the entire amount they earned from selling the phone records and credit card transaction reports. The settlement also contains standard record keeping provisions to allow the FTC to monitor compliance with its order.

The Federal Trade Commission (“FTC”) sent letters on September 27, 2006 to 166 advertisers and 77 media outlets warning them that their advertisements targeting Hispanics are potentially deceptive. The ads were spotted during a one-day surf of Spanish-language newspaper, magazine, Internet, radio, and television advertisements by 60 partners around the United States and Latin America, coordinated by the FTC.

On April 19, individuals from across the United States and in five Latin American countries participated in the Hispanic Multi-Media Surf. The participants focused on identifying potentially deceptive ads aimed at Hispanics in three areas: health, credit, and business opportunities.

Of the potentially deceptive ads found by participants during the surf, over half were health-related, and made dubious claims for weight loss products and “disease cures.” The ads claimed treatments and cures for serious diseases, most often diabetes and cancer. More than half of the weight-loss ads contained false “red flag” claims that cannot be supported, according to the FTC. Work-at-home and business opportunity ads with questionable claims represented the second most common type of ads found during the surf. Some advertised get rich quick schemes for at-home craft assembly and envelope stuffing. Many made extravagant earnings claims that the FTC found few, if any, consumers ever achieve. Participants also found credit-related ads offering credit repair and guaranteed credit, among other services.

On September 20, 2006, the federal district court in Chicago ruled for the Federal Trade Commission (“FTC”) in its case against the marketers of the Q-Ray ionized bracelet following a bench trial earlier this summer. In a decision issued September 8, the court found that advertising by Que Te (Andrew) Park and his companies was false and misleading in representing that the bracelet provides immediate, significant, and/or complete pain relief, and that scientific tests proved that it relieves pain.

The court also found that the defendants deceptively advertised their refund policy. The court also stated that it will impose a permanent injunction to prevent them from engaging in such deceptive conduct in the future.

The FTC filed the case in May 2003, alleging that the defendants misrepresented that the Q-Ray ionized bracelet “provides immediate significant or complete relief from various types of pain, including, but not limited to, musculoskeletal pain, sciatic pain, persistent headaches, sinus problems, tendinitis, or injuries,” and that “tests prove that the Q-Ray bracelet relieves pain.” The FTC also alleged that they falsely represented that defendant QT Inc.’s 30-day satisfaction guarantee permits “consumers to readily obtain a full refund of the purchase price if they return the Q-Ray bracelet within 30 days.”