FTC Flexes its Muscles in Ab Energizer Case

The Federal Trade Commission filed two proposed stipulated orders in federal court resolving charges that the marketers of AB Energizer, an electronic abdominal exercise belt, falsely advertised that using the AB Energizer caused weight loss, inch loss, and well-defined “six-pack abs” without exercise. These orders are part of a global settlement resolving the FTC’s lawsuit and related actions brought by county and city prosecutors in California. Under the settlements, AB Energizer marketers and certain retailers collectively will pay over $2 million, of which over $1.4 million will be for consumer redress. The balance will go to the California prosecutors for costs and civil penalties. The FTC and California orders bar the defendants from making the challenged false advertising claims for the AB Energizer or any similar device, and contain other injunctive relief to prevent future deceptive advertising.

The stipulated final orders settle the Commission’s court actions against the following defendants: Electronic Products Distribution, L.L.C. (EPD); AB Energizer Products, Inc. (EPI); Abflex USA, Inc.; AB Energizer, L.L.C.; Thomas C. Nelson; Martin Van Der Hoeven; Douglas Gravink; and Gary Hewitt. The defendants are based in Southern California, with most located in San Diego. An amended complaint filed with the stipulated orders adds Gravink and Hewitt to the FTC’s original complaint.

The FTC recognizes the invaluable role of prosecutors from the City of San Diego and the California counties of Napa, Solano, and Sonoma in reaching a settlement that maximized the amount of redress available for AB Energizer purchasers.

The FTC’s Complaint

The Commission filed a complaint in May 2002, in U.S. District Court for the Southern District of California as part of the FTC’s “Project ABSurd,” which targeted false claims made by the marketers of widely advertised abdominal devices that use electronic muscle stimulation (EMS) technology. Specifically, the FTC complaint charged the AB Energizer defendants with falsely representing that the device: 1) causes users to lose weight, inches, and fat; 2) gives users well-defined abdominal muscles; 3) is the equivalent of regular exercise such as sit-ups; and 4) is safe for all users, without disclosing the potential risks associated with its use by some people. The complaint also charged that the defendants failed to honor their 30-day money-back guarantee, and violated the FTC’s Mail or Telephone Order Merchandise Rule (Mail Order Rule) by failing to ship their direct order products within the promised time.

The Amended Complaint

In the amended complaint, the Commission added two new defendants to the complaint. According to the FTC, these defendants, Douglas Gravink and Gary Hewitt, were the owners and managers of corporate defendant EPI and participated in the challenged advertising campaign.

The Stipulated Final Orders

The FTC obtained two stipulated final orders: one with the “EPD defendants” who were associated with AB Energizer retail sales (EPD, Abflex USA, Inc., AB Energizer, L.L.C., Thomas C. Nelson, and Martin Van Der Hoeven); and the other with the “EPI defendants” associated with direct response sales (EPI and its principals, Douglas Gravink and Gary Hewitt).

Monetary Relief. The order against the EPD defendants includes a $41.5 million judgment, based on retail sales of the AB Energizer, which has been largely suspended due to the EPD defendants’ inability to pay. Under the order, EPD will pay $24,000 to the FTC. In separate agreements with the California prosecutors, defendants Van Der Hoeven and Nelson each will pay $40,000 to California in civil penalties.

The order against the EPI defendants provides for a $43.4 million judgment against EPI, based on direct response sales, which has been suspended. EPI is in chapter 7 bankruptcy proceedings. The order requires defendants Gravink and Hewitt jointly to pay $120,000 in redress to the FTC. In separate agreements with the California prosecutors, Gravink and Hewitt agreed to pay $100,000 to a redress account managed by the California prosecutors, with an additional $170,000 going toward civil penalties and costs.

The EPD and EPI orders contain “avalanche clauses” that would make a defendant liable for the full amount of the suspended judgment if the defendant is found to have misrepresented its financial condition.

These monies, combined with proceeds from settlements of separate California state actions against several AB Energizer retailers – including Wal-Mart, Walgreen’s, and Target – for allegedly selling misbranded and unapproved products, will result in a total of over $1.4 million available for redress to AB Energizer purchasers.

Injunctive Relief. The stipulated orders against the EPD and EPI defendants contain injunctive relief to ensure the defendants do not make false or deceptive claims in the future. First, the orders permanently ban the defendants from claiming that the AB Energizer or any similar device: causes weight loss, inch loss, fat loss, muscle growth, or well-defined abs; is equivalent or superior to abdominal exercise; makes a material contribution to any system or program that produces such results; or is safe for all users. Second, the orders prohibit the defendants from misrepresenting these benefits for any other EMS device. The orders also require the defendants to warn consumers about health and safety risks associated with EMS devices in packaging and advertising for such devices.

Further, the orders prohibit the defendants from making unsubstantiated claims regarding the safety or efficacy of any product, service or program, and from misrepresenting test or research results for any product, service, or program.

Both orders also prohibit the defendants from misrepresenting the terms of their refund, cancellation, exchange, or repurchase policies, and from failing to honor cancellation and refund requests in a timely manner. The defendants are required to provide at least one reasonable way for consumers to get a timely refund, cancellation, exchange, or repurchase according to their policies. If the defendants choose to provide a customer service phone number to comply with this provision, they must ensure sufficient capacity so it is useful to consumers.

The EPD order also permanently bans Martin Van Der Hoeven and Ab Flex from engaging in, or assisting anyone else in, marketing any service, product, or program that claims to help users lose weight, fat, or inches. These two defendants are subject to a prior FTC order based on allegedly deceptive advertising for the Ab Flex exercise device.

Under the EPI order, Douglas Gravink must obtain a $150,000 letter of credit (similar to a performance bond) before marketing any product or program promoted for weight or inch loss. Gravink also is subject to a prior FTC order based on allegedly deceptive advertising. The EPI order also prohibits EPI, which is subject to a Chapter 7 bankruptcy and liquidation proceeding, from selling its customer lists or otherwise providing customer information to others.

Finally, both orders contain standard compliance reporting, monitoring, and record keeping provisions to ensure the defendants comply with the terms of the orders.

The Commission vote authorizing the staff to file the amended complaint and to accept the stipulated final orders was 5-0. The orders were filed on April 22, 2005 in the U.S. District Court for the Southern District of California and require the Court’s approval.

NOTE: These stipulated orders for permanent injunction and final judgment are for settlement purposes only and do not constitute an admission of guilt. These stipulated orders and final judgments are subject to court approval and have the force of law when signed by the judge. Copies of the amended complaint and stipulated final orders are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

AB ENERGIZER PURCHASERS WHO WANT MORE INFORMATION SHOULD CALL
1-800-705-0589.

(FTC File No. X020064)
(Civ. No. 02-CV-888BEN (AJB