National Marketers of Dietary Supplements Settle FTC Charges

Direct mail marketers have agreed to pay $2.2 million in consumer redress and to stop certain deceptive advertising practices to settle Federal Trade Commission charges that they made false and unsubstantiated weight loss and arthritis “cure” claims for dietary supplements in sales brochures mailed to consumers across the nation.

In June 2003, the Department of Justice, on behalf of the FTC, filed a federal court complaint against California residents Michael S. Levey and Gary Ballen; Bentley Myers International Co., based in Vancouver, Canada; and Publisher’s Data Services, Inc. and Nutritional Life, Inc., both based in Beverly Hills, California. The complaint alleged that the defendants violated the FTC Act by making false and unsubstantiated claims that three weight- loss supplements – Zymax and MillinesES (both containing ephedra), and Serotril (containing St. John’s wort) – cause rapid and substantial weight loss without diet or exercise. The complaint also challenged claims that the ephedra products have no side effects. The complaint further alleged that the defendants made unsubstantiated claims that CartazyneDS, a dietary supplement containing glucosamine, “cures” arthritis and “rebuilds” cartilage “within days.” The complaint charged that the defendants’ ads used fictitious expert and consumer endorsements, and deceptive “before and after” pictures.

In addition, the complaint charged Levey and the three companies with violating a 1993 FTC order, which prohibited Levey from making unsubstantiated advertising claims and from using deceptive endorsements and demonstrations. The 1993 order was based on Levey’s allegedly deceptive television infomercials for the EuroTrym Diet Patch, Foliplexx hair-loss product, Y-Bron impotence treatment, and Magic Wand kitchen mixer.

Defendant Michael Levey died in August 2003. The FTC today announced an amended complaint that substitutes Lisa Levey, in her capacity as personal representative of the Estate of Michael Levey, for defendant Michael Levey. The amended complaint was filed along with a consent decree, which requires the court’s approval.

• Under the terms of the consent decree, Michael Levey’s Estate, as well as Ballen and the three corporate defendants, jointly agree to pay $2.2 million in consumer redress. In addition, the consent decree prohibits the three corporate defendants from violating the 1993 FTC order. The consent decree also prohibits Ballen and the corporations from engaging in certain deceptive advertising practices, including:
  
  
• representing that dietary supplements and certain other products cause substantial weight loss in a short time without diet or exercise, or that such claim is proven by clinical studies;
  
  
• making any other false or unsubstantiated claim about the health benefits, performance, safety or efficacy of any product, service, or program;
  
  
• using deceptive pictures and demonstrations; misrepresenting tests, studies and research; and
  
  
• misrepresenting the identity or qualifications of any expert or other endorser.

The consent decree includes a provision, similar to those in earlier FTC orders involving ephedra products, which requires a prominent warning in advertising and product labeling to alert consumers that ephedra use can result in serious injury and even death. On February 11, 2004, the Food and Drug Administration published a final rule, effective April 12, 2004, prohibiting the sale of dietary supplements containing ephedrine alkaloids (ephedra) because they present an unreasonable risk of illness or injury. The consent decree’s warning requirement will apply to defendants’ marketing of all ephedra products, including ephedra products that are not covered by FDA’s rule.

Finally, the consent decree also contains various recordkeeping and reporting requirements to assist the FTC in monitoring the defendants’ compliance.

The FTC received assistance from the Canadian Competition Bureau and the Consumer Services Division of the British Columbia Ministry of Public Safety and Solicitor General during the investigation of this matter.

The Commission vote to refer the amended complaint and the proposed consent decree to the Department of Justice for filing was 4-1, with Commissioner Orson Swindle dissenting. In his dissenting statement, Commissioner Swindle explained that he thought the amount of monetary relief was woefully inadequate. Commissioner Swindle stated, “Although $2.2 million is a sizeable amount of money, this payment is minuscule in comparison to the amount of the defendants’ gross sales and consumer harm. In addition, the Levey family and Gary Ballen are both left with substantial assets. Although anyone can feel compassion for the Levey family given Michael Levey’s death, this should not justify allowing the family to keep money that rightfully belongs to consumers who were deceived by the defendants’ false health claims. Any settlement that leaves defendants or their families with substantial ill-gotten wealth not only sets a bad precedent but also shows, in a manner of speaking, that ‘crime does pay.’”

The amended complaint and consent decree were filed in the U.S. District Court for the Central District of California, Western Division, on March 9, 2004. The consent decree requires the court’s approval.

NOTE: The consent decree is for settlement purposes only and does not constitute an admission by the defendants of a law violation. A consent decree is subject to court approval and has the force of law when signed by the judge.

Copies of the amended complaint, the consent decree, and the dissenting statement by Commissioner Swindle 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, D.C. 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, 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.

(FTC Matter No. X030070)
(Civil Action No. CV-03-4670 GAF (AJWx))