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Federal Trade Commission, Consumer Financial Protection Bureau Pledge to Work Together to Protect Consumers

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have signed an agreement to coordinate efforts to protect consumers and avoid duplication of federal law enforcement and regulatory efforts.

“The FTC has always been committed to protecting consumers and legitimate companies from bad actors in the financial marketplace,” said FTC Chairman Jon Leibowitz. “Now we have another cop on the beat, and this agreement ensures that businesses will not be double-teamed by the two agencies.”

“Entering this agreement with the FTC is important to making sure markets for consumer financial products are getting efficient and effective federal government oversight,” said Richard Cordray, Director of the CFPB. “We are both motivated by the same thing: To do right by consumers. We look forward to this partnership.”

The two agencies signed a memorandum of understanding.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, requires the CFPB and the FTC to work together to coordinate their enforcement activities and promote consistent regulatory treatment of consumer financial products and services.

In the MOU, the agencies have supplemented the requirements of the Dodd-Frank Act to create a strong and comprehensive framework for coordination and cooperation. Among the points the two agencies have agreed to:

meet regularly to coordinate upcoming law enforcement, rulemaking, and other activities;
inform the other agency, absent exigent circumstances, prior to initiating an investigation or bringing an enforcement action. This notice will prevent duplicative or conflicting enforcement efforts and undue burdens on industry;
consult on rulemaking and guidance initiatives to promote consistency and reflect the experience and expertise of both agencies;
cooperate on consumer education efforts to promote consistency of messages and maximum use of resources; and
share consumer complaints.

The agencies look forward to receiving feedback on the agreement from consumers, industry, and other members of the public, and are committed to finding ways to further strengthen their coordination efforts.

The Federal Trade Commission vote approving the memorandum of understanding was 4-0.

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.

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.ConsumerFinance.gov.

FTC Approves Universal Health Services’ Application to Sell Puerto Rico Assets

Following a public comment period, the Federal Trade Commission has approved an application by Universal Health Services, Inc. to sell what are known as the Puerto Rico Divestiture Assets, including Hospital San Juan Capestrano and its affiliated outpatient centers, to Donald R. Dizney and David A. Dizney, through two companies that are members of the United Medical Corporation. Universal Health is required to sell the assets under an FTC order settling charges that its acquisition of Psychiatric Solutions, Inc. as originally proposed, was anticompetitive.

The Commission vote approving the sale of the Puerto Rico assets was 4-0. Under the terms of the FTC order, Universal Health has already received Commission approval to sell psychiatric facility assets in Delaware and Las Vegas, Nevada. (FTC File No. 101-0142, Docket No. C-4309; the staff contact is Elizabeth A. Piotrowski, Bureau of Competition, 202-326-2623; see press release November 15, 2010.)

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(FYI 4.2012.wpd)

At FTC’s Request, Court Freezes Assets of Telemarketing Operation that Allegedly Made Bogus Claims about Reducing Consumers’ Interest Rates

At the request of the Federal Trade Commission, a U.S. district court has frozen the assets of a telemarketing operation that allegedly charged consumers hundreds of dollars based on bogus promises to either provide them with low-interest credit or refund their money. The court also has ordered the illegal conduct to stop while the FTC moves forward with the case.

As part of its continuing crackdown on scams that target consumers in financial distress, the Federal Trade Commission alleged in its complaint that Eric C. Synstad and the Phoenix, Arizona-area company he controls, Premier Nationwide Corporation, falsely promised they would provide refunds if they could not significantly reduce consumers’ debt. The defendants allegedly claimed they would either secure a new, low interest credit card or reduce the interest rates on current credit cards.

The defendants violated both the Federal Trade Commission Act and the Telemarketing Sales Rule, according to the complaint. Changes made to the Rule in 2010 prohibit companies that sell debt relief services over the telephone from charging fees before achieving the promised results.

Cold-calling consumers, the defendants allegedly said they would consolidate debts on a new credit card with an interest rate as low as 9 percent, or work with a consumer’s existing credit card issuers to lower monthly payments and interest rates – in exchange for an up-front fee that typically ranged from $149 to $599. The defendants claimed the fee would quickly be offset by the savings achieved from services they provided, and promised that if they could not significantly reduce consumers’ debt, they would provide full refunds, minus a 20 percent “processing fee,” according to the complaint.

The FTC alleges that in contrast to what the defendants promised, consumers who signed up for the credit card debt consolidation service were merely given a list of banks and told to apply for low-interest credit cards on their own. Those who signed up for the interest rate reduction were told they would have to pay an additional monthly fee to a different company that would work to obtain reduced monthly payments and interest rates. Also, in numerous cases, consumers who sought the promised refund were denied.

Consumers looking for help with credit card debt should be wary of anyone who tells them to stop paying their bills, to pay someone other than their creditors, or to stop talking to their creditors. Consumers should also be careful about paying for financial assistance before they receive it. For more information on dealing with debt, including public service announcements about avoiding debt relief scams, see the Debt Relief Services page of the FTC’s Money Matters website for consumers.

The ban on advance fees under the Telemarketing Sales Rule protects all consumers who have enrolled in a debt relief service since October 27, 2010. For more information about the advance fee ban see: Debt Relief Companies Prohibited From Collecting Advance Fees Under FTC Rule. For guidance to businesses on how to comply with the new Rule, see Debt Relief Services & the Telemarketing Sales Rule: A Guide for Business.

The FTC would like to thank the Arizona Attorney General’s Office and the Better Business Bureau Serving Central, Northern & Western Arizona for their assistance in this case.

The Commission vote authorizing the staff to file the complaint was 3-1, with Commissioner J. Thomas Rosch voting no. The FTC filed the complaint and request for a temporary restraining order in the U.S. District Court for the District of Arizona on January 3, 2012. The next day, the court granted the FTC’s request.

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 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 and follow us on Twitter.

(FTC File No. 1123164)
(Premier Savings NR)

FTC Action Stops Marketer in Precious Metals Investment Case

At the request of the Federal Trade Commission, a federal judge stopped the allegedly illegal practices of a defendant who helped operate a telemarketing scheme that is believed to have received more than $37 million by conning consumers into buying precious metals on credit without clearly disclosing significant costs and risks. The court also froze the assets of the defendant, Sam J. Goldman, pending a trial.

In May 2011, the FTC charged American Precious Metals LLC, Harry R. Tanner, Jr., and Andrea Tanner with violating the FTC Act and the FTC’s Telemarketing Sales Rule while selling precious metal investments. The court subsequently halted their allegedly deceptive practices, froze their assets, and appointed a receiver to oversee the business, pending a trial. In November 2011, the FTC added Goldman as a defendant.

The court order prohibits Goldman from misrepresenting that consumers are likely to earn high or substantial profits in a short time period on the precious metals sold by the defendants, or that the precious metals are low or minimal risk. The order also bars him from failing to clearly disclose to consumers, before they pay, material information such as the total fees, commissions, interest charges, and leverage balances that consumers are required to pay, or that consumers are likely to receive equity calls that will require them to pay more money or liquidate their precious metals. In addition, the order prohibits Goldman from violating the Telemarketing Sales Rule, and from selling or otherwise benefitting from customers’ personal information.

The preliminary injunction was entered by the U.S. District Court for the Southern District of Florida on December 28, 2011. (FTC File No. X110036; the staff contact is Dama Brown, FTC’s Southeast Region, 404-656-1361.)

For information about investing in precious metals, the FTC offers Investing in Gold? What’s the Rush?, Investing in Bullion and Bullion Coins and Investing in Collectible Coins.

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 Web site provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.

(Precious Metals, Goldman PI)

FTC Establishes Streamlined Procedures to Help Maintain the Confidentiality of its Ongoing Investigations; FTC Approves Final Order Settling Charges that PoolCorp Acted Anticompetitively to Stop Manufacturers From Selling Products to Competitors

FTC Establishes Streamlined Procedures to Help Maintain the Confidentiality of its Ongoing Investigations

The Federal Trade Commission has approved Rule 2.17, a new component in the agency’s Rules of Practice. The new Rule streamlines internal procedures for staff to seek court orders that prevent certain FTC investigation targets from learning about subpoenas and civil investigative demands (CIDs) that seek information about their activities. The new Rule will improve efficiency and help safeguard the confidential nature of ongoing agency investigations.

Under the new rule, either an individual commissioner or the agency’s General Counsel may authorize the FTC staff to file court actions, when necessary, seeking to delay notifying targets of investigations that subpoenas and CIDs have been used, and prohibiting recipients of subpoenas and CIDs from disclosing to targets that they have been used. This will help the agency prevent likely fraudsters from discovering that the FTC has requested information about them from third parties, when such disclosure would tip them off or otherwise jeopardize the internal investigation.

As detailed in the Federal Register notice announcing the Rule, the new procedure specifically relates to disclosures under the Right to Financial Privacy Act (RFPA), the Electronic Communications Privacy Act (ECPA), and the U.S. Safe Web Act (Safe Web Act). Under the RFPA and ECPA, the FTC is at times required to notify consumers when seeking their records from financial institutions (e.g., banks) or service providers (e.g., ISPs). These laws and the Safe Web Act authorize the filing of court actions seeking to delay notification and prohibit disclosure.

The Commission vote approving the Federal Register notice announcing the addition of Rule 2.17 to the FTC’s Rule of Practice was 5-0. The Rule is not subject to public comment, and became effective when it was published in the Federal Register on September 2, 2011. (FTC File No. P0272104. The staff contact is Ashley Gum, Office of the General Counsel, 202-326-3006.)

FTC Approves Final Order Settling Charges that PoolCorp Acted Anticompetitively to Stop Manufacturers From Selling Products to Competitors

Following a public comment period, the Federal Trade Commission has approved a final order settling charges that Pool Corporation, the largest distributor of swimming pool products in the United States, used threats and coercion to stop manufacturers from selling pool products to PoolCorp’s competitors. According to the FTC, Pool Corp’s strategy significantly raised the costs incurred by its rivals, thereby lowering sales, increasing prices, and reducing the number of choices available to consumers.

The final FTC order resolving the charges requires Pool Corp to stop engaging in the anticompetitive tactics that it allegedly has been using to keep out new competitors in local markets around the nation.

The Commission vote approving the final order and a letter to the member of the public who commented on it was 3-1, with Commissioner J. Thomas Rosch voting no. (FTC File No. 101-0115; the staff contact is Linda Holleran, Bureau of Competition, 202-326-2267; see press release dated November 21, 2011.)

(FYI 3.2012.wpd)

FTC Seeks Public Comment on Agency’s Rules of Practice

The Federal Trade Commission today issued proposed changes to two parts of the procedures that govern the way the agency operates. The proposed changes would streamline the FTC’s investigatory procedures, make updates to keep pace with electronic discovery, and detail the agency’s procedures for evaluating allegations of misconduct by attorneys practicing before the Commission.

The proposed changes, which will be published in the Federal Register and are subject to public comment until March 23, 2012, concern the procedures in Parts 2 and 4 of the agency’s Rules of Practice. They are part of the FTC’s effort to periodically review and update its rules to ensure that they are efficient and not unduly burdensome on outside parties.

Investigations. The proposed changes to Part 2 are designed to expedite Commission investigations and make sure the FTC’s investigatory processes continue to keep pace with electronic discovery. For example, the proposed changes require parties to meet and confer with Commission staff on an accelerated basis in order to resolve electronic discovery issues relating to subpoenas and civil investigative demands (CIDs), as well as any other issues.

Proposals also include changes to:

streamline the process for resolving disputes over FTC subpoenas and CIDs, as well as petitions to limit or quash FTC subpoenas and CIDs;
expedite the FTC’s pre-merger review process by giving the agency’s General Counsel the authority to initiate enforcement proceedings when a party fails to comply with the Hart-Scott-Rodino second request process; and
relieve parties of their obligations to preserve documents related to an FTC investigation after a year passes with no written communication from the Commission or staff.

A section-by-section description of the proposed Part 2 changes can be found here on the FTC’s website.

Attorneys. The proposed changes to Section 4.1(e) clarify the agency’s procedures for evaluating allegations of misconduct by attorneys practicing before the Commission. The proposed changes can be found here on the FTC’s website.

The Commission vote approving proposed changes to Parts 2 and 4, 16 CFR, Parts 2 and 4, of the agency’s Rules of Practice was 3-1, with Commissioner J. Thomas Rosch voting no and issuing a separate statement, in which he concurred in part and dissented in part.

In his statement, Commissioner Rosch noted his support for the Commission’s efforts to modernize the agency’s operating rules and his general agreement with the proposed changes. He nevertheless asserted that the proposed rule changes were insufficient because they did not include mandatory compulsory process in all full-phase investigations and regular reports on the status of pending investigations to all commissioners.

The proposed revised Rules of Practice can be found on the FTC’s website and as a link to this press release. They will be published shortly in the Federal Register, and are subject to public comment beginning today and continuing through March 23, 2012. Comments can be submitted electronically here. The proposed rules, if finalized, will apply to all currently pending FTC investigations, unless the FTC determines that the application of a rule in a particular investigation would not be feasible or would create an injustice.

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 and follow us on Twitter.

(FTC File No. P072104)
(Part 2 Rules.final)

CVS Caremark Corporation Settles FTC Deceptive Pricing Charges

CVS Caremark Corporation will pay $5 million to settle Federal Trade Commission charges that it misrepresented the prices of certain Medicare Part D prescription drugs – including drugs used to treat breast cancer symptoms and epilepsy – at CVS and Walgreens pharmacies. The allegedly deceptive claims caused many seniors and disabled consumers to pay significantly more for their drugs than they expected and pushed them into the “donut hole” – a term referring to the coverage gap where none of their drug costs are reimbursed – sooner than they anticipated or planned. The settlement will bar deceptive claims related to Medicare Part D drug prices and require CVS Caremark to pay $5 million to reimburse affected Medicare Part D consumers for the price discrepancy.

“This settlement puts money back in the pockets of older Americans who struggle to pay for their medications,” said FTC Chairman Jon Leibowitz. “With the cost of health care on the rise, the FTC is especially focused on protecting consumers from any deceptive claims that would cause them to pay more than they should.”

According to the FTC complaint, CVS Caremark offers Medicare Part D prescription drug plans through subsidiaries like RxAmerica, which CVS Caremark acquired in October 2008. Many consumers choose their Medicare Part D drug plans by looking up plan benefits and drug prices on RxAmerica’s website, by going to the Centers for Medicare & Medicaid Services website and using the web-based tool Plan Finder, or by visiting other third-party websites where such information is posted.

The FTC charged that from 2007 through at least November 2008, RxAmerica posted on its website and supplied for posting to Plan Finder and third-party websites incorrect prices for Medicare Part D prescription drugs at two pharmacy chains, CVS and Walgreens. In some instances, the actual prices for these drugs were as much as 10 times more than the posted prices. As a consequence of the deceptive price claims, many elderly and disabled consumers chose RxAmerica plans and paid significantly more than they expected for their drugs at CVS and Walgreens, the FTC alleged.

The proposed settlement order bars CVS Caremark from misrepresenting the price or cost of Medicare Part D prescription drugs or other prices or costs associated with Medicare Part D prescription drug plans. It requires that CVS Caremark pay $5 million in consumer refunds. The FTC will be mailing checks to eligible consumers who were harmed by these misrepresentations after the order becomes final. The settlement also contains standard record-keeping provisions to allow the FTC to monitor compliance with its order.

After a thorough and comprehensive review of other consumer protection and competition issues in this matter, the FTC issued a letter closing the investigation.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 4-0. The Commission voted separately, also by a 4-0 margin, to close the investigation into other consumer protection and competition issues, and to approve and issue the closing letter. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through Feb. 13, 2012, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments in electronic form should be submitted using the following Web link: https://ftcpublic.commentworks.com/ftc/cvscaremarkcorpconsent and following the instructions on the web-based form. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative 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 respondent has actually violated the law. A consent agreement is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

(FTC File Nos. 112-3210, 091-0106)
(CVS.final)

FTC Puts Conditions on AmeriGas’s Proposed Acquisition of Rival Propane Distributor Heritage Propane

The Federal Trade Commission will require AmeriGas L.P. and Energy Transfer Partners L.P. (ETP), two of the nation’s largest propane distributors, to amend AmeriGas’s proposed acquisition of ETP’s Heritage Propane business as part of a settlement with the FTC. The settlement resolves FTC charges that the deal, as originally proposed, would have reduced competition and raised prices in the market for propane exchange cylinders that consumers use to fuel barbeque grills and patio heaters.

AmeriGas originally entered into an agreement with ETP to acquire ETP’s Heritage Propane business in October 2011 for $2.9 billion. The FTC’s settlement protects consumers by requiring AmeriGas to exclude ETP’s cylinder exchange business, Heritage Propane Express, from the sale.

AmeriGas is the largest propane distributor in the United States. It serves 1.3 million customers with 1,200 propane distribution facilities in all 50 states, and sells more than one billion gallons of propane a year. Both AmeriGas’s ACE division and ETP’s Heritage Propane Express division supply propane exchange cylinders nationally and regionally. ACE is the second-largest supplier, and Heritage Propane Express is the third-largest supplier of exchange services in the nation. Such exchange cylinders – which are often referred to as 20 pound DOT cylinders – are small, portable tanks pre-filled with propane. Consumers exchange empty tanks for pre-filled ones. Cylinder exchange has become popular because it is more convenient for consumers and retailers than direct refill options.

According to the FTC’s complaint, AmeriGas’s acquisition of ETP’s Heritage Propane Express business – as proposed in the original merger agreement – would have been anticompetitive and violated the Clayton and FTC Acts. The agency charged that the original deal would have substantially lessened competition in the nationwide market for distributing and selling propane exchange cylinders, as well as in several smaller regional markets. Specifically, according to the complaint, the acquisition would have reduced the number of companies that can supply propane exchange cylinder services to large multi-state chain retailers from three to two, with only Ferrellgas Partners, L.P.’s Blue Rhino division – the largest national provider – left as a competitor.

The complaint also states that the original deal would have eliminated competition because Heritage Propane Express has played a key role as a “maverick” in the industry, fostering competition by offering lower prices and better terms and conditions to retailers than either ACE or Blue Rhino.

AmeriGas and ETP settled the FTC’s charges by amending their sale agreement and agreeing to the terms of the consent order issued by the FTC. The settlement prevents AmeriGas from buying Heritage Propane Express. It also ensures that Heritage Propane Express continues to be a viable competitor by requiring ETP to maintain the viability of the business for two years unless it is sold before then. Further, since the Heritage Propane business that AmeriGas is acquiring provided certain support services to Heritage Propane Express, the order requires AmeriGas to continue to provide those services temporarily to ETP or a subsequent acquirer of Heritage Propane Express.

Because ETP has stated that it intends to sell Heritage Propane Express, the settlement also prohibits ETP from selling the business for two years without first gaining approval from the FTC. This enables the FTC to review a proposed sale even if it is not subject to statutory pre-merger filing requirements, and to ensure that Heritage Propane Express will remain a viable independent competitor after the sale.

To prevent AmeriGas and ETP from replicating the competitive concerns raised by their current sale agreement, the consent order also requires both parties to notify the FTC for 10 years if either wants to buy a cylinder exchange business with annual sales over $22 million. ETP has to provide this notification only as long as it owns a cylinder exchange business.

The Commission vote approving the complaint and issuing the consent order was 4-0. The order will be published in the Federal Register shortly and will be subject to public comment for 30 days, until February 13, 2012. Comments on the order can be submitted electronically.

NOTE: The Commission issues 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 issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

(FTC File No. 121-0022)
(AmeriGas.final)

FTC Approves Modified Final Order Settling Charges that Healthcare Technology Holding’s Proposed Acquisition of SDI Health LLC was Anticompetitive

Following a public comment period, the Federal Trade Commission has approved a modified final order settling charges that Healthcare Technology Holdings, Inc.’s proposed acquisition of SDI Health LLC, through the former’s subsidiary IMS Health Inc., would be anticompetitive and likely would increase prices for market research products in the health care industry. The final order settling the FTC’s charges requires the sale of SDI’s promotional audit and medical audit businesses to an FTC-approved buyer, and includes minor changes in response to suggestions from the monitor in this matter.

The Commission vote approving the final order was 4-0. (FTC File No. 111-0097; the staff contact is Gregory Luib, Bureau of Competition, 202-326-3249; see press release dated October 28, 2011.)

(FYI 2.2012.wpd)

Internet Marketers of Acai Berry Weight-Loss Pills and “Colon Cleansers” to Pay $1.5 Million to Settle FTC Charges of Deceptive Advertising and Unfair Billing

The Federal Trade Commission announced that an operation that marketed acai berry supplements, “colon cleansers,” and other products using allegedly fraudulent free trial offers and phony endorsements from Oprah Winfrey and Rachael Ray will pay $1.5 million as part of a settlement. The money will be made available for consumer refunds.

The case against Phoenix-based Central Coast Nutraceuticals, Inc., is part of the FTC’s ongoing efforts to protect consumers from fraudulent internet marketing, as well as false and misleading health claims. The settlement order bans the defendants from so-called “negative-option” sales, such as continuity plans and free or introductory price trial offers, in which consumers pay nothing up front or only a small fee to receive a product, but are then automatically charged a higher price unless they take steps to cancel the shipments, or return the product before the end of the trial period.

The 2010 FTC complaint alleged that two individuals and five related companies deceptively claimed that their Acai Pure supplement would cause rapid and substantial weight loss, and that their Colotox colon cleanser would prevent colon cancer. Also, despite claiming to offer a “free” trial for a nominal fee and full refunds upon request, the defendants allegedly repeatedly made unauthorized charges to consumers’ bank accounts, and made it all but impossible to avoid paying full price for the products, typically $39.95 to $59.95.

The FTC charged that the defendants violated the Federal Trade Commission Act, as well as the Electronic Fund Transfer Act and its implementing language, Regulation E.
At the request of the FTC in August 2010, a federal court halted the allegedly illegal conduct of the Central Coast Nutraceuticals defendants, imposed an asset freeze, and appointed a receiver to oversee the corporate defendants.

The settlement order against the defendants includes an $80 million judgment, which represents the total amount of consumer injury caused by their scheme. The monetary judgment will be suspended when the FTC receives assets worth approximately $1.5 million from the defendants.

The settlement order requires defendant Graham D. Gibson to pay the FTC the balance of his investment account; transfer to the FTC $500,000 after mortgaging his home in Phoenix, Arizona, or transfer the property to a court-appointed liquidator if he cannot obtain the mortgage; and divest himself of his interest in a Hawaii vacation property. It also requires the court-appointed receiver to transfer to the FTC the estimated $600,000 that will remain in the accounts of Central Coast Nutraceuticals and the affiliated corporate defendants after their outstanding expenses are paid. If it is later determined that the financial information the defendants provided was false, the full amount of the judgment will become due.

In addition to banning the defendants from selling any products or services with a negative option feature, the settlement also prohibits them from:

making deceptive statements that there is no cost for a trial purchase; that all consumers who request full refunds will get them; that celebrities such as Oprah Winfrey and Rachael Ray endorse their products; that consumer testimonials reflect typical consumer experiences; about the total amount consumers will pay; or about any other material fact regarding any goods or services sold by the defendants;
failing to make adequate disclosures about the material terms and conditions of any offer;
charging consumers’ credit cards, or debiting their bank accounts without their consent;
making any claim that a product can diagnose, cure, mitigate, treat, or prevent any disease, including cancer, unless the claim is approved by the Food and Drug Administration;
making any claim that a product can cause weight loss, unless the claim is supported by two well-controlled human clinical studies;
making claims about the health benefits of any supplement, food, or drug without competent and reliable scientific evidence, and misrepresenting any tests or studies;
making deceptive or false statements or failing to disclose material facts, to a payment processor or financial institution; and
violating the Electronic Funds Transfer Act and Regulation E.

Under the settlement order, the defendants also are required to monitor the activities of any affiliate marketers selling products or services on their behalf, including reviewing any marketing materials used to ensure that they comply with the order.

Victimized consumers flooded law enforcement agencies and the Better Business Bureau with thousands of complaints about the company. The defendants’ marketing traded on the rampant popularity of acai berry supplements, which are derived from acai palm trees that are native to Central and South America. The Better Business Bureau named fake “free” trial offers – including those for acai supplements offered by the defendants in this case – as one of the “Top 10 Scams and Rip-Offs of 2009.”

For more information about free trial offers, products that claim to treat, prevent or cure diseases, and weight loss products, see: “Free Trials” Aren’t Always Free, Miracle Health Claims: Add a Dose of Skepticism, and Weight Loss Promises.

In addition to Gibson and Central Coast Nutraceuticals, Inc., the settlement order resolves the FTC’s charges against all other defendants in the case: Michael A. McKenzy; iLife Health and Wellness LLC; Simply Naturals LLC; Health and Beauty Solutions LLC; and Fit for Life LLC.

The Commission vote authorizing the staff to file the complaint and approving the proposed settlement order was 3-1, with Commissioner J. Thomas Rosch voting no. Judge Charles R. Norgle, Sr. of the U.S. District Court for the Northern District of Illinois, Eastern Division signed the settlement order on January 3, 2012.

NOTE: A settlement order is for settlement purposes only and does not constitute an admission by the defendant that the law has been violated. Settlement orders have the force of law when approved and signed by the District Court judge.

(FTC File No. 1023028)
(Central Coast NR)

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