Online Advertising, Affiliate Marketing Compliance and Fraud with Pace Lattin

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January 2017

FTC and NYS Charge Marketers of Cognitive Enhancement Supplement with Deceptive Advertising

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The Federal Trade Commission and New York State Attorney General recently charged the marketers of the dietary supplement Prevagen with making false and unsubstantiated claims that the product improves memory, provides cognitive benefits and is “clinically shown” to work.

As part of its extensive national advertising campaign, the marketers feature charts depicting dramatic improvement in memory for product users. The complaint alleges, in part, that the marketers relied upon a study that failed to substantiate that the product works better than a placebo on any measure of cognitive function.

According the complaint, the defendants enticed consumers to spend anywhere from $24 to $68 for bottles of 30 supplement pills by touting the product’s active ingredient – a protein derived from jellyfish – to improve memory and reduce memory problems associated with aging.

“The marketers of Prevagen preyed on the fears of older consumers experiencing age-related memory loss,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “But one critical thing these marketers forgot is that their claims need to be backed up by real scientific evidence.”

The agencies allege that the defendants’ marketing claims have violated the FTC Act and New York state laws.

“The marketing for Prevagen is a clear-cut fraud, from the label on the bottle to the ads airing across the country,” said New York Attorney General Eric Schneiderman. “It’s particularly unacceptable that this company has targeted vulnerable citizens like seniors in its advertising for a product that costs more than a week’s groceries, but provides none of the health benefits that it claims.”

A copy of the complaint can been seen, here.

Contact an FTC defense lawyer if you are the subject of a regulatory enforcement investigation or action, or if you are interested in implementing preventative compliance measures.

HINCH NEWMAN LLP. ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result.


Shark Tank Breathometer Was Complete Fraud: Ordered to Refund all Customers

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Being on Shark Tank can make you often a star. However, One of Shark Tank’s highest-profile deals—for a smartphone breathalyzer—took a hit from the Federal Trade Commission Monday.

The FTC settled a complaint against Breathometer and its CEO and Shark Tank pitcher Charles Yim.

Yim had wowed the sharks with a 2013 pitch for the product—he got an unprecedented deal from all five sharks of $1 million for 30% of the company.

But the FTC, in announcing the complaint and settlement, said that though the ABC TV show’s stars had gone for the product “hook, line and sinker, the defendants’ deceptive claims about the accuracy of the devices’ readings left consumers floundering.”

That complaint was against the marketing of both the original device and a second iteration of the product called Breeze, a Bluetooth-enabled version billed as “law-enforcement grade.”

“People relied on the defendant’s products to decide whether it was safe to get behind the wheel,” said FTC Bureau of Consumer Protection director Jessica Rich. “Overstating the accuracy of the devices was deceptive — and dangerous.”

Breathometer will have to refund consumers $1 million after Breathometer learned of accuracy problems—users had a higher blood alcohol level than they were registering on the device and the device’s sensors deteriorated over time—but did not convey that to the thousands of customers who were already basing their decisions on whether they were safe to drive on the readings.

“So as late as February 2016, people could still buy Breeze from big-name national retailers even though Breathometer had known about the inaccurate results for more than a year,” said the FTC.

Breathometer is also disallowed from making similar accuracy claims with future breathalyzers, unless they undergo rigorous testing. This one should be easy enough, since the company no longer sells or manufactures breathalyzers.

If you picked up either the first-generation or Breeze breathalyzer, a request form will be available through Breathometer’s website to claim your refund.

Western Union to Pay $586 Million to Settle DOJ Money Laundering case

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Western Union will pay $586 million in customer refunds and beef up its money laundering and fraud protections after admitting to criminally violating the U.S. Bank Secrecy Act and federal anti-fraud regulations, according to the U.S. Department of Justice. The settlement also involves the Federal Trade Commission and covers conduct that took place between 2004 and 2012.

The federal government had been investigating the company to determine whether the Company’s oversight of agents, anti-fraud program and anti-money laundering controls adequately prevented misconduct by agents and third parties. The period in question ranged from 2004 to 2012, and part of the $586 million settlement will go to reimburse Western Union customers who were affected by fraud during that period due to Western Union’s alleged negligence.

The money will go toward compensating defrauded consumers. Western Union also has agreed to create policies that detail “corrective action” against agents who pose a risk of not complying with money laundering and anti-fraud laws; to make sure that all its agents around the world comply with those laws; and to report suspicious or illegal activity to authorities. An independent compliance auditor will oversee those actions for three years.

For its part, Western Union said it has increased its compliance spending by 200 percent over the last five years, to about $200 million annually, and that a fifth of its workforce now focuses on compliance issues. “The comprehensive improvements undertaken by the company have added more employees with law enforcement and regulatory expertise, strengthened its consumer education and agent training, bolstered its technology-driven controls and changed its governance structure so that its chief compliance officer is a direct report to the compliance committee of the board of directors,” Western Union said.

This recent settlement will also resolve potential claims by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). FinCEN alleges Western Union violated the Bank Secrecy Act from 2010 to 2012.

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