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FTC Amends Complaint Against Operators of Invention-Promotion Scheme

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In March 2017, the Federal Trade Commission charged the operators of a patent and invention-promotion scam with deceiving consumers and suppressing complaints about the company by using threats of criminal prosecution.

As previously blogged about here, the FTC stated that “[t]hrough TV ads, telemarketing, and the internet, the Florida-based defendants touted their services as a way for inventors to patent their products and make big money. According to the FTC, in their initial conversation with an inventor, the defendants’ sales people invariably praised the invention and made big promises.

The FTC also alleged that defendants were paid thousands of dollars to patent and market their inventions based on bogus “success stories” and testimonials. Moreover, according to the FTC, the defendants employed unfair tactics to discourage consumers from publishing reviews about the service, including threats of legal action, criminal charges and prison.

A federal court in Miami, Florida, temporarily halted the scheme and froze its assets pending litigation. On June 5, the court extended its temporary restraining order until June 26, 2017.

The Federal Trade Commission has amended its complaint against World Patent Marketing.

The amended complaint alleges that WPM claimed its clients’ products were sold in numerous popular “big box” stores, even though no such inventions are sold in any brick and mortar stores. According to the FTC, WPM also falsely touted licensing deals between inventors and “WPM China” involving WPM’s purported manufacturing plant in China. However, according to the FTC, “WPM China” does not exist, and WPM has no manufacturing plant in China.

The amended complaint further alleges that WPM falsely told consumers that its review team needed to approve their ideas before they could move forward with the company, when in fact no such review occurred.

Contact an FTC defense lawyer if you are the subject of a local, state AG or federal regulatory enforcement investigation or action.

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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. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777.

FTC and Florida AG Shut Down Massive Debt Relief Scam in Florida

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Florida Attorney General Pam Bondi and the Federal Trade Commission jointly obtained a court order against a debt relief operation that they allege bilked millions of dollars from customers.

According to their complaint, filed in the U.S. District Court in the Southern District of Florida, Jeremy Lee Marcus, Craig Davis Smith and Yisbet Segrea set up 11 debt relief companies, which all listed their address at 1410 S.W. Third St. in Pompano Beach.

The defendants allegedly persuaded consumers to pay hundreds or thousands of dollars a month by falsely promising to pay, settle or obtain dismissals of consumers’ debts and improve consumers’ credit.

“Despite alleged promises, the victims of this scam ended up with little or nothing to show for their payments and were made worse off financially,” Bondi said in a statement. “I will continue to work with our federal partners to stop scammers targeting and exploiting consumers in search of financial help.”

The defendants promised guaranteed debt consolidation loans with attractive interest rates and significantly lower monthly payments, the complaint alleged. In addition, the complaint said that the defendants falsely claimed nonprofit status to appear more legitimate.

The court order prohibits the three defendants and their companies from misrepresenting their services to clients, claiming to be a nonprofit or claiming a debt relief program will improve consumers’ creditworthiness.

The defendants are all alleged in the complaint to have violated the Florida Deceptive and Unfair Trade Practices Act, the FTC Act and the FTC’s Telemarketing Sales Rule.

Massachusetts AG Reaches Geofencing Settlement with Digital Advertising Company

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According to a recent press release by the Massachusetts Attorney General, the agency has reached settlement terms with a digital advertising company that prohibits it from using mobile geofencing technology to target women entering local reproductive health facilities.

Geofencing technology permits digital advertisers to direct advertisements to users through browsers and applications on their devices when those users are located in specifically designated territory.

“While geofencing can have positive benefits for consumers, it is also a technology that has the potential to digitally harass people and interfere with health privacy,” said AG Healey. “Consumers are entitled to privacy in their medical decisions and conditions. This settlement will help ensure that consumers in Massachusetts do not have to worry about being targeted by advertisers when they seek medical care.”

In the press release, the MA OAG explains that that geofencing creates a virtual “fence” around a specified location that is tripped when a person crosses the “fence” with a phone or other mobile device.

Once the geofence is tripped, an advertiser will attempt to display an ad in an open app or web browser on the person’s mobile device. The ad is typically tailored to that location and other information about the user.

A mobile device also may be tagged so that marketing messages can be directly pushed to it whenever the same app or browser page is opened in the future. Users may not realize when they installed these apps that the app would disclose their location information for purposes unrelated to the app, including advertising.

In its advertising campaign, according to the OAG, Copley Advertising LLC set mobile geofences at or near reproductive health centers and methadone clinics in Columbus, New York City, Pittsburgh, Richmond and St. Louis. When a user entered the geofenced area near these locations, consumers’ devices were pushed tagged advertisements for up to 30 days.

The advertisements allegedly included text such as “Pregnancy Help,” “You Have Choices” and “You’re Not Alone” that, if clicked, took recipients to a webpage with information about abortion alternatives and access to a live web chat with a “pregnancy support specialist.”

The settlement, resolved through an Assurance of Discontinuance, resolves allegations that the foregoing practices would violate consumer protection laws in Massachusetts by tracking a consumer’s physical location near or within medical facilities, disclosing that location to third-party advertisers, and targeting the consumer with potentially unwanted advertising based on inferences about his/her private, sensitive and intimate medical or physical condition, all without the consumer’s knowing consent.

Key takeaway: Advertisers must consider the privacy implications of targeted advertising, including the collection, storage and use of sensitive consumer data.

Contact an experienced privacy lawyer for questions regarding online data collection requirements.

Follow the author on Twitter at FTC Defense Lawyer.

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. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

 

Dietary Supplement Makers Ordered to Cease Making Drug Claims

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In March 2017, the U.S. District Court for Colorado entered a consent decree of permanent injunction against EonNutra LLC, CDSM LLC and HABW LLC, manufacturers and distributors of unapproved drugs and dietary supplements, and their owner, requiring the businesses to immediately cease operations until they comply with federal laws.

The products were made available on numerous websites and via a retails location in Colorado.

“Companies that market their products with unproven health claims and also continue to violate manufacturing regulations put consumers’ health in jeopardy,” said Melinda Plaisier, FDA associate commissioner for regulatory affairs, in a recent press release issued by the U.S. Food and Drug Administration. “The FDA will take the enforcement actions necessary to protect consumers from this undue risk.”

The FDA inspected the businesses numerous time since 2012. Despite assurances the deficiencies would be remedied, subsequent FDA inspections revealed that they had not been.

The FDA also determined that the dietary supplement products were misbranded and unapproved new drugs because they were being marketed with drug claims despite not being approved for any use.

According to the FDA, some of the claims the dietary supplement products were marketed with included the treatment of high cholesterol, hypertension, diabetes, depression and muscle pain.

During the inspections, FDA investigators also found the businesses were manufacturing and distributing misbranded and adulterated dietary supplements.

Numerous violations of the FDA’s current Good Manufacturing Practice (cGMP) regulations for dietary supplements were found, including failure to establish specifications for dietary supplement components and failure to test or verify that components and finished products meet product specifications for identity, purity, strength or composition.

The FDA stated that because the businesses failed to follow cGMP regulations, their dietary supplements were adulterated under the Federal Food, Drug, and Cosmetic Act.

According to the FDA, some of the supplements were also misbranded because the business failed to properly list on the products’ label the number of servings per container and the correct serving size per container. Additionally, the FDA believed that they failed to list each ingredient contained in the dietary supplements and identify the specific part of the plant each botanical dietary ingredient was derived from.

The consent decree prohibits the marketing of misbranded or unapproved new drugs and adulterated or misbranded dietary supplements. Additional requirements include product recall, the retention of labeling and good manufacturing practices experts, and written permission from the FDA to resume operations.

If you are a manufacturer or distributor of dietary supplements, contact an advertising compliance lawyer to evaluate whether product claims could be considered “drug” claims, as well as how to mitigate enforcement risk exposure by complying with CGMP regulations.

Follow me on Twitter at FTC Defense Lawyer.

 

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.

 

FTC Chair States that the Agency will Advocate to Oppose State Special Interests

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FTC Acting Chair Maureen Ohlhuasen has recently indicated that the Commission will advocate on a state level to oppose special-interest groups seeking to impose burdensome job licensing requirements and other regulations that limit competition.

In conjunction with the policy initiative, the FTC has launched a new website highlighting the work of the agency’s new Economic Liberty Task Force. The task force addresses regulatory hurdles to job growth, including the proliferation of occupational licensing.

According to the Commission, nearly 30 percent of American jobs require a license today, up from less than five percent in the 1950s. For some professions, occupational licensing is necessary to protect the public against legitimate health and safety concerns. But in many situations, the Commission believes that the expansion of occupational licensing threatens economic liberty and that overbroad restrictions impose significant barriers while imposing costs that harm American workers, employers, consumers, and our economy as a whole.

“This is an important moment for economic liberty. Governors, state legislators, and many other stakeholders want to move forward to remove or narrow occupational licensing regulations and open doors to opportunity, enhancing competition and innovation,” said Acting Chairman Ohlhausen. “The FTC’s Economic Liberty Task Force has moved quickly to create a website that will gather many existing resources, from the FTC and elsewhere, into a central repository for stakeholders. It will be a dynamic resource and will grow to incorporate additional work by the task force and others in this important area.”

Ohlhausen believes that states should be free to adopt their own regulations, but that oftentimes state policy makers only hear one-sided viewpoints from parties seeking protectionist benefits before implementing new rules.

According to Ohlhausen, in some states market participants control more than 90 percent of occupational licensing boards. Almost 30 percent of jobs require a license, and studies say licensing requirements have resulted in 250 million fewer jobs and billions of dollars in costs to consumers.

The task force has been created in order to address these issues and will seek to work with state policy makers and other officials to help states analyze the interplay between regulation and competition.

Work has already started on the state level to reform burdensome job licensing requirements. “This is a time of change and many Americans are demanding less regulation and more economic opportunity,” Ohlhausen said.

Contact an FTC defense lawyer if you would like to discuss recent FTC policy initiatives, the design and implementation of compliant advertising campaigns, or if you are the subject of a local, state attorney general or federal regulatory matter.

 

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.

FTC Charges Marketers of Invention Promotion Scheme with Deception and Unfairly Suppressing Consumer Criticism

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Consistent with recent remarks by acting Chairman Maureen Ohlhausen regarding re-focusing the agency on its “bread-and-butter fraud enforcement” priorities, the Federal Trade Commission has charged the operators of a patent and invention-promotion scam with deceiving consumers and suppressing complaints about the company by using threats of criminal prosecution.

In a recently issued press release, the FTC has stated that “[t]hrough TV ads, telemarketing, and the internet, the Florida-based defendants tout their services as a way for inventors to patent their products and make big money. According to the FTC, in their initial conversation with an inventor, the defendants’ sales people invariably praise the invention, but say they need “Board” or “Team” approval. Then comes the call saying the invention has been “accepted,” and that if the inventor signs up for the defendants’ services, they’re likely to realize financial gain and possibly see their product sold at big-name retail stores.”

As alleged by the FTC, consumers paid defendants thousands of dollars to patent and market their inventions based on bogus “success stories” and testimonials. Subsequently, according to the Commission, defendants strung consumers along and did not deliver what was promised.

The FTC also alleges that defendants used unfair tactics to discourage consumers from publishing reviews about the service, including threats of legal action, criminal charges and prison. For example, according to the FTC, one customer who sought a refund and filed a complaint with the Better Business Bureau received a letter from defendants’ attorney stating that seeking a refund was extortion under Florida law.

Defendants also allegedly linked to a company blog that claimed a consumer who visited their office was expelled by the company’s “intimidating security team, all ex-Israeli Special Ops and trained in Krav Maga, one of the most deadly of the martial arts.”

“This case is about protecting innovators, the engine of a thriving economy,” Acting FTC Chairman Maureen K. Ohlhausen said. “The defendants promised to promote people’s inventions and took thousands of dollars, but provided almost no service in return. Then they added insult to injury by threatening people who complained.”

A copy of the Complaint can be seen, here (Federal Trade Commission v. World Patent Marketing, Inc., et al.).  The FTC press release can be seen, here.

The assets of the Florida-based enterprise have been frozen, pending litigation.

Contact a Federal Trade Commission investigation and defense lawyer if you are the subject of a local, state AG or federal regulatory enforcement investigation or action.

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

 

 

FTC Returns Money to Victims of Biz Opp Scheme

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In 2015, the Federal Trade Commission obtained court orders banning a group of marketers that allegedly cheated American and Canadian consumers out of more than $7 million from selling business or work-at-home opportunities.

The orders resolved charges that the defendants conned consumers into believing they could make money by referring merchants in their area to a non-existent money-lending service.  Victims included financially vulnerable seniors.

The FTC’s complaint, filed in August 2013, alleged false claims that consumers would earn up to $3,000 per month by referring small businesses to the defendants to obtain loans.  After consumers paid up to $499 to purchase the business opportunity, the defendants allegedly told them that, to succeed, they had to buy sales leads that cost tens of thousands of dollars but turned out to be worthless.

The defendants purportedly attempted to avoid detection by changing product names, office locations and merchant identities.

The 2015 announcement described the court’s summary judgment orders against three defendants, settlements with others, and default judgment against the remaining defendants.

The various judgments and settlements imposed a ban on selling business or work-at-home opportunities on a number of defendants.   Some defendants were also banned from telemarketing.  In addition, the judgments and settlements include provisions that apply specifically to certain defendants, prohibiting them from engaging in the types of misconduct alleged by the FTC.

The judgments and settlements also imposed monetary judgments of $7.3 million against 12 defendants, and smaller judgments against others.  The judgments against some defendants were suspended due to their inability to pay and, in some cases, pending the transfer of assets frozen by the court or held in receivership. The full judgments will to become due immediately if the defendants are found to have misrepresented their financial condition.

On February 17, 2017, the Commission announced that it would be mailing checks totaling more than  $436,000 to people who lost money to the alleged scheme.  The Commission states that people who lost money will receive an average of $214.68.  Recipients should deposit or cash checks within 60 days. The FTC never requires people to pay money or provide account information to cash refund checks.

Contact an FTC lawyer if you are the subject of a local, state AG or federal regulatory enforcement investigation or action.
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.

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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