In the spring of 2015, the FTC sought and obtained a TRO, preliminary injunction, asset freeze, and appointment of a receiver against Sale Slash LLC, a Glendale, California operation that the FTC alleged used millions of illegal spam emails, along with false weight loss claims and fake, unauthorized endorsements from celebrities like Oprah Winfrey, to market its unproven diet pills. The district court’s order halted Sale Slash LLC’s illegal conduct, froze their assets, and appointed a temporary receiver over the corporate defendants. Ultimately, the FTC sought to recover money from Sale Slash LLC and the other defendants that would then be used to reimburse consumers who bought the bogus diet pills.
FTC Alleges “Bogus” Weight Loss Claims
The FTC’s complaint alleged that the defendants under the veil of Sale Slash LLC violated the FTC Act and the CAN-SPAM Act. In the complaint, the FTC specifically alleged that defendants used affiliate marketers to send illegal spam emails and post banner ads online that led consumers to fake news sites designed to appear as if an independent consumer reporter, as opposed to a paid advertiser, had reviewed and endorsed the products. These fake news sites made weight loss claims and used phony celebrity endorsements to promote the defendants’ diet pills according to the FTC’s complaint.
In October 2015, the FTC filed an amended complaint adding five additional defendants: Edgar Babayan, Apex Customer Care LLC, Penway LLC, Renvee LLC, and Optim Products LLC.
$43 Million Settlement
The FTC has now recently announced a $43 million settlement with Sale Slash LLC, following the entry of a stipulated order for permanent injunction and monetary judgment in California federal court. The California district court’s order contains both conduct and monetary provisions, which will result in Sale Slash LLC and the other named defendants turning over assets, combined with those already in the court-appointed receiver’s hands, which total approximately $10 million. The remainder of the $43 million judgment will be suspended, but may be imposed in full if the defendants are found to have misrepresented their financial condition.
As to the prohibited conduct, the California district court’s order prohibits the settling defendants from making, or assisting others in making, weight loss claims or other health-related product claims unless they are not misleading and are supported by competent and reliable scientific evidence. Such evidence specifically includes a human clinical test or study substantiating the claim the order states. The order also prohibits the defendants from making any misrepresentations regarding the existence, contents, validity, results, conclusions, or interpretations of any test, study, or research, including the weight loss claims context. Defendants must also preserve any documents related to any human clinical test or study they use to support their advertising claims.
The order next prohibits the defendants from engaging in a wide range of misrepresentations in connection with the advertising, marketing, promotion, offering for sale, or sale of any goods or services, tailored to the allegations in the complaint. This prohibition includes the types of misrepresentations found on the fake news sites mentioned above. The order also details what steps the defendants must take to police the activities of their affiliate marketers.
Lastly, the order prohibits the defendants from a range of CAN-SPAM Act violations, including sending emails that fail to identify the sender, sending emails with misleading subject headings, and sending emails that lack a proper opt-out option for the email’s recipient.
Sale Slash Attorney Says Settlement is Significantly Lower than $200 Million FTC was Seeking
While the settlement represents a significant action against Sale Slash LLC and the other defendants, an attorney for Sale Slash LLC has said that the settlement is actually significantly lower than the more than $200 million that the FTC originally sought in its complaint. The FTC had lobbed claims under the CAN-SPAM Act, which restricts how companies can email consumers. “Importantly, the FTC’s complaint had a CAN-SPAM email marketing claim, alleging our clients were liable for the acts of third parties sending unlawful emails on behalf of our clients, with an initial allegation that there was over $200 million consumer harm,” said Karl Kronenberger, a lawyer for Sale Slash LLC. “The FTC backed off that claim significantly, resulting in the much smaller settlement amount,” he said.
* Photo cred.: doctoroz.com