Recent enforcement trends: state attorneys general target the dietary supplements industry
New York Attorney General Eric Schneiderman drastically raised the stakes for major dietary supplements retailers and manufacturers earlier this year when he issued cease-and-desist letters to four major retailers and ordered them to immediately stop selling their store brand herbal dietary supplements, identify the manufacturers of those products, and provide detailed explanations of their quality control measures. The cease-and-desist letters were quickly followed by subpoenas issued to the manufacturers of the products demanding that they describe how they test and verify the quality of their products and claims on their labels. These actions were based on DNA barcode testing and other measures purporting to challenge the substantive quality of the products themselves. Attorney General Schneiderman heralded the initial findings of his investigation as confirming longstanding concerns about mislabeling and false advertising in the dietary supplements industry.
Adding further emphasis to this enforcement focus, last week Attorney General Schneiderman announced that his office had reached a settlement agreement with GNC, one of the four targeted retailers. The agreement imposes onerous, far-reaching conditions, including that GNC implement enhanced nationwide testing for store brand supplements that exceeds current FDA standards. Attorney General Schneiderman added that the investigation raised questions regarding the sufficiency of the FDA requirements in relation to state consumer protection laws, indicating the possibility that even full compliance with applicable regulations may no longer ward off attorney general enforcement activity.
This newfound interest by attorneys general in alleged unfair business practices and misleading advertising in the dietary supplements industry is not entirely surprising in light of past enforcement actions brought by attorneys general in Arizona and Texas regarding the sale of acai berry supplements and against entities in similar industries such as the manufacturer of hand sanitizer products. (Disclosure: While serving as Maryland Attorney General, Doug Gansler initiated the investigation of the manufacturer of the hand sanitizer products.) However, it is only following increased attention from high profile media outlets such as the New York Times and others that attorneys general have recently begun to subject the industry to the current heightened levels of scrutiny. Indeed, Attorney General Schneiderman has spoken in various forums about the need for more transparency in the dietary supplements industry.
The Expanding Reach of Attorney General Enforcement
The herbal supplements investigation in New York is unprecedented both in terms of its scope and the risks it presents to the industry. Not only does the investigation target, for the first time, some of the largest retailers and manufacturers in the dietary supplements industry, but it is now being conducted through a newly formed coalition of states including Attorney General Schneiderman and the attorneys general of Connecticut, Indiana and Puerto Rico.
Regulators and industry experts alike have described Attorney General Schneiderman’s coalition as signaling a shift in how enforcement agencies monitor the safety of dietary supplements that will enable more expansive, aggressive and coordinated enforcement and reform. As succinctly put by Connecticut Attorney General George Jepsen, “[a]s attorneys general have shown time and time again in recent years, we have a strong and unique ability to work together on behalf of our respective constituencies on issues of national concern.”
The size of the coalition investigating the dietary supplements industry may also continue to grow in the coming months. Joining these sorts of coalitions—known as multi-state investigations—is an increasingly popular choice among attorneys general for several reasons. The first, and most significant, reason is that multi-state investigations allow the member states to pool their resources and tackle large cases. Each state’s attorney general has an extremely broad mandate, but historically has had limited resources to fulfill it. An investigation into even a single large company such as those involved in the current investigation could quickly overwhelm the limited resources available to any single attorney general to probe suspected violations of the state’s consumer protection laws. By banding together with other states, multiple attorneys general are able to pool their resources to effectively and efficiently conduct more large-scale investigations.
A multi-state investigation also may provide greater bargaining power in settlement negotiations with a targeted company. The impact on the public and media by a substantial monetary settlement is likely another factor considered by attorneys general—most of whom, including Attorney General Schneiderman, are popularly elected—in deciding whether to partner with other states.
The size of the retailers and manufacturers that are already involved, and of the dietary supplements industry itself, coupled with expanding interest and attention from politicians and major news outlets, suggest that there is still ample opportunity for other states to join the present investigation, or even to launch their own investigations into other areas of the industry.
Preparing for and Minimizing the Risk of Attorney General Enforcement Activity
In light of this increased and expanding scrutiny, it is important that members of the dietary supplements industry focus on minimizing the risks presented by attorney general enforcement activity. Industry members should consider establishing relationships with the attorneys general offices in the states where they do business. Establishing such relationships based on collegiality, cooperation and transparency without the specter of a possible enforcement action or investigation could go a long way toward smoothing the road should an issue ever arise.
It is also important for industry members to take consumer complaints seriously and to address them promptly. Even one consumer complaint received by an attorney general can kick-start an inquiry with the possibility of becoming a full-blown investigation. Industry members should have dedicated points of contact for consumer complaints, and effective systems for addressing complaints and escalating them quickly when appropriate. Another useful practice is presenting a regular complaints report to senior management, compliance personnel, and even regular reporting to the board of directors. Such reports can help industry members assess and begin to address any areas of risk for consumer protection enforcement before they come to the attention of an attorney general’s office.
A thorough review by industry members of all product labeling, online and print advertisements, and other marketing materials may also substantially reduce the risk of attorney general enforcement activity. Any such review should be performed with an eye toward standards of general fairness and also applicable state consumer protection laws, with particular attention paid to whether consumers or attorneys general could view the product descriptions and claims as confusing, misleading or lacking transparency.
As evidenced by the recent GNC settlement with the New York Attorney General’s Office, industry members should also assess whether they can adequately substantiate and defend the validity of their claims about each product. In some previous enforcement actions, for example, attorneys general have challenged companies to provide evidence supporting claims that products were “proven to kill 99.99% of germs,” or would reduce the risk of premature aging, heart attack, cancer and other diseases. And, in the recent settlement, GNC not only agreed to post signage in its stores explaining the supplement manufacturing process to consumers, but also commissioned its own independent testing to demonstrate that the affected products were not contaminated and were manufactured in compliance with FDA regulations. Notably, while GNC agreed to undertake significant and costly steps, it was not required under the terms of the settlement to pay any fines or penalties, or admit to any wrongdoing.
Finally, if an investigation is already underway, it is important for the industry member to establish a constructive dialogue and working relationship with the attorney general’s office or offices that are investigating. Engaging outside counsel with experience and a good relationship with the attorneys general can also help the industry member to communicate its story effectively and will provide useful insights into what to expect as the investigation progresses.
Author info: Doug Gansler is a partner in the Washington, DC office of BuckleySandler LLP and recently completed his second term as the Attorney General of Maryland. As former Attorney General and President of the National Association of Attorneys General (NAAG), he has extensive experience with federal and state investigations and enforcement actions and litigation matters involving state Attorneys General, the Department of Justice, and other state and federal enforcement and regulatory agencies. Brian Kelly is counsel in the firm’s Washington, DC office, where he represents corporate and individual clients in criminal and complex civil litigation, internal investigations, government enforcement actions and appellate matters. Leslie Meredith is an associate in the firm’s Washington, DC office, where she represents clients in federal and state litigation and regulatory enforcement and compliance matters.
