$16 million fine levied in FTC's acai fake websites case won't end misuse of 3rd party info, observer says

By Hank Schultz contact

- Last updated on GMT

$16 million fine levied in FTC's acai fake websites case won't end misuse of 3rd party info, observer says

Related tags: Federal trade commission, Consumer protection

The Federal Trade Commission has secured a $16 million fine against a vendor and its parent company who helped put up fake news websites that hawked the benefits of weight loss products based on acai. While the fine may signal last act in this highly publicized case, it doesn’t mark the end of the practice, said one observer.

The fine, confirmed in a summary judgement US District Court in Connecticut, was levied against LeadClick Media and its parent company Core Logic Inc.  The judgement found LeadClick was responsible for the false claims made by affiliate marketers it recruited on behalf of LeanSpa, LLC​, a company that sold acai berry and “colon cleanse” weight-loss products. According to FTC’s complaint, LeanSpa used a “free trial” ploy to enroll consumers into its recurring purchase program that cost $79.99 a month and that was difficult to cancel.

LeadClick’s network lured consumers to LeanSpa’s online store through fake news websites designed to trick consumers into believing that independent news outlets and independent customers, rather than paid advertisers, had reviewed and endorsed LeanSpa’s products.

If you share in the gains, you share the consequences, too

“This ruling is good news because it takes ill-gotten gains out of the hands of companies who knew they were promoting a scam and gives them back to the consumers who lost millions of dollars,”​ said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “It also makes clear that a parent company cannot retain ill-gotten gains of its subsidiaries.”

The FTC’s case dates back to December 2011, when the Commission and the State of Connecticut first sued LeanSpa and its principal, Boris Mizhen. In January 2014, the FTC and the State of Connecticut settled with LeanSpa and Mizhen​, who agreed to stop their deceptive practices and surrender assets for redress to consumers. Mizhen was fined $7 million and his wife agreed to a $300,000 fine.

Denver-based attorney Jason Sapsin, who has spent time at FDA and who represents a number of food and supplement companies, said the judgement against LeadClick and its parent company shows that third party Web vendors are responsible for everything that goes on in the marketing of supplement products, from the claims made to the payment practices.

“It shows that if you were in the chain of commerce and you were benefiting from the activity, you can’t avoid the consequences,” ​Sapsin told NutraIngredients-USA. “The allegations were that there was an intent to deceive customers and affirmative actions were taken to deceive them.”

Not the end of the story

The judgement is likely not the end of the story, and not only because the ruling is being appealed, Sapsin said.  The misuse of third part websites and third party information has been a durable feature of the marketing of dietary supplements and other health products almost from the dawn of the Internet.  Really, it’s just a glitzier version of the old-fashioned confidence game worked for centuries by street-side charlatans.

“It has been a tactic that has been successful and FTC and other regulators have been aware of it for a while,” Sapsin said. “This has just been a highly visible example.”

Sapsin said to some degree regulators have thrown in the towel, and are reduced to making sure consumers are aware of common deceptive practices that crop up over and over in the online marketplace.

“The difficulty with online sales and marketing of dietary supplements—and maybe this is not unique to them—is that it is very hard to police. With the stroke of a key the whole marketing program is gone. It is difficult for regulators to say on top of it,” ​Sapsin said.

“That’s why you see the public information efforts by FDA and FTC.  They usually say something like ‘If a website makes a claim like X, it is probably fake.’ They can’t keep up with the new websites and they are attempting to arm consumers with the information of what to look for,”​ he said.

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