Advertising Law News Briefs for June 1996

NOTE: The following advertising law-related news briefs appeared in an issue of Advertising Compliance Service and examine advertising law-related actions during the month of June 1996.

FTC FINALIZES AGREEMENTS WITH SEVEN INTERNET ADVERTISERS

FTC has made final consent agreements with the following seven companies charged with deceptively advertising their products or services on the Internet.

Robert Serviss, dba Excel Communications: Agreement settles charges that he promoted a work-at-home opportunity on the Internet using false and unsubstantiated earnings claims. The consent order requires Serviss to have substantiation for profits, sales or earnings claims he makes about any business opportunity he markets. (FTC Dkt. No. C-3669, June 12, 1996.)

Rick Rahim, dba NBDC Credit Resource Publishing: Agreement settles charges that he falsely advertised on the Internet that his credit repair program, which advises consumers to misrepresent their Social Security numbers to obtain a new credit identity, is legal. The consent order bars Rahim from misrepresenting the legality of any credit repair product he advertises, and requires him to make certain disclosures in ads for such products that misrepresenting one's Social Security number or certain other information may be a federal crime. (FTC Dkt. No. C-3671, June 12, 1996.)

Brian Coryat, dba Enterprising Solutions: FTC agreement settles charges that he falsely advertised on the Internet that consumers could use his credit repair kit to remove negative, but accurate and up-to-date, information from their credit reports; and that he made false and unsubstantiated claims about the earnings potential of those who bought his Credit Repair Agency business. The consent order bars Coryat from making similar credit repair misrepresentations, and requires him to have evidence to back up earnings or sales claims for any business opportunity he markets. (FTC Dkt. No. C-3666, June 10, 1996.)

Randolf D. Albertson, dba Wolverine Capital: This agreement settles charges that he falsely advertised on the Internet he could obtain cash grants for clients. The order bars Albertson from misrepresenting the number of people who are approved for grants or the services or assistance he provides in obtaining any financial product or service, and requires him to have evidence to back up such claims. (FTC Dkt. No. C-3670, June 12, 1996.)

Sherman G. Smith, dba Starr Communications: Agreement settles charges that he made false and unsubstantiated earnings claims in his Internet advertising for the "U.S. Government Tracer Business Program," which purportedly would show consumers how to make money tracking down people due refunds after they had paid off their mortgages. The consent order requires Smith to have substantiation for profits, earnings or sales claims for any business opportunity he markets. (FTC Dkt. No. C-3668, June 12, 1996.)

Lyle R. Larson, dba Momentum: FTC agreement settles charges that he falsely advertised on the Internet that, through his "legal" program, consumers could remove negative, but accurate and up-to-date information from their credit reports. The consent order prohibits such false claims and requires Larson to make certain disclosures in ads for credit repair products that misrepresenting one's Social Security number or certain other information may be a federal crime. (FTC Dkt. No. C-3672, June 12, 1996.)

Timothy R. Bean, dba DMC Publishing Group: This FTC agreement settles charges that he made false earnings claims in Internet advertising for his program to operate a home-based publishing and printing business. The consent order requires him to have substantiation for earnings and sales claims for any business opportunity he markets. (FTC Dkt. No. C-3665, June 12, 1996.)

FTC LAW JUDGE SUSTAINS CHARGES AGAINST "RUST EVADER"

An FTC administrative law judge has barred RustEvader Corporation from using the names "Rust Evader" or "Rust Buster" for a purported electronic corrosion control device for cars that the judge said is not effective in substantially reducing corrosion, despite the company's ad campaign to the contrary. Judge James P. Timony's order follows FTC charges that RustEvader made false claims about its Rust Evader product and about a demonstration and studies regarding its efficacy. Timony upheld the charges in a default judgment he issued following RustEvader's "general failure to respond to requests for information during the discovery period before trial on the case." FTC issued a complaint against RustEvader and company president, David F. McCready, in August 1995. Both answered the FTC complaint in October, 1995, denying the charges. In April, 1996, however, the charges against McCready were withdrawn from litigation so FTC could consider a proposed settlement agreement. According to Timony's findings, RustEvader falsely claimed that:

"Rust Evader is effective in substantially reducing corrosion in motor vehicle bodies, and that the company had evidence to back up this claim; a salt-water tank demonstration of the product's efficacy accurately reflected how Rust Evader protects motor vehicle bodies from corrosion when, in truth, the process used in the demonstration is much more effective under water than under conditions that a motor vehicle normally encounters; and reports of laboratory and other tests performed on the Rust Evader that the firm provided to dealers constituted scientific proof that the product substantially reduces motor vehicle body corrosion."

Judge Timony ordered RustEvader Corporation to stop using the terms Rust Evader or Rust Buster and to stop making the challenged claims for the Rust Evader product. The order also requires RustEvader to have appropriate competent and reliable evidence to back up claims about the performance, efficacy or attributes of any product for use in motor vehicles. Also, the order bars RustEvader from misrepresenting the existence or results of any test or study, or that any demonstration or picture proves any material feature or quality of any product for use in motor vehicles.

(RustEvader Corporation, FTC Docket No. 9274, June 7, 1996; materials relating to this FTC matter are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.)

MAJOR FTC, STATE CRACKDOWN INVOLVES CROSS-BORDER ADS

"Every year, thousands of consumers respond to enticing classified ads in newspapers that tout `money to loan . . . regardless of credit.'" So said FTC in announcing a major federal-state crackdown to enforce the new Telemarketing Sales Rule. The problem--according to FTC and 15 state Attorneys General--is that consumers responding to such ads usually have to pay advance fees to get the "guaranteed" loans. "The consumers never receive the promised loans and either never hear again from the `loan' companies, or are later told they're ineligible for the credit," FTC noted. FTC's Telemarketing Sales Rule makes it illegal for any telemarketer who guarantees consumers a loan or other credit to ask for money in advance. FTC and the state Attorneys General recently announced the results of this crackdown. The sweep consisted of eight cases filed by states and five cases filed by FTC. It snared 45 corporations and individuals, including some operating out of Canada.

The crackdown on firms operating out of Canada is the first time FTC has sued a foreign telemarketing boiler room and highlights the growing number of fraudulent telemarketers operating out of Canada. Concurrent with the FTC-state crackdown, the Province of British Columbia initiated law enforcement proceedings against the same Canadian loan scam operators.

"Cross-border scams are a growth industry and thousands of Americans lose money every day to scam artists operating outside our borders," said FTC Chairman Robert Pitofsky. "By joining state and federal law enforcers here with authorities in Canada, we believe we will be successful in stopping a massive advance-fee loan scheme involving numerous defendants based most recently in British Columbia and Ontario. We intend to continue that approach in the future."

Joining in the crackdown were Attorneys General from Arkansas, California, Connecticut, Illinois, Missouri, New Jersey, New Mexico, New York, North Carolina, Ohio, Tennessee, Texas, Vermont, Virginia, and Wisconsin.

According to FTC, advance-fee loan schemes are often advertised in the classified sections of daily newspapers, including "USA Today," and other publications such as "The Globe" and "National Examiner."

(Advance Fee Loan Boiler Rooms, June 10, 1996; materials relating to this FTC matter are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.)

FTC FINAL AGREEMENT INVOLVES ALLEGED AD AGENCY CULPABILITY

This recently finalized FTC consent agreement with N.W. Ayer & Son, Inc.--which does business as NW Ayer, Inc., of New York City--settled charges over that ad agency's role in creating ads for Eggland's Best, Inc. eggs. FTC challenged claims regarding the effect of the eggs on blood cholesterol. The final order bars Ayer from misrepresenting with regard to eggs and any meat, dairy or poultry product the absolute or comparative amount of cholesterol, total fat, saturated fat or any other fatty acid or the existence or results of any test or study. The order also requires Ayer to have competent and reliable scientific evidence to back up any claims that such products have any effect on serum cholesterol or any health benefit.

(NW Ayer, Inc., FTC Dkt. No. C-3660, June 6, 1996; materials relating to this FTC matter are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.)

FTC CHARGES INVOLVE SELLER OF HOME-BASED BUSINESS AND INFOMERCIALS

FTC filed suit against FreeCom Communications, Inc. and several other companies, charging that the firms and their principals misrepresented the earnings potential to consumers who bought their $495 home-business "starter kits." FTC alleged that defendants used infomercials and mailings to urge consumers to attend their seminars, which were conducted throughout the U.S. According to FTC, it was at these seminars that the defendants induced consumers to buy the starter kits by making claims that each of the business ventures it was selling was a proven money-maker. FTC has asked the court to (1) order a permanent halt to the alleged misrepresentations, (2) order an asset freeze to preserve funds for consumer redress, and (3) appoint a receiver to take control of the companies.

FTC's action follows a joint federal-state investigation with the office of the Utah Attorney General. Jodie Bernstein, Director of FTC's Bureau of Consumer Protection said, "Anyone can be lured by slick sales pitches, or testimonials of success. Honest people, trying to earn a living by working for themselves, can be duped by promises of making big-time easy money. However, few, if any consumers, actually earn substantial income from these business ventures." Utah's Attorney General, Jan Graham, said, "Our office has been concerned about the high potential for fraud in home business seminars for several years. I appreciate the FTC's eagerness to have the Utah Attorney General's Office work with them on this multi-million dollar case involving not only Utah victims, but victims from across the country."

In addition to the corporate defendants, FTC's complaint names as defendants several individuals who, at various times, were officers, directors and/or shareholders in some or all of the defendant corporations. According to FTC, since 1992, defendants promoted and sold home-based business opportunities, such as, the resale of distressed merchandise, vending machines, color-change T-shirts, the sale of discount travel memberships, vitamins, scholarship search services, and estate planning, through its infomercials, print advertisements, mail-pieces, telephone solicitations, and/or seminars.

According to FTC's complaint, defendants have represented through print advertisements and mail-pieces that the defendants offered proven business opportunities, that consumers could expect to earn substantial income through one of the home-based businesses, and that speakers at the seminars have earned substantial income through one of these businesses. For example, some of the defendants' print ads and mail pieces contained statements such as:

"Allen came to our conference, one like you're being invited to. Now he works for himself ... out of his home ... and pays himself a salary three times more than his former employer paid. Last year Allen earned: over $200,000. (His first year he earned: $111,000)."

FTC also charged that certain testimonials used by the defendants in their sales presentations, infomercials, advertisements, and promotional materials did not reflect the typical or ordinary experiences of consumers who have purchased a business venture from the defendants, and that such representations were false and misleading. Finally, FTC charged that, in many cases, defendants falsely depicted that certain persons (whose stories are described in defendants' sales presentations, ads, promotional materials, and by defendants' telemarketers) achieved a certain level of success by using one or more of defendants' business ventures. FTC asked the court to permanently bar the defendants from making, or to assist others in making, the types of representations as alleged in the complaint, to order the defendants to rescind contracts with, and refund money to consumers. FTC filed its complaint in the U.S. District Court for the District of Utah, Central Division, in Salt Lake City.

NOTE: The Commission authorizes the filing of a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that a defendant actually has violated the law. The case will be decided by the court."

(FreeCom Communications, Inc. et al., Civil Action No.: 2: 96CV-0492, FTC Matter No. 932-2362, June 4, 1996; materials relating to this FTC matter are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.)

FTC STAFF: REPEAL GAMES OF CHANCE RULE

FTC's staff recommended that the Commission repeal its trade regulation rule on Games of Chance in the Food Retailing and Gasoline Industries. Their reasons: The rule's costs outweigh its benefits and the abuses that led to the rule are unlikely to recur. Rulemaking in this matter is nearing its final stage--review by the five Commissioners.

This rule was promulgated in 1969. It establishes requirements for food and gasoline retailers in conducting and advertising games of chance. The rule requires game promoters, in advertising for games of chance, to provide detailed information on the number of prizes available, the odds of winning each prize, the geographic area covered by the game and the number of participating retailers. The rule applies only to games conducted by food stores and gasoline stations. It also regulates various aspects of a game's operation and the procedure for posting lists of winners. In 1981, FTC granted an exemption to the rule's disclosure requirements for broadcast advertising.

In 1995, the Presiding Officer reopened the record for additional comments on whether a need for this rule continues to exist. In their respective reports, FTC staff and the Presiding Officer recommend that FTC repeal this rule.

If you'd like to comment on the two reports, your comments must be confined to information already in the rulemaking record. Deadline: August 6, 1996. Send your written comments to: Henry B. Cabell, Presiding Officer, FTC, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. (Those in excess of four pages should be accompanied by four copies). Limited copies of the two reports are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. Tel.: (202) 326-2222.

(Games of Chance in the Food Retailing and Gasoline Industries, June 7, 1996; materials relating to this FTC matter are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.)

FTC OK'S FINAL CONSENT ORDER IN DIET CASE

FTC finalized a consent agreement with the Diet Workshop, Inc., a franchiser of weight-loss plans and products, and the owner of its company-operated territories, Diet Workshop of Boston, Inc., settling charges that they made unsubstantiated weight-loss and weight-loss maintenance claims and used consumer testimonials deceptively. The final order bars respondents from misrepresenting the performance of any weight-loss program and requires them to have reliable scientific evidence to substantiate claims about achieving or maintaining weight loss, or the rate at which the loss can be expected to occur. The order also sets out standards for the type of evidence required to support various maintenance claims. Also, ad claims about maintaining weight loss must include the statement: "For many dieters, weight loss is temporary." Weight-loss maintenance claims in all but short broadcast ads must be accompanied by disclosures regarding the actual experience of Diet Workshop customers; short broadcast ads must direct consumers to check with the company's local centers for detailed maintenance statistics. The order also bars the misleading use of testimonials, and requires atypical testimonials to be qualified.

(Diet Workshop, Inc. et al., FTC Dkt. No. C-3663, June 7, 1996; materials relating to this FTC matter are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.)

FTC OK'S FINAL CONSENT ORDER IN CANCER TREATMENT CASE

FTC has made final a consent agreement with Cancer Treatment Centers of America, Inc., Midwestern Regional Medical Center, Inc., and Memorial Medical Center and Cancer Institute, Inc. This settles charges that they made false and unsubstantiated claims in advertising and promoting their cancer treatments. The order requires respondents to have competent and reliable evidence--scientific in certain appropriate instances--to support representations about patient survivorship or cure rates, or endorsement, or efficacy, performance, safety or benefits of any cancer treatment. They also are barred from using testimonials in a misleading way.

(Cancer Treatment Centers of America, Inc., et al., FTC Dkt. No. C-3662, June 4, 1996; materials relating to this FTC matter are available on the Internet at FTC's Web site at: http://www.ftc.gov.)

NOTE: A consent agreement or consent decree is for settlement purposes only and does not constitute an admission of a law violation. When finalized, both have the force of law. Any violation of an FTC consent order may result in a civil penalty of $10,000.

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