Hawthorne Communications, Inc., an Iowa advertising agency, will pay a $25,000 civil penalty for violating a 1994 Federal Trade Commission order requiring it to have substantiation for advertising claims, including those made by endorsers. Hawthorne violated the 1994 order when it placed an infomercial that it had produced containing unsubstantiated earnings claims for the Mellinger World Trade Mail Order Plan, a "step by step" course in starting and operating a work-at-home import/mail order business. The "Mellinger Plan's" promoter -- Woodland Hills, California-based Mellinger Company -- has agreed to settle charges stemming from the same infomercial.
The 1994 order was issued when Hawthorne settled previous FTC charges that an infomercial they had produced for another work-at-home promoter was deceptive and misleading. Under the FTC order issued in that settlement, Hawthorne is prohibited from misrepresenting the success of work-at-home businesses. In addition, the 1994 order requires that any claims about the performance or success rate of any product or service must be based on competent and reliable evidence. It also bars the use of testimonials and endorsements unless they reflect the honest opinions or experiences of the endorsers, contain no deceptive or unsubstantiated representations, and reflect the typical or ordinary experience of consumers who use the product, if it represents the claims as typical.
According to the Commission's district court and administrative complaints detailing the charges against Hawthorne and Mellinger respectively, Mellinger's advertising -- including the infomercial prepared and placed by Hawthorne -- promoted Mellinger's work at home course with claims such as:
"How would you like to earn substantial income right from the comfort of your own home?. . . Living a luxurious lifestyle with long-term security for you and your family."
"On my first customer my first day with the World Traders I made twelve thousand dollar[s] profit."
"I started off with $250 that my husband gave me, and last year I earned over $35,000, and I did it all with the help of the Mellinger Company"; and
"Kirk may not be a rocket scientist, but with the help of the Mellinger World Trade Plan, he has launched a company with sky-rocketing profits."
The FTC alleged that, through the use of such claims, the infomercial represented that consumers who purchase the Mellinger Plan typically succeed in starting and operating profitable businesses; that consumers who use the plan typically earn substantial income; and that endorsements used in the infomercial represent the typical or ordinary experience of consumers who have used the Mellinger Plan. In fact, according to the complaints, when the infomercial aired, neither Hawthorne nor Mellinger possessed or relied upon a reasonable basis to substantiate the claims. Thus the claims were deceptive and misleading.
To settle the FTC charges against Mellinger, 1554 Corporation and its president Brainerd L. Mellinger III will be barred from making unsubstantiated earnings claims and using deceptive testimonials. "Mellinger Company" is a trade name used by 1554 Corporation.
In addition to the $25,000 civil penalty, Hawthorne Communications will be barred from producing or distributing infomercials that contain deceptive earnings claims or testimonials.
The Commission vote to announce the proposed consent agreements with Hawthorne Communications and the Mellinger Company was 5-0. The proposed agreement with Mellinger will be placed on the public record for a 60-day public comment period. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
The proposed consent decree with Hawthorne Communications was filed today by the Department of Justice at the request of the FTC.
NOTE: Consent agreements and decrees are for settlement purposes only and do not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000. Consent decrees filed in court also have the force of law when signed by a judge.
Copies of the complaint, proposed consent agreement, and an analysis of the agreement to assist the public in commenting are available on the FTC’s World Wide Web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comments also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov (no period).
(FTC File No. 952 3401)
(Docket No. D 9264)