Blue Stuff, Inc., McClung Advertising, Inc., and their president, Jack McClung, have agreed to pay $3 million to settle Federal Trade Commission charges that they made unsubstantiated claims that Blue Stuff and Super Blue Stuff topical creams will relieve severe pain. The FTC alleges that the Oklahoma City-based defendants made unsubstantiated severe pain relief claims for the two products in television infomercials disseminated nationwide through most of the year 2001 and the first half of this year and on their Blue Stuff web site. In addition to requiring the defendants to pay redress, the proposed settlement requires the defendants to possess competent and reliable scientific evidence to support future claims about the health benefits, performance, safety, efficacy, or side effects of any dietary supplement, food, drug, cosmetic, or device.
The FTC has filed a complaint in federal district court against Blue Stuff, Inc., Jack McClung, and McClung Advertising, Inc. The complaint alleges that the defendants marketed Super Blue Stuff and Blue Stuff through a nationally disseminated 30-minute TV infomercial, as well as through product brochures and on the Internet (www.bluestuff.com). These promotional materials claim that the products provide significant or complete relief of severe pain, such as "excruciating sciatic nerve pain," pain due to "crushed vertebrae," and "awful" pain due to a brain tumor. The active ingredients in Super Blue Stuff are menthol and capsicum oleoresin. Additional ingredients include emu oil, aloe vera, methylsulfonylmethane (MSM), witch hazel extract, and other herbs. Blue Stuff contains the same ingredients as Super Blue Stuff, although in different amounts. Both products sell for $59.95 for an eight-ounce jar. According to the FTC's complaint, the defendants did not possess reliable scientific evidence showing that Super Blue Stuff and Blue Stuff, or the ingredients in these products, can relieve or eliminate severe pain.
The complaint further alleges that the defendants marketed and sold two other products, Essential Stuff and Her Stuff, using false claims. Essential Stuff is a dietary supplement capsule containing emu oil and vitamin E. The defendants' ads for Essential Stuff claim that Essential Stuff capsules, taken orally, reduce cholesterol. Her Stuff is a topical cream that purportedly slows or reverses bone loss. The defendants' ads and promotional materials for Her Stuff contained claims such as, "Natural progesterone creams, such as Her Stuff, have been medically proven to slow bone loss and improve bone density up to 15%."
The proposed stipulated final order, which requires the court's approval, would prohibit the defendants from making severe pain relief claims for Super Blue Stuff, Blue Stuff, or any substantially similar product containing one or more of the ingredients in the named products, unless they possess competent and reliable scientific evidence to support the claims. The order also would prohibit the defendants from making the challenged cholesterol reduction and bone-building misrepresentations. In addition, the order would prohibit the defendants from misrepresenting test or study results in connection with the sale of any dietary supplement, food, drug, cosmetic, or device. The order would require the defendants to send a notice to their resellers and distributors, advising them of the FTC's action and directing them to cease using promotional materials that make the challenged claims.
The order would require the defendants to pay a $3 million judgment in three parts: the first million within 20 days of the date of entry of the order; the second million by December 31, 2002; and the third million in monthly installments throughout 2003, resulting in payment of the entire amount by December 31, 2003. The order also provides that if the defendants default in their payments, the judgment will increase to $4 million and become immediately due. Both the complaint and the order name Emma McClung, Mr. McClung's wife, as a relief defendant. In addition, the order acknowledges that the parties determined the judgment amount following review of financial documentation that the defendants provided. In the event that the Court finds that the defendants materially misrepresented their finances, the order includes an avalanche clause that would require the defendants to pay a $15 million judgment. Finally, the order contains various record keeping requirements to assist the FTC in monitoring the defendants' compliance with the order.
Blue Stuff, Inc. products also are the subject of a Food and Drug Administration action. The FDA today issued a warning letter to Blue Stuff, Inc. advising the company that its marketing of Blue Stuff and other products is in violation of the Federal, Food, Drug, and Cosmetic Act.
The Commission vote to authorize the staff to file the complaint and proposed stipulated final order for permanent injunction was 5-0, with Commissioners Orson Swindle and Sheila F. Anthony issuing separate statements. The FTC filed the complaint and proposed final order in the U.S. District Court for the Western District of Oklahoma, in Oklahoma City, on November 18, 2002.
In his separate statement, Commissioner Swindle expressed his full support for filing the complaint, but stated that he "would have preferred that the Commission (1) pursue all entities that received funds derived from payments by consumers as a consequence of the defendants' alleged deceptive practices and (2) require those entities to turn over those funds for consumer redress." He stated that the Loyd B. McClung Foundation, a non-profit charitable organization founded by defendant Jack McClung, was one such entity that received funds derived from payments by consumers as a result of the defendants' alleged deceptive practices. Commissioner Swindle stated that "Although it may be unusual to pursue a charitable organization to recover funds it received, I believe the facts of this case would warrant that approach." Commissioner Swindle explained that Blue Stuff, Inc. and Jack McClung are sponsors of the Foundation, and both contribute the maximum amount allowed by law to the Foundation. In addition, he stated that both Blue Stuff and the Foundation advertised the close association among the parties on their websites and noted that he was troubled by the marketing of this close link. He concluded that "Regardless of any good work performed by this charitable organization, the Foundation should not be permitted to keep money that rightfully belongs to deceived consumers."
Commissioner Swindle explained that he voted to accept the settlement even though it does not require the Foundation to turn over the funds it received from the defendants because litigation on this issue likely would be lengthy and costly and because the settlement provides approximately the same amount of monetary relief as would likely be available from all of the defendants at the conclusion of litigation. He stated, however, that since the defendants previously transferred assets to the Foundation and the settlement did not require the Foundation to relinquish those funds, he believed "the Commission's order would have been stronger had it prohibited the defendants from transferring any assets to the Foundation until they fulfilled their obligation to pay the required $3 million in full." Nevertheless, he concluded that "if the defendants fail to pay the required amount of redress (or otherwise fail to comply with the order), the Commission can and should take action to collect outstanding funds and enforce the order."
In her separate statement, Commissioner Anthony reluctantly voted to accept the stipulated final order. She stated that while she agreed with most of Commissioner Swindle's statement, she voiced concern about "the insufficiency of the monetary relief in light of the enormous gross sales and consumer injury." Commissioner Anthony stated that defendant Jack McClung created and controlled a web of entities that consisted of Blue Stuff, Inc., McClung Advertising, Inc., and the Loyd B. McClung Foundation, and that profits obtained by deceiving consumers were funneled to the Lloyd Foundation. "I am extremely frustrated that the Commission did not press the defendants harder to obtain more of the illicitly obtained funds for consumer redress," Anthony said.
NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. The stipulated final order has the force of law when signed by the judge.
Copies of the complaint and the stipulated final order are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.