Creaghan A. Harry, doing business as Hitech Marketing, Scientific Life Nutrition, and Rejuvenation Health Corporation, will pay $485,000 in consumer redress to settle Federal Trade Commission charges that he used millions of illegal spam messages to tout the bogus anti-aging properties of HGH herbal supplements. The settlement bars the Boca Raton, Florida-based defendant from making claims about any products sold over the Internet, including health and weight-loss claims, without scientific evidence.
Filed in July 2004, the FTC’s complaint charged that the defendant violated the FTC Act by making false claims, and violated the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) by sending e-mail that disguised its source, did not provide a way for recipients to opt-out of receiving future messages, and did not give a valid physical postal address. In fact, according to the FTC, 40,000 spam messages claiming Harry’s products would stop or reverse the aging process, cause weight loss, increase muscle, or regrow hair and remove wrinkles, ended up in the FTC’s spam database at firstname.lastname@example.org.
In addition, to paying consumer redress, the settlement bars Harry from violating the CAN-SPAM Act. Based on financial statements provided by the defendant, the settlement contains a suspended judgment of $5.9 million, the total amount of estimated consumer injury. If it is found that the financial statements were inaccurate, the entire $5.9 million will immediately become due.
Finally, the settlement contains various recordkeeping requirements to assist the FTC in monitoring the defendant’s compliance.
The Commission vote authorizing staff to file the complaint and stipulated final judgment in the Creaghan Harry matter was 4-1, with Commissioner Jon Leibowitz dissenting. In a Commission statement, the agency noted that recent changes to the bankruptcy law suggest a potential mechanism by which the Commission could obtain more assets for consumer relief. Unfortunately, in this case the timing made it difficult for the Commission to apply the new bankruptcy law provisions. “Despite the timing issues in this case,” the Commission statement noted, “the Commission is committed to exploring ways to employ the new limitations on homestead exemptions in future cases.” According to the statement, “Homestead exemptions have too often frustrated the Commission’s ability to redress consumer injury suffered at the hands of malefactors and the Commission will act aggressively to ensure that these people will no longer live high at the expense of their victims.”
In a separate statement, concurring in part and dissenting in part, Leibowitz noted the possibility that, had the Commission rejected the settlement, it would not have been able to take advantage of the recently enacted bankruptcy law’s limitations on state law homestead provisions in this case. Still, Leibowitz believed that it was worth trying because the settlement would leave Harry with significant equity in his $2.4 million Florida estate. Leibowitz wrote, “Reasonable people can disagree, but my sense is that the Commission should have rejected this settlement to attempt to obtain stronger relief, even if such an effort might have ultimately failed.” Nevertheless, he stressed that the Commissioners are united as to the “policy of the agency on a going forward basis” to use the new bankruptcy law “when appropriate, to prevent malefactors from shielding assets that could otherwise be returned to consumers who have been misled or defrauded.”
The stipulated final judgment was filed in the U.S. District Court for the Northern District of Illinois and entered by the judge on May 5, 2005.
NOTE: Stipulated judgments and orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Stipulated judgments and orders have the force of law when signed by the judge.
Copies of the stipulated final judgment 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 for the consumer 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 in English or Spanish (bilingual counselors are available to take complaints), 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.
(FTC File No. X040063)
(Civil Action No. 04 C 4790)