"A-B-C. Always be closing."
"As you all know, first prize is a Cadillac El Dorado. Second prize is a set of steak knives. Third prize is you're fired."
"These are the new leads. The Glengarry leads. To you, they're gold. But you don't get them. Why? Because they're for closers."
Not much compares to the crackling dialogue of a David Mamet play. But one worthy contender is an order by a federal judge in Atlanta entering a compensatory sanction against the marketers of Fastin, Lipodrene, Benzedrine, and Stimerex-ES, diet products advertised online and in national magazines in violation of an earlier injunction. The story of how that came to be – including some quotes from the record that read straight out of a Mamet production – proves that truth is indeed stranger than fiction. Spoiler alert: The sanction totals more than $40 million.
The case dates back to a 2004 FTC lawsuit challenging deceptive claims for a variety of dietary supplements advertised for weight loss and erectile dysfunction. In addition to $15 million in redress, the court order banned unsubstantiated claims and required a health warning on products containing yohimbine, an evergreen derivative sold as an impotence treatment.
That should have given any prudent marketer 15 million reasons to rethink their business practices, but that’s not what happened here. The ink was hardly dry on the injunction before the defendants started again with the deceptive diet claims and failed to include the mandated health warning. So the FTC returned to court, arguing that Hi-Tech Pharmaceuticals, Jared Wheat, and Steven Smith were in contempt of the injunction. The FTC said expert endorser Dr. Terrill Mark Wright had violated a separate injunction.
After an evidentiary hearing, the Court concluded that Hi-Tech, Wheat, and Smith had violated the injunction by making deceptive claims in publications like Cosmo, In Touch, Life & Style, Martha Stewart Weddings, Muscle & Fitness, OK, Redbook, Self, and Women’s Day. As for Dr. Wright, he had continued to endorse Fastin in violation of the order, and contributed what the Court described as “articles intended as a form of advertising” to something called Hi-Tech Health & Fitness – a “magazine” sent to retailers by Hi-Tech Publishing, another company run by Wheat.
The Court’s findings of fact offer a compelling look at what was going on behind the scenes. As recapped in the order, after the injunction was in place, Wheat asked his attorney to conduct a pre-publication review of new weight loss ads. The lawyer warned, “[B]ased upon Judge Pannell’s previous findings, it is reasonable to assume that he would take a position consistent with the FTC that double-blind, clinical trials of the product were necessary . . . .” Of course, the defendants didn’t have the “double-blind, placebo-controlled, clinical studies” required by the original order. The lawyer concluded, “[B]ased on our review, we have grave concerns that the publication of the proposed Fastin advertisement would not be in compliance with the broad scope of the FTC injunction.”
A second attorney recommended that the defendants remove a too-clever-by-half “disclosure” on ads for Fastin: “Warning: Extremely Potent Diet Aid! Do Not Consume Unless Rapid Fat and Weight Loss Are Your Desired Result.” Although that attorney signed off on the defendants’ “fat loss” claim, even Mr. Wheat wasn’t sure of the basis for that decision. According to the findings of fact, Mr. Wheat commented to co-defendant Smith, “I don’t know if [the attorney] just was pulling that out of his rear or what.”
In discussing the advice received from his attorneys, Mr. Wheat stated, “I just wanted something in writing from these cats.” He continued:
"I’m going to have to put these cats up on my stand if, you know – if we ever have to get drug back before [the U.S. District Judge], I’m going to put [the attorneys] up – you know, they’re scapegoats, in essence. Hey, you gave me this advice."
(Merits of the case aside, we’re partial to the Maynard G. Krebs-like use of the word “cat” in this context.)
The Court also found that Mr. Wheat had failed to pay a substantial portion of the underlying judgment he owed. Although Wheat claimed to have made a good faith effort, the Court found the argument unavailing. The order quoted an email a then-incarcerated Wheat sent to a third attorney:
"I spoke with [a fourth attorney] on Friday and we discussed it may be wise to set up another bank account for Hi-Tech in case the FTC tries to execute against our current bank after they receive the banking information revealed in the subpoena."
In addition, the Court cited a number of questionable transactions totaling in the multi-millions. (We do our best to share a helpful shopping tip now and then, so here's one: Don't go out and buy a Lamborghini Gallardo when you haven't satisfied the financial terms of a court order.)
You’ll want to read the decision to get the full picture – and the Court is expected is issue a further ruling soon – but in addition to the $40 million compensatory sanction, the Court ordered the defendants to undertake a recall to remove from retail outlets the four diet products that featured packaging or labeling that violate the original injunction. The latest update: The FTC is seeking to have Mr. Wheat jailed for failing to ensure the products were fully recalled.
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