STATEMENT OF COMMISSIONER ORSON SWINDLE
in Federal Trade Commission v. Blue Stuff, Inc., et al., File No. X020012
I fully support the filing of a complaint in this case. In my view, there is reason to believe that the defendants have violated Section 5 of the Federal Trade Commission Act by making false and unsubstantiated claims about their health products. In addition, I believe the Stipulated Final Order settling the complaint allegations contains for the most part appropriate injunctive and monetary relief. Among other things, the settlement requires defendants Blue Stuff, Inc., McClung Advertising, Inc., and Jack McClung and relief defendant Emma McClung to pay $3 million in consumer redress. Unfortunately, this payment pales in comparison to the amount of Blue Stuff's gross sales, which exceed $83 million.
I 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. One such entity is the Loyd B. McClung Foundation, a non-profit charitable organization founded by defendant Jack McClung. 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.
Blue Stuff, Inc. and Jack McClung are sponsors of the Foundation, and both contribute the maximum amount allowed by law to the Foundation.(1) Therefore, through donations from Blue Stuff and McClung, the Foundation has received funds derived from payments by consumers as a result of the defendants' alleged deceptive practices. The ongoing relationship between the marketing of Blue Stuff, McClung, and the Foundation has been quite obvious. In fact, both the Foundation and Blue Stuff advertised the close association among the parties on their websites. I am troubled by the marketing of this close link and the fact that the Foundation's generosity relied in part on money obtained from consumers as a result of the deceptive practices alleged in the Commission's complaint.(2) 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.
Although the settlement does not require the Foundation to turn over these funds, I have voted to accept it. Litigation to require the Foundation to relinquish the funds it received from the defendants likely would be lengthy and costly, and 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.
The defendants will pay the required $3 million over a period of time according to the schedule provided in the order; moreover, if they default on a payment, they are prohibited from transferring any of their assets into any charitable organization, including the Foundation. Given that the defendants previously transferred funds to the Foundation and the settlement does not require the Foundation to relinquish those funds for consumer redress, I believe 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, 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.
1. This information was previously found at <http://www.christianinternationalcharities.org/bluestuffcorporatesupport.htm>, but this website apparently has been modified or disabled.
2. Charitable institutions play an undeniably important role in our society. Therefore, I believe it is unfortunate when ethical concerns arise about dealings such as these, since they can potentially (and unnecessarily) have a negative impact on charities in general.