ABA CONSUMER PROTECTION UPDATE
May 2007
The Lustigman Firm, P.C.
Andrew Lustigman
Adam Solomon
Jonathan Ezor
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Agenda
 Federal Trade Commission Update
 State Attorneys General Update
 Private Litigation Update
 National Advertising Division Update
 Privacy Update
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Deceptive Marketing of
Magazine Subscriptions
 FTC charged several Pennsylvania-based defendants with violating
the FTC Act and the Telemarketing Sales Rule by telemarketing
magazine subscriptions falsely claiming they were only conducting
a survey and providing an incentive of receiving “valuable coupons”
for groceries and other items worth over $1,000
 FTC alleged that defendants failed to tell consumers that they were
actually selling magazine subscriptions and to get the coupons they
had to buy magazine subscriptions
 FTC alleged that sometimes defendants claimed that the
magazines were free or that the consumers only had to pay
shipping and handling or otherwise misrepresented the cost of the
subscriptions
 FTC claimed that defendants violated the TSR when they called
consumers and failed to make clear that they were offering
products for sale, failed to disclose the total cost of their program
before obtaining payment information, made misrepresentations to
induce consumers to make a purchase, and misrepresented the
cancellation policy
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Human Growth Hormone Internet
Marketer Settles FTC Actions
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FTC settled actions against two groups who marketed oral sprays that were
supposed to help users lose weight, reverse the aging process, and prevent or
treat diseases
Marketing for the sprays claimed that they contained HGH and referred to
clinical studies and prestigious publications
FTC alleged that the claims were unproven and untrue. The FTC charged that
the sprays did not contain HGH, or cause the body to increase production of
HGH, and did not offer anti-aging, weight loss, or disease prevention effects
FTC alleged that representation on website as to use of SSL encryption was
false making the credit card information submitted for payment vulnerable to
capture while in transit
Settlement provides for payment of $172,000 with a $2.2 million avalanche
Orders also contain injunctions prohibiting misrepresentations in marketing food,
drugs, devices, services, or dietary supplements, including misrepresentations
about the product benefits, misrepresentations about studies and research, and
representations made without possessing competent and reliable scientific
evidence. The orders also prohibit misrepresenting the security of Web pages
One group also is precluded from violating CAN-SPAM Act based on prior
violations of Act in sending false sender identification, using deceptive subject
headings, failing to provide an opt-out mechanism, and failing to provide
physical postal address
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Owners/Mangers of Debt
Elimination Program Banned
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FTC had sued Debt Solutions, Inc., a group that marketed a “debt elimination”
program for $399 to $629
FTC alleged that marketers falsely promised consumers substantially reduced
interest rates and thousands of dollars in savings because a financial consultant
with special relationships with the consumers’ creditors would negotiate
substantially lower interest rates, resulting in reduced monthly payments and
elimination of debt three to five times faster than otherwise would be possible
Promised savings was actually projected savings that would result from simply
paying more than the monthly minimum on their credit card debts over an
extended period of time and not from reduced interest rates on the debts
Defendants allegedly violated the FTC’s Telemarketing Sales Rule and
Washington state law by misrepresenting projected savings, failing to disclose
the limits of their money-back guarantee, calling phone numbers listed on the
National Do Not Call Registry, failing to pay the required annual fee for access to
DNC-listed numbers, and calling people who asked them to stop calling
Settlement permanently prohibits the defendants from engaging in the violations
alleged in the complaint and imposes an avalanche judgment of $23,255,420
Individual owners and telemarketing sales managers are permanently banned
from engaging in any debt negotiation or debt elimination business
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Business Opportunities
FTC Obtains $17 Million Verdict
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FTC obtained a $17 million summary judgment order in an action for falsely
representing that the consumers would make substantial money using the
“Stefanchik Program” to buy and sell privately held promissory notes and
mortgages
 Defendants telemarketed and sold a package of products and services as
part of a program of course materials, seminars, workshops, video tapes,
audio tapes, and personal coaches – which purported to teach consumers
how to buy and sell privately held mortgages, commonly known as “paper”
 Court found that in the marketing and selling of the Stefanchik Program, the
defendants falsely represented, directly or by implication, that:
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Consumers who purchased defendants’ materials, attended defendants’ seminars and
workshops, or used defendants’ personal coaches, would quickly make large amounts
of money in their spare time by learning and using the methods taught
Defendants’ personal coaching service was staffed by persons substantially
experienced in the paper business who were readily available by telephone to assist
consumers in finding and completing paper transactions”
Order requires John Stefanchik and Beringer to pay $17,775,369, the total
amount of consumer loss. Bars defendants from misrepresenting: that
consumers will make a substantial amount of money; the income, profit, or
sales volume that consumers may or are likely to achieve or that previous
consumers achieved; that services are provided by substantially
experienced persons, or that such persons are readily available to assist
consumers; or any other material fact
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FTC Settles Franchisor Action
 Netvertise, Inc. and Elliot Krasnow settled charges that they
deceptively marketed Website design and promotion service
franchises
 Defendants allegedly misrepresented that franchisees were
likely to earn substantial incomes and overstated the value of
the supplied search engine optimization software, and failed to
provide proper franchise disclosure documents regarding prior
consent orders and earnings claims
 Defendants are barred from marketing franchises or business
opportunity programs. The order bars defendants from
marketing or selling any business arrangement covered by the
Franchise Rule or the Business Opportunity Rule and from
otherwise misrepresenting any business ventures or investment
opportunities
 Order requires the defendants pay $160,000, with a $500,000
avalanche
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Permanent Ban Against Repeat Offender In
Telemarketing, Selling Business Programs
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Richard C. Neiswonger, William S. Reed, and their firm, Asset Protection Group,
Inc., charged with deceptively marketing business opportunity programs in
action brought in the Eastern District of Missouri
Program offered sale of services relating to the forming of Nevada corporations
and off-shore corporation
Unsubstantiated six figure earnings claims and false claims of pre-screened
client list
Violation of 1997 Consent Order against Neiswonger which required posting of
$100,000 bond
Court found Neiswonger in contempt of prior order. Court also ruled that
business partner and corporation were also bound by the prior order because
they were aware of the order and acted in concert with deceptive business
practices
Court entered a second permanent injunction barring Neiswonger from
advertising, marketing, promoting, offering for sale, selling, or otherwise inducing
participation in any program and bans him from telemarketing and instructed the
court-appointed receiver to calculate how much the defendants had gained from
the scheme before he orders a final monetary judgment against the defendants
 Judge scheduled a hearing on June 25, 2007, for Reed and APG to defend
why they should not be subject to a similar injunction
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Debt Reduction
 Interim Order Entered In FTC v. Debt Set, Inc.
 Company advertised "debt reduction services," including "debt
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consolidation" and "debt settlement" programs
Complaint alleged that defendants promise to stop collections
calls, and to consolidate debts, negotiate better interest rates
such as "between 0 and 9 percent," or lump settlements such as
"50 cents on the dollar" or "50 to 60 percent" of the debt when
actually consumers were required to pay 8% of the debt in
monthly payments before defendants contact creditors, and
sometimes do not contact them at all
Interim Order lifts asset freeze and permits defendants to
continue operating its business under a monitor
Interim Order precludes misrepresentations regarding fees or
outcome of service
Interim Order specifies certain claims that would be permitted if
substantiated
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Cross-Border Advance Fee Credit Cards
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A federal district court in Illinois has entered final orders against three people
based in Canada who allegedly defrauded U.S. consumers out of more than $9
million through the sale of advance-fee credit cards
Orders bar the defendants from engaging in similar illegal conduct in the future,
as well as from calling consumers whose phone numbers are on the National Do
Not Call Registry for telemarketers (litigation continues against the other
defendants)
Defendants allegedly used outbound telemarketing to contact consumers in the
United States, falsely offering major credit cards, such as MasterCard and Visa,
to people who agreed to have the defendants electronically debit their bank
accounts for an advance fee of $249
Defendants typically claimed that the credit cards would have a $2,000 credit
limit, zero percent interest, and no annual fees, and often targeted their offers at
consumers with poor credit histories
Consumers who provided their bank account information did not receive a major
credit card, but instead were sent an application for either a “stored value card”
or “cash card” that had no line of credit associated with it and could be used only
if the consumer first loaded funds onto the card. The complaint also alleged that
the defendants violated the law by calling consumers on the FTC’s National Do
Not Call Registry
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Restaurant Gift Card Settlement
Approved
 The FTC approved the Darden Restaurant Group’s
Consent Order following public comment period
 As reported last month, Darden was charged with
engaging in deceptive practices in advertising and
selling restaurant gift cards by failing to adequately
disclose monthly dormancy fees
 Consent order requires Darden to restore fees
deducted from consumers' gift cards and to disclose - at point of sale and on the front of any card -- fees
and expiration dates
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Attorney Advertising
New Jersey
 FTC filed an amicus brief with the NJ SC with the Office of the General
Counsel urging the vacating of the NJ Opinion 39
 Opinion prohibits attorneys from participating in ratings programs that result
in “Best Lawyers” and “Superlawyers” lists
 The FTC argues that there are a growing number and wide variety of legal
rating programs in the United States, each with its own method for rating
and scoring attorneys based on a variety of criteria, and “these ratings
programs serve a consumer demand, and the merit, quality and validity of
them is best determined in the marketplace”
Indiana
 FTC filed comments with the Indiana SC regarding attorney advertising
 The proposed amendments would ban deceptive advertisements, but with
one exception, place no prophylactic bans on specific forms of advertising
 FTC staff recommend that the Bar revise the proposed amendments to
make clear that referral programs (such as online legal matching programs)
are permissible as they can provide an efficient and lower-cost alternative
for consumers to obtain legal services
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State AG Update: Anheuser-Busch
 Twenty-nine Attorneys General criticized Anheuser Busch
Companies, Inc. for producing and promoting alcoholic
energy drinks containing caffeine and other stimulants
 Citing serious health concerns, including skewing a
person’s sense of alertness, the Attorneys General called
on Anheuser Busch to provide readable warning labels
that alert consumers to the risks of alcoholic energy drinks
 One week after receiving the Attorneys General’s letter,
Anheuser Busch announced that it will stop the production
of Spykes, a caffeinated energy drink with alcohol that
appeals to youth in taste and appearance
 Thirty-Seven Attorneys General praise Beam Global (Jim
Beam) for adopting stronger voluntary advertising
standard to reduce youth exposure to alcohol ads
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State AG Update: Dell
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New York Attorney General files lawsuit against Dell and DFS for False
Advertising, Failure to Provide Services and Deceptive Business Practices
relating to Dell’s technical support services, promotional financing, rebate offers,
and billing and collection activity
Repeatedly failing to provide timely onsite repair to consumers who purchased
service contracts promising “onsite” and expedited service
Pressuring consumers, including those who purchased service contracts
promising “onsite” repair, to remove the external cover of their computer and
remove, reinstall, and manipulate hardware components
Discouraging consumers from seeking technical support; those who called Dell’s
toll free number were subjected to long wait times, repeated transfers, and
frequent disconnections
Using defective “refurbished” parts or computers to repair or replace consumers’
equipment
Luring consumers to purchase its products with advertisements that offered
attractive “no interest” and/or “no payment” financing promotions. In practice,
however, the vast majority of consumers, even those with very good credit
scores, were denied these deals
DFS incorrectly billed consumers on cancelled orders, returned merchandise, or
accounts they did not authorize Dell to open, and then continually harassed
these consumers with illegal billing and collection activity
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State AG Update: Best Buy
 Connecticut Attorney General files lawsuit against Best Buy
alleging the chain used in-store computer kiosks to deceive
consumers about product prices and overcharge them
 Best Buy operates an internal site accessible only at kiosks in its
stores. The site is virtually identical to BestBuy.com, the
company's web site, except for listing in-store instead of online
prices. Consumers access information at the in-store kiosk by
clicking on a tab labeled "BestBuy.com," even though they are
not connecting to the internet site
 Since 2005, the company's stores have pledged to match any
lower online price, including from their own Internet site. Many
Best Buy salespeople falsely told consumers searching for or
seeking to confirm lower online prices that the kiosk connected
them to BestBuy.com. When the site displayed the higher instore price, salespeople allegedly suggested that consumers,
who thought they were viewing BestBuy.com, previously
misread the lower online price or the online price had expired
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State AG Update: BlueHippo
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Maryland Attorney general enters into a settlement with Baltimore-based
BlueHippo Funding, LLC, its subsidiary, BlueHippo Capital, LLC and Joseph
Rensin, the owner of both companies
BlueHippo targets national advertising to consumers who have poor credit
histories, claiming to make products affordable by financing the purchases and
allowing consumers to pay on a weekly or biweekly basis. Consumer
complained they did not receive purchased goods within represented time
frames. As many as two-thirds of BlueHippo’s Maryland customers never
received the computers or televisions they ordered
When consumers failed to receive the goods and requested to cancel their
orders, BlueHippo allegedly refused to refund the consumers’ payments
Settlement resolves allegations that the Defendants engaged in unfair and
deceptive trade practices by selling computers, televisions, and other goods to
consumers for two or more times their retail price, and then placing undisclosed
conditions on delivery of the items that prevented many consumers from ever
receiving their purchased items
Under the settlement agreement, Defendants will pay restitution to consumers
who did not receive their purchased goods or who the Division alleges were
overcharged, cease the practices that the Division alleged violated the
Consumer Protection Act, and make a $300,000 payment
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State AG Update:
Certified Game of Skill
 Ohio Attorney General unveils new protocol for
determining whether electronic gaming machines are
skill-based, process will provide guidance to local
officials dealing with proliferation of machines
 Gaming Laboratories International will exam and
evaluate each machine
 Ohio AG Order with SGN International Oil Co.
(Match’em UP)
 Degree of skill necessary for a machine to be a legal
game of skill, i.e. it is wholly or largely controlled by
skill - - 51%
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Private Litigation Update
 Proposed Settlement in Fair Isaac Corporation and
Equifax class action
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Related to marketing of Suze Orman’s credit-score kit:
Suze Orman Fico Kit and 155 other products
Allegedly violated the Credit Repair Organizations Act
Bar on advertising the products/services as
“enhancing”, “boostering”, “raising”, or “improving”
credit scores with words such as “tips” “suggestions” or
“advice”
Settlement includes three months of free credit-score
tracking
Settlement is pending court approval
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Private Litigation Update
Splenda and Equal Settle Private Litigation Ad Charges
 The makers of Equal (Merisant) and Splenda (McNeil) reached an
undisclosed settlement over Splenda’s slogan "made from sugar, so it
tastes like sugar"
 Merisant alleged that Splenda’s claims confused consumers into believing
that Splenda actually contained sugar, rather than with artificial sweeteners.
McNeil argued that it had never deceived consumers or set out to deceive
them, since the product did in fact start out with sugar
 As a result of the settlement, the verdict was not read, although reportedly
the jury had found in favor of Equal’s maker, Merisant, though the damages
to be awarded were reportedly not as much as Merisant had wanted
 The parties said that the details of the settlement were confidential and that
they would make no additional comment
 Previously, a French business court ruled in favor of a French subsidiary of
Merisant and said that McNeil had intentionally confused consumers with
its advertising. The court, which found that McNeil s French subsidiary had
violated French advertising and consumer protection laws, ordered the
subsidiary to cease its claims that Splenda is made from sugar and tastes
like sugar
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NAD Update
The Proctor & Gamble Company: Crest Pro-Heath Toothpaste
 Challenge by Colgate, which argued that P&G’s use of a dentist,
caduceus, and dental tray in Pro-Health advertising creates an implied
message that Crest Pro-Health is a “dentist recommended” product
 Claims at issue:
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Provides dentist recommended benefits
Crest Pro-Health has received the ADA seal of acceptance for certain specified benefits
Reduces plaque, Whitens teeth
Uses a Polyflourite System consisting of antibacterial fluoride and ActivClean Crystals
Product Research; Over 70 publications & research presentations
Dentifrices containing stabilized stannous fluoride have been shown to provide significant
antigingivitis protection. Stannous fluoride has bactericidal and bacteriostatic activity to both
kill bacteria and inhibit the re-growth of new bacteria for at least twelve hours
Provides superior cavity protection compared to a standard sodium fluoride toothpaste
 P&G argued that the caduceus, used by the ADA in its seal and by
dentists around the world, “is simply an ancient symbol of commerce.”
P&G also argued that a dental researcher in its ads was simply pointing
to a list of points that dentists check and explaining that Crest ProHealth protects all these areas, but that the ads weren't meant to imply
dentists recommend the product for that purpose
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NAD Update
The Proctor & Gamble Company: Crest Pro-Heath Toothpaste (con’t)
 The NAD disagreed with P&G. “The concept of a dentist
recommending the results or ‘benefits’ themselves . . . is
counterintuitive.” “Patients do not need dentists telling them that they
do not want plaque-covered teeth or foul-smelling breath.” Because the
dentist-recommended message the ads seem to convey was not
supported by P&G the NAD recommend it to be discontinued
 The NAD also took issue with P&G’s implication that the ADA accepted
Crest Pro-Health for certain dental benefits and a cavity-reduction claim
based on an early prototype
 The NAD rejected five other issues Colgate had with Crest's
advertising, finding P&G had provided sufficient substantiation for
claims that Pro-Health fights plaque, whitens teeth, and fights bacteria
for 12 hours
 NAD stated that P&G had supported its claim that Pro-Health provides
12 hours of antibacterial protection. Colgate is currently making that
same claim for Total toothpaste
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NAD Update
Starbucks Corporation: Carmel Apple Cider
 BBB of Eastern Massachusetts, Maine and Vermont,
Inc. challenged name used by Starbucks to market
the apple beverage product called “Carmel Apple
Cider”
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BBB’s position: Product is made with apple juice,
rather than apple cider
Starbucks’ position: No laws or regulations that
establishes what constitutes “cider” or any distinctions
between “apple cider and “apple juice” furthermore
there are regional differences in the usage of the terms
 NAD recommended that Starbucks discontinue use
of the descriptor “cider” in advertising the product
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NAD Update
Wachovia Bank: Customer Service
 NAD reviewed commercial pursuant to its ongoing
monitoring program
 Commercial featured Joe Carta who described how
his Wachovia banker helped him on Christmas day to
open the vault at 5:00am the next day to get a
passport
 “At Wachovia we are absolutely obsessed with
satisfying our customers” (express claim)
 The service depicted is representative of a service a
Wachovia customer can typically expect (implied
claim)
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NAD Update
Wachovia Bank: Customer Service (con’t)
 NAD reviewed customer satisfaction surveys
 NAD concluded Wachovia had reasonable basis for
express claim
 NAD recommend that Wachovia discontinue or
modify commercial to clearly and conspicuously
disclosure that scenario is unusual, atypical or may
depend on certain limitations
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No Wachovia policy which requires or suggests that
employees should disrupt their family activities during a
major holiday in order to retrieve a passport
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NAD Update
Bayer Consumer Healthcare: One-A-Day Women’s
 NAD requested substantiation for certain claims
made in print ads by Bayer for its One-A-Day
Women’s
 “One-A-Day Women’s Multi-Vitamin is the only
complete multi-vitamin with more calcium for strong
bones, and now more vitamin D, which emerging
research suggests may support breast health”
(express claim)
 Taking One-A-Day Women’s multi-vitamins women
can reduce or eliminate women’s risk of breast
cancer (implied claim)
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NAD Update
Bayer Consumer Healthcare: One-A-Day Women’s
(con’t)
 NAD determined that a reasonable interpretation of
“breast health,” with the claims at issue is that emerging
research suggests vitamin D may reduce the risk of breast
cancer
 NAD noted in its decision that the evidence in the record –
several studies and journal articles on the health benefits
of vitamin D – indicates that a higher intake of vitamin D
may result in a lower risk of breast cancer
 NAD determined that the evidence provided a reasonable
basis for the advertiser’s claim that the product, which
contains 800 International Units of vitamin D per dose, has
“more vitamin D, which emerging research suggests may
support breast health”
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Major Data Breaches
Continue to Make Headlines
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$400,000 worth of funds from Carson, CA attempted stolen via keylogger
program installed on city treasurer computer
Attack on a computer server at the University of Colorado exposes names and
Social Security numbers of almost 45,000 students
Northwestern University sends letter notifying students after laptop containing
the Social Security numbers of Northwestern students and alumni stolen in late
April from employee in the Financial Aid Office
American Federation of Government Employees sues TSA for loss of hard drive
containing names, social security numbers, dates of birth, and payroll and bank
account information for some 100,000 employees
Stony Brook University announces potential release of names and Social
Security numbers of 89,853 current and former faculty, staff, students, alumni
and others
Chinese hacker broke into a University of Missouri System database, the first of
three separate attacks that resulted in the theft of the names and Social Security
numbers of 22,000 current and former UM employees
Illinois Department of Financial and Professional Regulation discovers potential
compromise of names, Social Security numbers and other personal data of an
estimated 300,000 licensees and applicants
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ChoicePoint Settles
Over Breach
 Forty-Four Attorneys General reached a settlement
with ChoicePoint, resolving allegations that the
company failed to adequately maintain the privacy
and security of consumers’ personal information
 The settlement with the states goes beyond the
January 2006 FTC settlement and requires
ChoicePoint to improve its credentialing process for
clients that obtain Social Security numbers
 Among other requirements in the states’ agreement,
ChoicePoint must perform audits, including
independent audits, to make sure that it is properly
identifying those individuals or businesses requesting
information
 $500,000 on ID theft information campaigns
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MySpace and Sex Offenders
 State prosecutors demanded that MySpace
turn over information on convicted sex
offenders with profiles on MySpace
 MySpace initially refused, citing ECPA
subpoena requirement
 Monday, 5/21, MySpace and 50 state AGs
agreed on disclosure procedure
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Mergers Raise Privacy Concerns
 Recent proposed mergers raising potential
privacy issues
 Questions of combined databases, matching
anonymous and identified data
 Announced deals include:
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Google buying DoubleClick
Yahoo! buying RightMedia
Microsoft purchasing aQuantive
 May also impact on privacy policies of
merged firms
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Identity Theft and Data Breach Laws
Expand on State, Federal Level
 Two bills now progressing in Congress:
 Social Security Protection Act of 2007 (HR 948)
 Makes illegal certain sales of Social Security numbers
 Securely Protect Yourself From Cyber-Trespass, or
Spy Act (HR 964)
 Prohibits certain “spyware” technologies, creates FTC
enforcement authority
 Massachusetts latest state to push ID theft and data
breach notification law
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Passed MA house on May 9, 2007 in response to TJX
case and others
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Questions?
Thank You
The Lustigman Firm, P.C.
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