Federal Trade Com'n v. Slimamerica, Inc.
| Decision Date | 30 June 1999 |
| Docket Number | Case No. 97-6072CIV. |
| Citation | 77 F.Supp.2d 1263 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, v. SLIMAMERICA, INC., Frank J. Sarcone, and Robert Wyman, Defendants. |
| Court | U.S. District Court — Southern District of Florida |
David Spiegel, Washington, DC, for plaintiff.
Guy Rasco, Miami, FL, Sheldon S. Lustigman, New York City, for defendant.
FINAL JUDGMENT FOR PERMANENT INJUNCTION AND DAMAGES
This action was brought by the Federal Trade Commission seeking permanent injunctive and other equitable relief against SlimAmerica, Inc. ("SlimAmerica"), Frank J. Sarcone ("Sarcone") and Robert Wyman ("Wyman"). The relief sought includes consumer restitution for alleged violations of § 5(a) and 12 of the Federal Trade Commission Act ("FTC"). 15 U.S.C. §§ 45(a) and 52, which prohibits deceptive acts and practices and false advertisements for food, drugs, devices, or cosmetics in or affecting commerce.
Sarcone has a long record of assorted fraudulent schemes which have bilked thousands of victims out of millions of dollars in more than a dozen states. Orders to cease and desist and to make restitution, entered by several governmental entities, have gone largely ignored. In this scheme he has transferred the ill-gotten gains to a foreign country in an effort to place these funds beyond the Court's reach for consumer redress.
The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C §§ 1331, 1337(a), 1345 and 15 U.S.C. § 53(b).
The Federal Trade Commission is an independent agency of the United States government created by statute. Sarcone1 is the founder, president, treasurer, secretary and director of SlimAmerica. He is also an officer and/or director of the following companies: Peltec Publishing, Inc., American Direct, Diet Direct, Creative Marketing, Inc., XQuisite Skin Care, and Varig. Ltd.
Wyman began working at SlimAmerica as a general manager in 1996. Company correspondence on behalf of the corporation described Wyman as both the Vice President and the Director of Marketing. In that capacity he implemented, supervised and participated in operating the company's computer system; maintained payroll and other financial records; and participated in the drafting of SlimAmerica's customer service script. Wyman also supervised the "phone room" and customer service staff, which processed consumer inquiries, complaints, and refunds. Along with Sarcone. Wyman is co-director and officer in at least four other companies: American Direct, Inc., Diet Direct, Inc., Creative Marketing International, and XQuisite Skin Care, Inc.
SlimAmerica was founded by Sarcone in 1995. The company was incorporated in the state of Nevada and later registered as a foreign corporation in the state of Florida. During 1994 and 1995. Sarcone sought financial backing for a new weight loss product from an individual named Larry Williams ("Williams"). In 1995, Sarcone and Williams entered into a partnership arrangement to manufacture and market the product, with Williams contributing cash in the amount of $200,000 - $250,000. In September 1995, SlimAmerica began promoting a weight loss program titled the Super-Formula Program ("Super-Formula"). Super-Formula consists of three separate diet pills: "Slim-Again," "Absorbit-ALL," and "Absorbit-ALL PLUS." According to SlimAmerica's ads, the three pills contain four different ingredients that produce Super-Formula's weight loss benefits. Slim-Again contains chromium picolinate and HCA; Absorbit-ALL contains chitin; and Absorbit-ALL PLUS contains glucomannan. The defendants sold a 30-day supply of Super-Formula for $49.95, a 60-day supply for $89.95, and a 90-day supply for $129.95. From September 1995 through January 1996, Williams, through his company. Commodity Timing, Inc., provided at least $193,336 for advertising and other startup costs associated with the marketing of Super-Formula.
From September 1995 through January 1997, advertisements for Super-Formula appeared in several hundred newspapers and magazines throughout the United States, including Ladies Home Journal. McCall's Magazine, and Cosmopolitan. Sarcone edited, reviewed and approved all advertising copy for Super-Formula. Nancy Jones & Associates, solely owned and operated by Nancy Jones a/k/a Nancy Drew, handled all media placements of the defendants' advertising. During 1996 the defendants spent at least $2.5 million to advertise and otherwise promote Super-Formula. The advertisements made the following representations:
▪ "Blast All Your Excess Body Fat Off You Whether Your Stubborn Metabolism Likes It Or Not!"
▪ "Yes, as utterly amazing as it seems, someone has finally combined three of the worlds most powerful weight-loss weapons ever into one explosive `Super-Formula Program'® that is absolutely guaranteed to blast up to 49 pounds off you in only 29 days!
▪ "Don't need to loose that much weight? Fine, because this astonishing new `Super-Formula'® can annihilate up to 29 pounds of flab in only 14 days ... up to 12 pounds in only one short week and yes it can force up to 7 ugly pounds to instantly disappear in as little as 48 hours!
▪ "No discipline! No `Soul Searching' Will Power! No Starvation! No Back-Breaking Exercise! Eat Up To Six Times A Day!
▪ "Dramatic Proof From a Leading U.S. Medical School."
At all times, the advertisements for Super-Formula made the following representations:
▪
▪ "Blasts Away Up to 50% of Your Body Fat in Record Time ... Obliterates Up to 5 Inches From Your Waistline ... And Zaps 3 Inches From Your Thighs Before You Know It."
▪ "You can now get that shapely, sexy body you've always dreamed of ... without discipline ... without `soul searching' will power...."
▪ "clinically proven in numerous scientific studies in major universities and medical centers world-wide"
Employees in SlimAmerica's customer service department told consumers inquiring about Super-Formula that they need not diet or exercise to realize the benefits set forth in the company's advertisements. Super-Formula made similar representations in promoting the product through a home page on the Internet.
All advertisements for Super-Formula included an endorsement from Howard Retzer, M.D. ("Retzer") Retzer, a retired physician born in 1925, last operated a medical office practice about June 1977.2 The endorsements purported to be based on Retzer's review of "the numerous and conclusive clinical studies and test results that have been conducted on each of the remarkable products that make up this `Super-Formula.'" Initial advertisements for Super-Formula described Retzer as past president of The American College of Nutrition. Contrary to representations in the defendants' ads. Retzer has never been president, nor has he been a member of The American College of Nutrition.3 No evidence was produced showing that Retzer was ever past president of the American College of Endocrinology and Nutrition, or that a Research Institute of Metabolism and Nutrition ever existed. Sarcone, admittedly, authored the Howard Retzer endorsement for Super-Formula. The endorsement was signed by Retzer on October 20, 1995—almost a month after SlimAmerica ran its first Super-Formula ad.
Although Sarcone was made aware, as early as February 5, 1996, that Retzer's organizational affiliation might not be valid and was informed by Retzer himself in a letter of March 26, 1996 that he was not a member of the American Council of Nutrition ("ACN"), the defendants continued to run the misleading Super-Formula advertisement until June 18, 1996. Retzer was paid $2.000 per month for his endorsement of Super-Formula, pursuant to a written agreement executed on October 20, 1995. The photograph of the younger man in a white coat next to Retzer's endorsement, which appeared in all of the defendants' advertising from at least September 29, 1995 until January 29, 1997, was not a photograph of Retzer. According to Sarcone it was "a stock photo that anybody can rent." Sarcone claimed that the photograph "was never intended to be a picture of Doctor Retzer."
On March 28, 1996, because of complaints from ACN members regarding SlimAmerica's advertising, Stanley Wallach, M.D., president of the requested that the National Advertising Division ("NAD") of the Council of Better Business Bureaus investigate SlimAmerica's advertising. The NAD conducted a three-month investigation of the ACN complaint which included a review of extensive submissions from the ACN and SlimAmerica. In his capacity as Vice President of Marketing, Wyman represented the company in some of the investigative proceedings.
SlimAmerica's customer service department also received numerous complaints and requests for refunds from Super-Formula purchasers. Accounting records reflect that for the year ended December 31, 1996, refunds totaled $1.15 million. The complaints involved, among other things, non-delivery, side effects caused by Super-Formula, total ineffectiveness of the product, and allegations that the defendants were double and triple charging consumers' accounts. In response to the complaints, the defendants began sending letters to customers advising them that SlimAmerica would provide remuneration for persons who would give testimonials for use in advertisements as to positive weight loss experiences based on use of Super-Formula. SlimAmerica paid $1,000 to the persons whose testimonials for Super-Formula appeared in their new newspaper and magazine advertisements.
In July 1996 the NAD issued a decision concluding that SlimAmerica had "failed to provide a reasonable basis for its claims of product efficacy and performance." The decision questioned the scientific validity of various "studies" which the company had submitted in...
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