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Brand Protection & Advertising

Stay ADvised: What's New This Week, April 27

By Nancy J. Felsten and Joanna E. Summerscales
04.30.2020
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FTC Files to Halt Counterfeit SBA Loan Relief Company

The Federal Trade Commission (FTC), in its continuing battle against COVID-19-related schemes, has filed a complaint seeking to halt the operations of a company masquerading as a lender for the Small Business Administration’s (SBA) relief lending program.

The FTC has accused Ponte Investments, doing business as SBA Loan Program and SBA Loan Program.com, of passing itself off as a loan provider for the federal government’s CARES Act SBA Paycheck Protection Program (PPP), which was set up to provide loan relief to small businesses across the United States in the wake of the economic fallout from COVID-19.

The FTC’s complaint, filed in federal court against the Rhode Island-based company and its owner John C. Ponte, alleges that defendants falsely market themselves to small businesses as approved lenders under the PPP when they have no such affiliation, in violation of the FTC Act. In the complaint, the FTC seeks an injunction immediately barring the company from misrepresenting any relationship with the SBA loan program.

Defendants solicited loan applications by calling businesses directly, describing themselves as a “direct lender for the PPP loan program.” The company also set up a website billing itself as a direct lender for the PPP and inviting users to apply to the program on the site. The complaint alleges that Ponte and his company seek to take advantage of the high demand for PPP loans and the corresponding lack of funds available.

In reality, there is no affiliation between Ponte and the real PPP, said the FTC. Instead, defendants aimed to enrich themselves by profiting off the overwhelming demand for these small business loans.

Prior to filing the complaint, the FTC had sent the company a cease and desist letter on April 10, 2020, warning it to stop impersonating the PPP, but Ponte continued to operate and to “encourage consumers to submit applications.”

According to the FTC, hundreds or thousands of applications to the counterfeit loan program were made by “struggling” businesses, depriving those businesses of the opportunity to apply to the legitimate PPP and possibly obtain a loan while there were still funds available.

“In this time of incredible challenge for all Americans, it is disturbing to see these defendants preying on desperate businesses looking for ways to keep their employees financially secure,” said FTC Chairman Joe Simons. “The FTC is on guard, and we will act to protect consumers from scammers looking to take advantage of this crisis.”

Key Takeaways

First, companies ignore an FTC warning at their own risk. The bureau is busy, very busy, but vigilant. Second, as always, don’t rely on tiny type. The FTC alleges that small print on the SBA site notes that the company is not affiliated with the U.S. government and directs consumers to the correct address to apply for the loan, but the FTC notes that “even if a consumer located this text, the language does not disclose that SBA Loan Program is not authorized to make PPP loans.” In other words, a disclosure in small print does not negate an entire marketing strategy’s worth of misrepresentations.

Additional FTC Letters Warn COVID-19 Marketing Scammers to Cease

What do a face brush, a vitamin IV, and an air purifier have in common? Companies marketing these products and several others were all recently sent warning letters by the Federal Trade Commission (FTC), accusing the companies of falsely advertising cures and treatments for COVID-19. The 10 warning letters the FTC sent add to the agency’s ever-increasing tally of anti-COVID-19 scam actions.

Hawking everything from face creams to vitamin C solutions to sound frequencies, these companies are all alleged to have made deceptive marketing claims touting the ability of their products to cure, treat, or significantly reduce the risk of COVID-19 infection.

Noting that the Food and Drug Administration (FDA) says there is currently no cure for COVID-19, the letters advise the companies to cease advertising false and untested cures in violation of the FTC Act, which makes it illegal to advertise disease cures that are not properly substantiated by competent and reliable scientific evidence.

“For COVID-19, no such study is currently known to exist for the product identified above. Thus, any coronavirus-related prevention or treatment claims regarding such product are not supported by competent and reliable scientific evidence. You must immediately cease making all such claims,” notes the FTC in the correspondence.

The FTC’s announcement stressed that the warning letters target not only nutritional supplement marketers, which make up a good portion of the advertisers who have received such warning letters for peddling false COVID-19 cures so far, but a “wider range of companies” of many stripes.

The products sold by these marketers include a face brush offered by a company called Face Vital whose ads exhort consumers to “fight off coronavirus” by “ramping up your beauty and cleaning regimen,” keeping hands and face clean. There’s also a vitamin C infusion promoted as preventing COVID-19, and a “healing frequency” developed by “The Man Who Cured Cancer” that supposedly boosts the immune system’s response to the virus.

Additionally, the letters urge the companies to review other products they offer for sale on their websites, even if not related to COVID-19, to determine if they contain illegal advertising claims as well. The companies have 48 hours to respond with specific actions taken to address FTC concerns and to cease making the claims.

Key Takeaways

These warning letters join the more than 25 warning letters the FTC has already sent to supplement sellers, CBD marketers, and others accused of the same type of false marketing. The action is part of the FTC’s concerted anti-scam plan of action targeting the false advertisers who have come out in full force to take advantage of COVID-19. This approach has also included letters sent by the FTC independently and others sent jointly with the FCC to VoIP carriers warning them about providing services that facilitate illegal telemarketing or robocalling to companies advertising COVID-19 cures. Liability for independent carriers remains to be seen.

FTC Settlement Cuts Off Bogus "Miracle" Joint Inflammation Cure Marketed to Older Adults

A company charged with peddling deceptive “miracle” cures for joint pain and inflammation to older adults has agreed to settle a Federal Trade Commission (FTC) complaint.

The proposed settlement order imposes a multimillion dollar judgment on Florida-based Renaissance Health Publishing and owner Jim DiGeorgia, although much of that $3.93 million judgment is suspended due to defendants’ inability to pay, leaving defendants on the hook for $100,000 for allegedly falsely advertising a supplement called Isoprex.

According to the FTC’s complaint against the company, Renaissance marketed Isoprex online and through direct mail. The supplement comes in a pill form containing herbs and spices. It retails for $49.95 and generated gross sales of over $2.4 million for the company between 2014 and 2018.

Despite a lack of scientific evidence, Renaissance repeatedly advertised what the FTC called “unproven claims” that Isoprex is a highly effective treatment for joint pain and inflammation and that it rebuilds joints. The FTC complaint alleged that these deceptive statements violated the FTC Act.

The FTC alleged that Renaissance made a number of grandiose marketing claims, including marketing the supplement as an alternative to pain medication and aspirin. Among the unsupported claims, Renaissance publicized that Isoprex “rebuilds joints and repairs damaged joint cartilage;” “is 100% effective at relieving inflammation and swelling;” and “provides pain relief comparable or better than OTC drugs.” Flashy titles represented a supplement that was practically miraculous: “Slash Your Chance of an Early Joint Replacement by HALF;” “Science of Natural Pain Relief Research;” “Unlike dangerous pain pills, Isoprex is safe—even at higher doses.”

Testimonials included in multiple advertisements featured older adults heralding the arrival of a supplement that cured their joint pain in as little as one day, according to the complaint. However, what the defendants failed to disclose was that these testimonials were given in exchange for payment or were drafted directly by employees of the company, alleged the FTC.

The complaint also alleges that Renaissance falsely claimed to have studies and scientific evidence backing up its advertising claims and that Renaissance provided these studies as proof that its marketing claims were supported.

In addition to the monetary penalty, the proposed settlement order prohibits defendants from making any further misrepresentations about the efficacy of the supplement or about scientific evidence backing up its claims. Defendants must also disclose “material connections with endorsers of the products” they advertise.

Key Takeaways 

Based on the allegations in the complaint, defendants appear to fit the classic profile of supplement marketers who make wildly unsubstantiated claims they know to be so, and use additional deceptive marketing tactics like fake endorsements along the way. Still, the matter also provides well-worn lessons for well-meaning advertisers, namely to ensure scientific claims are substantiated by competent and reliable scientific evidence.

After FTC Referral, Creekside Naturals Agrees to Comply With NAD Recommendations

A manufacturer of a dietary supplement marketed as clinically proven to improve ADHD in children has agreed to discontinue certain advertising claims after the National Advertising Division (NAD) referred it to the Federal Trade Commission (FTC), backtracking on its failure to respond to NAD’s recommendations.

Creekside Natural Therapeutics sells nutritional supplements, including one called Focused Mind Jr. and marketed as a treatment for children’s ADHD. NAD reviewed Focused Mind Jr. advertising claims after a challenge by the Council for Responsible Nutrition (CRN), which argued that the claims were unsupported by competent and reliable evidence.

NAD agreed and recommended that the advertiser discontinue express claims about the “clinically proven” performance of the product and comparative product claims. After the advertiser failed to file the requisite advertiser’s statements stating whether it would comply with or appeal NAD’s decision, the NAD referred the matter to the FTC. As often happens when the FTC makes a call following an NAD referral, Creekside relented and agreed to comply.

In revisiting the claims, NAD reiterated its recommendations and the reasoning behind them. Finding that the company’s “powerful health-related claims” about Focused Mind Jr. necessitated airtight scientific evidence, NAD held that Creekside did not meet this standard.

The two problematic claims were Creekside’s performance claims that the product was “clinically proven” to “improve cognitive function, mood, focus, and emotional well-being in children, including children with ADHD,” and its comparative product claims. NAD recommended that Creekside discontinue both types of claims because the advertiser had not submitted clinical testing on the product “as a whole” as needed to support the claims.

As to the performance claims, NAD recommended that Creekside cease claiming Focused Mind Jr. performed as claimed in ads—by improving memory and focus. The problem with the comparative product claims, found NAD, was that advertising the supplement as an “alternative to” prescription medications sounded suspiciously like comparing the supplement’s efficacy to that of prescription medications. “Because the record does not contain any testing of Focused Mind Jr., much less head-to-head testing comparing the performance of Focused Mind Jr. to a pharmaceutical drug, NAD recommended that such claims be discontinued.”

Still, NAD said that nothing in its decision prevented the company from “truthfully and accurately” describing a pediatrician’s role in creating the supplement, as long as it narrowly tailored those claims to ensure they did not give the appearance that the product was scientifically proven effective.

Key Takeaways

When we first covered this story, we wondered whether the FTC would take further action of its own following NAD’s referral. Creekside Naturals unsurprisingly did not share the same desire to find out and so, once again, the FTC backup to the NAD was effective for self-regulation.

Reddit's Updated Ad Policy Aims to Increase Political Ad Transparency

Reddit has announced a significant update to its political advertising policy, including a new subreddit that will provide public disclosures about funds paid for political ads on the popular online community.

Reddit announced the change in a company blog post as an update intended to encourage transparency in political advertisement on the site ahead of the 2020 general election.

Users may now subscribe to the new Reddit-maintained subreddit “Reddit Political Ads Transparency Community” at r/RedditPoliticalAds. The forum will feature “constantly” updated posts on political ads published on the site. Current posts on the subreddit list political advertisements since January 1, 2019, as well as information on the advertiser, how they target users, and the amount spent on the ad campaign.

The new subreddit also features labels categorizing the ads, and other information including billing zip code, targeted subreddits, geo-targeting, and a link to the original ad post on Reddit.

As part of the update, the company will also require Reddit ad campaigns to enable comments for 24 hours after posting, and the company will flag ads for re-review following any increase in the size of the campaign after the initial 24-hour period.

Advertisers will also have to provide additional information to verify their identity and “be manually approved by Reddit.” In its definition of political ads, Reddit includes ads related to elections, promoting voter registration, selling political merchandise or advocating “topics of potential legislative or political importance.”

The update was put in place to encourage discussion about political ads and promote transparency, said Reddit VP and General Counsel Ben Lee.
“We hope this update will give you a chance to engage directly and transparently with political advertisers around important political issues, and provide a line of sight into the campaigns and political organizations seeking your attention,” Reddit told users in the blog post announcing the update.

The new measures add to Reddit’s preexisting advertising policy, which “forbids deceptive, untrue, or misleading advertising.” Reddit reviews all political ads and does not accept political ads from outside the United States or for state or local elections.

Reddit, which has over 430 million active monthly users, also already limits the types of advertisements it has on the site by design. The company does not post targeted advertisements since it does not collect personally identifiable data, said Lee. “So our advertising features are focused on targeting communities and subreddits. It’s definitely not focused on targeting demographic data and personal information that we don’t even have,” he added.

Key Takeaways

Reddit’s changes to its political advertising policy follow similar efforts by social media companies to curtail the spread of misinformation during the upcoming election. Twitter said it will no longer accept political ads, while Google said it would limit the types of targeted political advertisements. These developments come amidst calls by some politicians to cut down on false advertising in political ads.

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