Stay ADvised: What's New This Week, October 25
In This Issue:
- Money Talks, and so Do the Latest FTC Notices of Penalty Offenses
- Google Freezes Out Climate Change Denier Ads
- DOJ Shuts Down Psychic Mail Fraudsters
- Health-Ade Kombucha Not so Healthy, Say Plaintiffs
Money Talks, and so Do the Latest FTC Notices of Penalty Offenses
It's round three or just another day exercising the FTC's penalty authority with a new set of some eleven hundred Penalty Offense Notices, and this time it's all about the money—potentially deceptive money-making claims, that is.
The agency has been girding itself for enforcement action premised on its penalty muscle under Section 5(m) of the FTC Act. Many thought earnings claims would be the first on the FTC hit list, but perhaps the third time is the charm. This massive batch of recipients received letters informing them that if they make certain deceptive claims about money-making opportunities, they could be subject to financial penalties of up to $43,792 per violation.
Oh, and for good measure the FTC included with the packet last week's letters regarding use of deceptive endorsements and testimonials, bringing to about 1,800 the number of businesses that have now received that Penalty Offense Notice.
As we (and many others) covered last week, the FTC has resurrected use of its power to obtain civil penalties, in court, under its Penalty Offense Authority conferred by Section 5(m)(B)(1) of the FTC Act, provided the Agency can prove "knowledge" (hence these letters), and that the company has engaged in conduct similarly deceptive to that of prior litigated FTC cases (administrative orders), as summarized in the Notice Letters.
Unless you were hiding under a rock, you know that the first batch of letters put for-profit educational institutions on notice to steer clear of false claims about the benefits of their educational programs. The second round caused quite a stir in the advertising world: 700 letters sent to companies across business sectors, putting them on notice to stay away from phony endorsements and testimonials, including false claims of endorsement by a third-party expert or influencer and failure to disclose a material connection between an influencer type and the advertiser.
This latest round targets the types of claims that the FTC has often enforced—get-very-rich-very-quick claims that deceive or mislead customers about the earnings potential of money-making schemes. The notice recipients range from multi-level marketing companies "offering the dream of owning a business, to investment 'coaches' with promises of secrets on how to beat the odds, to ubiquitous 'gigs' that pitch a steady second income."
These newest letters stress that, just as with the prior Notices, the companies who received them are not being singled out for any wrongdoing. Rather, the Notices serve as a procedural threshold to give the FTC a toe-hold for seeking civil penalties in the event the recipients, in the future, engage in the wrongdoing litigated in the prior cases and detailed in the letters.
The Notices summarize the types of claims that could result in penalties, including:
- Misrepresenting the potential profits or earnings in a money-making opportunity.
- Misrepresenting that sales of the opportunity will be limited to a number of prospective participants.
- Misrepresenting that participants don't need experience to earn income.
- Misrepresenting that an opportunity is risk-free or very low risk.
The FTC emphasized that the Notice does not modify obligations under the Business Opportunity Rule, Franchise Rule, and other federal rules and statutes.
Next steps still remain to be seen, but given the kind of conduct outlined, and the scope of prior litigated cases, this batch of letters may be easier for the FTC to enforce than the previous ones, in the event the FTC goes to court to seek enforcement. Regardless, these letters will likely help the FTC obtain settlements that include monetary payment, in lieu of court, especially given that recipients are on double notice, having received the FTC's endorsement and testimonial Notice as well.
Google Freezes Out Climate Change Denier Ads
Google will no longer allow advertisements that makes false claims about climate change on its website or on YouTube, said the company through its Google Ads team.
As part of the move, which the company will begin enforcing next month, Google will cease monetizing content on its sites that denies climate change. As a result, advertisers and creators will not be able to earn advertising revenue from material that contradicts "the well-established scientific consensus around the existence and causes of climate change, [including] content referring to climate change as a hoax or a scam, claims denying that long-term trends show the global climate is warming, and … that greenhouse gas emissions or human activity contribute to climate change," announced Google in a statement.
The policy change affects advertising revenue that Google and its creators on YouTube can earn. YouTube will still allow videos with falsehoods about climate change on its platform but will de-monetize videos or channels that promote hoaxes or conspiracy theories about the topic. Google said it will consider context in its decision-making, "differentiating between content that states a false claim as fact, versus content that reports on or discusses that claim." For example, YouTube videos with educational, documentary, commentary, or news content about climate change may continue to run ads.
Some experts have questioned whether the proposed changes will be effective, noting the difficulty in differentiating between what is misinformation versus simply incomplete or misleading information. Google plans to use both automated tools and human reviewers to enforce the policy.
The company implemented the policy following input from its advertising and publishing partners, who expressed concerns that their ads were running alongside false claims about climate change, or appearing on creator pages and videos alongside such claims. This recent announcement comes in the wake of other crackdowns implemented by Google and YouTube, including YouTube's recent ban on content that includes false claims and conspiracy theories about approved vaccines.
Google's decision is likely to be welcome by many in the advertising industry, which has been steadily distancing itself from climate change misinformation. Advertisers have also felt the burn of multiple class action lawsuits by environmental groups alleging the companies engaged in "greenwashing" by falsely advertise that they are climate-friendly.
Google's move comes as across the pond in the U.K., climate change activists recently targeted agencies and advertisers they accuse of facilitating climate change denial. The groups—with names like Brandalism and Badvertising—posted advertising parodies highlighting what they contend is the role of advertising in exacerbating the climate crisis. The U.K.'s Advertising Standards Authority also took action on this issue recently, issuing guidance to the ad industry to "ensure their ads don't mislead about the environment."
Misinformation and the role of large platforms and social media giants in dissemination of such misinformation remains a big concern for many people and the actors involved are beginning to take notice, but that is not the only reason for this change. Environmental concerns are also beginning to weigh heavy.
Google couched its decision not only as a policy intended to please wary advertisers and creators, but also as part of its own commitment to sustainability: "This new policy not only will help us strengthen the integrity of our advertising ecosystem, but also it aligns strongly with the work we've done as a company over the past two decades to promote sustainability and confront climate change head-on."
DOJ Shuts Down Psychic Mail Fraudsters
In a case of "they should have seen this coming," a trio of French nationals at the center of an international physic mail fraud scheme have finally met justice. The trio's consent decree with the Department of Justice now permanently bars the group from any future mass-mail marketing in the United States.
According to the Department of Justice (DOJ), individual defendants Robert Lhez, Mireille Dayer, and Julie Poulleau, aided by defendant companies Arcana Center and Partners VAD International Sàrl, sent hundreds of thousands of solicitations offering "psychic, clairvoyant or astrological services." The mailings advertised that in exchange for a modest sum of money, usually around $50, good fortune would befall the respondents and they would see a financial windfall, such as winning the lottery or coming into an inheritance.
From March 2017 to June 2018, defendants received more than 34,000 payments totaling $1.4 million, according to the DOJ's allegations. Most of the victims were described by the DOJ as elderly or vulnerable. Needless to say, the victims did not receive their promised financial blessings.
Defendants had apparently been on law enforcement's radar for quite some time, according to Inspector in Charge Eric Shen of the U.S. Postal Inspection Service's Criminal Investigations Group, whose group worked with the DOJ to investigate the matter. In the DOJ's press release announcing the consent decree, Shen noted the fraudsters would constantly alter their schemes in order to evade accountability.
In a potential stroke of luck for the victims, the DOJ caught up to the trio and filed suit in the U.S. District Court for the Southern District of Florida. Under the terms of the consent decree, defendants are banned from engaging in any mass-mail or prize promotion marketing in the United States, including psychic mail fraud or prize promotion schemes, and are additionally prohibited from selling or leasing their lists of U.S. residents who responded to the solicitations. Further, the district court's permanent injunction granted the U.S. Postal Service the ability to intercept any outstanding responses to the defendant's scheme and return money to victims where possible.
"Beyond financial losses, predatory fraud schemes like this one lead to immense emotional suffering for victims," said Acting U.S. Attorney for the Southern District of Florida Juan Antonio Gonzalez. "We urge the public to question promotions that seem too good to be true and immediately report suspected fraud to law enforcement."
In announcing the consent decree, the DOJ reminded consumers about the dangers of elder fraud and the billions of dollars each year that victims lose to such schemes. Their message: remind your friends and loved ones about these types of gimmicks and contact the DOJ's Elder Fraud Hotline to report suspected fraud.
Health-Ade Kombucha Not so Healthy, Say Plaintiffs
A pair of plaintiffs have brought a putative class action lawsuit against a burgeoning kombucha tea maker, Health-Ade LLC, alleging the company overstates the purported health benefits of its beverage line, given the high amount of sugar in its products.
Plaintiffs Brandon Johnson-Jack and Michael Xavier filed their complaint in the U.S. District Court for the Northern District of California. According to their lawsuit, defendant Health-Ade's representations about the health benefits of its kombucha drinks are false and misleading because consuming beverages sweetened with high amounts of sugar, like those made by Health-Ade, increase the risk of a whole host of medical conditions.
For those not in the know, kombucha is a fermented tea that contains a high amount of probiotics, which can be beneficial for gut health. On the other hand, as plaintiffs assert by the studies cited in their claim, consuming high amounts of sugar increases the risk of metabolic disease, cardiovascular disease, type 2 diabetes, and liver disease.
Essentially, plaintiffs assert that Health-Ade cannot reconcile its name "Health-Ade"—which plaintiffs claim expressly conveys the message that defendant's kombucha beverages are a "health aid" or otherwise healthy—with the 12 to 17 grams of sugar in some of its products. Plaintiffs claim that even if the probiotics in Health-Ade's beverage do provide some benefit to consumer's gut health, defendant's branding of the products are false or at least highly misleading because regular consumption of the sugary drinks are likely detrimental to overall health.
To boot, the lawsuit asserts that the average consumer is unaware of the extent to which consuming high amounts of sugar has adverse effects on their health, or what amount of sugar might have such effects. Indeed, the claim states that plaintiffs are "not nutritionists, food experts, or food scientists" and did not have the "specialized knowledge that Defendant had regarding the nutrients present in the Health-Ade Beverages."
Putting a lid on it, plaintiffs' complaint states that "consumers prefer healthful foods and are willing to pay more for, or purchase more often, products marketed and labeled as healthy." The pair's lawsuit avers that defendant's Health-Ade Beverages cost more than similar products absent misleading labeling, and that the company was able to gain a greater share of the kombucha beverage market with its false labeling. To that end, plaintiffs claim that they would not have purchased defendant's products had they known the company's claim was false or misleading.
The lawsuit alleges violations of California's Unfair Competition Law, False Advertising Law, Consumer Legal Remedies Act, and breach of express warranties. Plaintiffs seek to represent a nationwide class of all persons who purchased Health-Ade beverages.
It should come as no surprise that things are not always what they seem, especially in the case of health claims for foods and beverages.