Archive for January, 2011

POM Wonderful Claims First Amendment Protection Against FTC

Wednesday, January 26th, 2011

While the FTC has settled part of its case against POM Wonderful with the consent order with Mark Dreher, the former POM Wonderful LLC Vice President of Science and Regulatory Affairs, the company itself continues to fight the FTC with its lawsuit claiming the regulator is violating POM Wonderful’s First Amendment rights.

The latest salvo came mid-January when POM Wonderful’s lawyers filed a request that the federal district court in Washington DC dismiss the FTC’s suit. The company’s position is that it does not make any specific health claims.  Rather, it is only communicating the promising results of its research.

According to a POM Wonderful statement, “We believe the commission is acting beyond its jurisdiction, exceeding its authority, and creating a new regulatory scheme that attempts to treat our juice as a drug, which it is not.  The FTC is violating POM’s constitutional rights to share useful and important information with the public, and therefore we have initiated a separate lawsuit to preserve these rights.”

POM Wonderful’s belief is that their product is a food about which they are reporting the promising results of research studies. The FTC contends they are misrepresenting the studies to make claims about the health benefits of their products.

In that, the FTC has the support of the FDA, which in February, 2010, sent a warning letter to POM Wonderful stating that that the FDA found “serious violations of the Federal Food, Drug, and Cosmetic Act”  and “determined that your POM Wonderful 100% Pomegranate Juice product is promoted for conditions that cause the product to be a drug.”

POM Wonderful’s response to that is the same as to the FTC complaint: “We believe that the manner of which we have communicated the results of our scientific research is both truthful and appropriate.”

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Is Your Compensation Plan Legal?

Tuesday, January 18th, 2011

Not a week goes by that I’m not asked by an MLM marketer if their plan is legal. Sometimes the question is slightly different (“Is my plan a pyramid?”), but those asking still expect an answer based on a review of their compensation plan as it is presented on paper.

This highlights the overwhelming misperception among network marketing executives that they have nothing to worry about so long as their compensation plan is not a pyramid. In fact, regulators rarely initiate actions based on the plan’s structure. In determing if a company is engaging in unfair or deceptive consumer practices, they look first at the  conduct of the company and its sales force.

In the last decade all of the major FTC lawsuits against network marketing companies were initially instituted under the broad umbrella of deceptive trade practices.

Continue reading about how to identify and avoid conduct commonly practiced by network marketers that regulators attack as deceptive or unfair practices.

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Minkow Cited By Florida Judge in Lennar Suit

Tuesday, January 11th, 2011

Barry Minkow, who was convicted of fraud in conjunction with the Ponzi scheme known as ZZZZ Best carpet cleaning and built a second career as a pastor and crusader against fraud in various industries, including MLM, has once again found himself on the losing side of the law.

Florida State Court Judge Gill Freeman, hearing the case of Lennar v Minkow, in which by Lennar Corporation and Lennar Homes allege Minkow and his Fraud Discovery Institute of defamation and libel, has ruled that Minkow intentionally deceived the court by lying, destroying or discarding key evidence and concealing material witnesses.

According to an article in the LA Weekly, the ruling stated: “The court finds that Minkow’s misconduct was willful, tactical, egregious and inexcusable, and that such misconduct has permeated the entirety of this litigation.”

Assuming the ruling is not overturned on appeal, Minkow will be responsible for paying attorneys and investigative fees estimated in the millions of dollars.

Lennar Corporation and Lennar Homes of California, Inc. filed the lawsuit in Florida state court against Barry Minkow, the Fraud Discovery Institute, Inc., Briarwood Capital, LCD, Nicolas Marsch III, and others. Lennar alleges that Minkow, in concert with the other defendants, published false statements accusing the company of accounting improprieties. 

Barry Minkow first came to prominence in the 1980s as the American teenager whose remarkable success story covered what was uncovered as a Ponzi  scheme compounded with other frauds.   He was convicted of fraud and, while in prison, become involved in a ministry which helped lead to his release on probation in 1995.

Minkow continued with the ministry while on probation, later becoming a pastor in a San Diego church. He subsequently founded Fraud Dynamics, Inc., which furthered burnished his redemption story.

In the Lennar case, however, people in the MLM industry see the same tactics they questioned as Minkow’s anti-fraud organization went after Usana and Herbalife, among others.

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Do You Want Distributors or Customers for Your MLM?

Wednesday, January 5th, 2011

One of the great fallacies in MLM and network marketing is the mistaken notion that you want every person in the world to be a distributor.  You do not!  The correct paradigm is that you want every person in the world to be a customer, and some of them should be distributors.

At the end of the day, distributors will spend their time doing whatever provides them the greatest return on their investment of time.  Many compensation plans reward distributors for focusing primarily on distributor recruiting.  The best compensation plans strike a healthy balance between distributor recruiting on the one hand, and product sales/customer acquisition on the other. 

Sadly, very few compensation plans actually provide substantial monetary incentives for developing a balanced business – one in which building customer bases and recruiting distributors are equally important.

As you examine a compensation plan, ask yourself whether “the basic structure serves to reward recruitment more than retailing.”  Are there any rewards for retailing or customer (non-distributor) sales?  If so, are they sufficiently substantial to cause the primary activities of distributors to be product sales and customer acquisition?  If not, perhaps you should keep looking.

Read more about customer programs, compensation plans and MLM law here.

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Dannon Settles FTC Deceptive Advertising Complaint

Tuesday, January 4th, 2011

The Dannon Company, Inc. has agreed to settle Federal Trade Commission charges of deceptive advertising and drop claims that allegedly exaggerated the health benefits of its Activia yogurt and DanActive dairy drink.

While the two products contain beneficial bacteria known as probiotics, the FTC alleged that Dannon’s advertising claims that the DanActive helps prevent colds and flu and Activia relieves temporary irregularity were not substantiated, even though Dannon’s ads and packaging claimed there was scientific evidence backing the claims. In fact, the FTC charged, the claim that there was clinical proof was false.

The FTC worked with 39 state attorneys general with their own inquiries into Dannon’s advertising of DanActive and Activia. They simultaneously announced the resolution of their inquiries, with Dannon agreeing to pay the states $21 million to resolve these investigations.

Under the proposed FTC settlement:

  • Dannon is prohibited from claiming that any yogurt, dairy drink, or probiotic food or drink reduces the likelihood of getting a cold or the flu, unless the claim is approved by the Food and Drug Administration. Generally, companies do not need FDA approval of their health claims to meet FTC compliance standards, however the FTC said that requiring FDA approval will give Dannon clearer guidance going forward.
  • Dannon may not claim that Activia yogurt will relieve temporary irregularity or help with slow intestinal transit time, unless the claim is not misleading and the ad conveys that three servings of Activia yogurt must be eaten each day to obtain these benefits. Dannon may claim that eating fewer than three servings a day provides these benefits only if the company is relying on two well-designed human clinical studies substantiating that the claim is true.
  • Dannon may not claim that any other yogurt, dairy drink, or probiotic food or drink will relieve temporary irregularity or help with slow intestinal transit time unless the claim is not misleading and the company has two well-designed human clinical studies that substantiate the claim.
  • Dannon may not make any other claims about the health benefits, performance, or efficacy of any yogurt, dairy drink, or probiotic food or drink, unless the claims are true and backed by competent and reliable scientific evidence. Dannon also is prohibited from misrepresenting the results of any tests or studies.

For additional detail about the proposed settlement, see the full agreement, original FTC complaint and complaint exhibits.

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