In the Matter of
NU SKIN INTERNATIONAL, INC.
CJM, INC.
CST MANAGEMENT, INC., and
CK & C, INC., corporations
CLARA MCDERMOTT, individually and as an officer and director
of CJM, Inc.
CRAIG TILLOTSON, individually and as an officer and director
of CST Management,
Inc., and
CRAIG BRYSON, individually and as an officer and director of
CK & C, Inc.
Docket No. C3489
DATE: April 1, 1994
COMPLAINT
The Federal Trade Commission, having reason to believe that Nu
Skin International, Inc., CJM, Inc., CST Management, Inc., and
CK & C, Inc., corporations; Clara McDermott, individually
and as an officer and director of CJM, Inc.; Craig Tillotson,
individually and as an officer and director of CST Management,
Inc.; Craig Bryson, individually and as an officer and director
of CK & C, Inc., ("respondents"), have violated
the provisions of the Federal Trade Commission Act, and it appearing
to the Commission that a proceeding by it in respect thereof would
be in the public interest, alleges:
PARAGRAPH ONE: Respondent Nu Skin International, Inc. ("Nu
Skin"), is a Utah corporation, with its principal office
or place of business at 75 West Center, Provo, Utah 84601. Respondent
Nu Skin, directly or indirectly, profits and benefits by and through
the acts and practices of its distributors, including the acts
and practices alleged in this complaint.
PARAGRAPH TWO: Respondent CJM Inc., is a Utah corporation, with
its principal office or place of business at 1565 East 3300 South,
Salt Lake City, Utah 84106. CJM, Inc. is the managing partner
of CCC Partnership, an entity comprised of CJM, Inc., CST Management,
Inc, and CK & C, Inc. CJM, Inc., directly or indirectly,
profits and benefits by and through the acts and practices of
Nu Skin distributors, including the acts and practices alleged
in this complaint.
PARAGRAPH THREE: Respondent CST Management, Inc., is a Utah corporation,
with its principal office or place of business at 11 Northridge
Way, Sandy, Utah 84092. CST Management, Inc. is a general partner
of CCC Partnership, an entity comprised of CJM, Inc., CST Management,
Inc, and CK & C, Inc. CST Management, Inc., directly or indirectly,
profits and benefits by and through the acts and practices of
Nu Skin distributors, including the acts and practices alleged
in this complaint.
PARAGRAPH FOUR: Respondent CK & C, Inc., is a Utah corporation,
with its principal office or place of business at 3800 Sherwood
Drive, Provo, Utah 84604. CK & C, Inc. is a general partner
of CCC Partnership, an entity comprised of CJM, Inc., CST Management,
Inc., and CK & C, Inc. CK & C, Inc., directly or indirectly,
profits and benefits by and through the acts and practices of
Nu Skin distributors, including the acts and practices alleged
in this complaint.
PARAGRAPH FIVE: Respondent Clara McDermott is a firstline
distributor of Nu Skin's products and distributorships, a member
of the Nu Skin Distributor's Advisory Board, and an officer and
director of CJM, Inc. Individually or in concert with others,
she formulates, directs, controls or participates in acts and
practices on behalf of CJM, Inc., including the acts and practices
alleged in this complaint. She also receives commissions and
other profits from the sales of Nu Skin products by herself and
other distributors. Her principal office or place of business
is 1565 East 3300 South, Salt Lake City, Utah 84106.
PARAGRAPH SIX: Respondent Craig Tillotson is a distributor of
Nu Skin's products and distributorships, a member of the Nu Skin
Distributor's Advisory Board, and an officer and director of CST
Management, Inc. Individually or in concert with others, he formulates,
directs, controls or participates in acts and practices on behalf
of CST Management, Inc., including the acts and practices alleged
in this complaint. He also receives commissions and other profits
from the sales of Nu Skin products by himself and other distributors.
His principal office or place of business is 11 Northridge Way,
Sandy, Utah 84092.
PARAGRAPH SEVEN: Respondent Craig Bryson is a distributor of
Nu Skin's products and distributorships, a member of the Nu Skin
Distributor's Advisory Board, and an officer and director of CK
& C, Inc. Individually or in concert with others, he formulates,
directs, controls or participates in acts and practices on behalf
of CK & C, Inc., including the acts and practices alleged
in this complaint. He also receives commissions and other profits
from the sales of Nu Skin products by himself and other distributors.
His principal office or place of business is 3800 Sherwood Drive,
Provo, Utah 84604.
PARAGRAPH EIGHT: Respondents are engaged in the advertising,
promotion, offering for sale, sale, and distribution of numerous
different products, including foods, drugs, devices, and cosmetics,
designated as Facial Systems, Body Care Systems, Hair Care Systems,
Interior Design Vitamins and Nutritional Supplements, and in the
recruitment of distributors. The respondents have dominated,
controlled, furnished the means, instrumentalities, services and
facilities for, and/or condoned or approved the acts and practices
referred to below.
PARAGRAPH NINE: Respondents have developed a multilevel marketing
plan to sell Nu Skin products through distributors to consumers.
The marketing plan allows distributors to earn money by selling
the products at a suggested mark up to consumers. Distributors
also recruit and train other individuals to be distributors in
the respondents' marketing plan. Distributors earn money based
on purchases from Nu Skin made by these recruits and others who
they, in turn, recruit to be distributors.
PARAGRAPH TEN: Respondents have established the marketing plan,
and recruited distributors, for the purpose of promoting, selling,
or otherwise distributing Nu Skin products and merchandise. Among
other things, Nu Skin provides each new distributor with a sales
kit that contains brochures, order forms, and other materials
identifying Nu Skin, that are intended to be, and are, used by
distributors in their sales efforts.
PARAGRAPH ELEVEN: Respondents have advertised, promoted, offered
for sale, sold, and distributed: (a) Nutriol Hair Fitness Preparation
("Nutriol"), a topically applied nonprescription
hair treatment product; (b) Face Lift with Activator ("Face
Lift"), a topically applied nonprescription facial
treatment product; and (c) Celltrex, a topically applied nonprescription
skin treatment product. These products are "drugs"
and/or "cosmetics" within the meaning of Sections 12
and 15 of the Federal Trade Commission Act.
PARAGRAPH TWELVE: The acts and practices of respondents alleged
in this complaint have been in or affecting commerce, as "commerce"
is defined in Section 4 of the Federal Trade Commission Act.
NUTRIOL
PARAGRAPH THIRTEEN: In the course and conduct of their business,
and for the purpose of inducing the purchase of the Nu Skin products
and the participation of persons as distributors of Nu Skin products,
the respondents and their representatives or agents have disseminated,
have caused to be disseminated, or have condoned or approved the
dissemination of advertisements and promotional materials for
Nutriol, including but not necessarily limited to the attached
Exhibits A through I. These advertisements and promotional materials
contain the following statements and depictions:
A. "... we have a product that has been shown to grow hair
in two to three months ... and there are absolutely no side effects."
(Exhibit A.)
B. "... corrects abnormal hair loss in a high percentage
of users. New hair growth is also realized in a high percentage
of users." (Exhibit B.)
C. "... the 'treatment which cures baldness' ... 'baldness
is conquered' ..." (Exhibit B.)
D. "I have about 20 percent more hair now than I did before
using Nutriol. Moreover, the rate of hair loss is noticeably less
than before I started using Nutriol." (Exhibits B and E.)
E. "To avoid FDA red tape, Nutriol is being marketed as a
'hair fitness preparation' ... All information points to Nutriol
as being the best remedy available for hair loss. Even the highly
touted minoxidilUpjohn Pharmaceutical's proposed hair
restoration drugseems to have a lower percentage of
success...." (Exhibit C.)
F. "At last ... effective products stimulate natural hair
growth without harmful side effects.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * *
The following is a comparative chart designed to help you review
the benefits of the three proven effective natural hair growth
products available on the market today.
NUTRIOL FOLTENE MINOXIDIL
ROGAINE
Is it a Drug? No NO
Yes
* * *
Success rate can be extended to 98% Up to 90%, Up to 63%
Up to 35%
with professional help plus
Success rate at stopping hair loss 100% 75%
Up to 50%
...
(Exhibit D.)
G. "Does Nutriol work? Crinos claims the following figures
for its users:
TOTAL regrowth .......... 16%
PARTIAL regrowth ......... 74%
NO effects ............ 10%"
(Exhibit E.)
H. "There has been a major breakthrough in a product that
drastically reduces hair loss, and in many cases, actually regenerates
new growth and thickens a person's natural head of hair. This
product [is] known as Nutriol...." (Exhibit F.)
I. "... if a person is realizing abnormal hair loss and notices
the hair thinning out, Nutriol really can help correct this problem
and, in many cases, regenerate growth." (Exhibits E and
F.)
J. "Stop Losing Hair ... Ask How" (Exhibit G.)
K. "Nutriol is a big time hairgrowth product in Europe,
where it is marketed as Foltene ... Does it work? Europeans and
Nutriol's US distributors say it does." (Exhibit H.)
L. Sidebyside top or front photographs of the heads
of various different individuals with the statements "before
using Nutriol" appearing directly below one set of photographs
and "after using Nutriol" appearing above the other
set of photographs, and further contain the following statement:
"In just seven months ... I am ... experiencing new growth
all along my once receding hairline and in the crown area."
(Exhibit I.)
PARAGRAPH FOURTEEN: Through the use of the statements and depictions
contained in the advertisements and promotional materials referred
to in PARAGRAPH THIRTEEN, including but not necessarily limited
to the advertisements and promotional materials attached as Exhibits
A through I, respondents have represented, directly or by implication,
that:
A. Nutriol will stop, prevent, cure, relieve, reverse or reduce
hair loss;
B. Nutriol will promote the growth of hair where hair has already
been lost;
C. Nutriol is as effective as, or more effective than, the prescription
drug Minoxidil in the treatment of hair loss;
D. Competent and reliable data show that Nutriol is effective
in stopping hair loss and promoting hair growth.
PARAGRAPH FIFTEEN: In truth and in fact:
A. Nutriol will not stop, prevent, cure, relieve, reverse or reduce
hair loss;
B. Nutriol will not promote the growth of hair where hair has
already been lost;
C. Nutriol is not as effective as, or more effective than, the
prescription drug Minoxidil in the treatment of hair loss; and
D. Competent and reliable data do not show that Nutriol is effective
in stopping hair loss and promoting hair growth.
Therefore, the representations set forth in PARAGRAPH FOURTEEN
were, and are, false and misleading.
PARAGRAPH SIXTEEN: Through the use of the statements and depictions
contained in the advertisements and promotional materials referred
to in PARAGRAPH THIRTEEN, including but not necessarily limited
to the advertisements and promotional materials attached as Exhibits
A through I, respondents have represented, directly or by implication,
that at the time they made the representations set forth in PARAGRAPH
FOURTEEN, respondents possessed and relied upon a reasonable basis
that substantiated such representations.
PARAGRAPH SEVENTEEN: In truth and in fact, at the time they made
the representations set forth in PARAGRAPH FOURTEEN, respondents
did not possess and rely upon a reasonable basis that substantiated
such representations. Therefore, the representation set forth
in PARAGRAPH SIXTEEN was, and is, false and misleading.
FACE LIFT
PARAGRAPH EIGHTEEN: In the course and conduct of their business,
and for the purpose of inducing the purchase of the Nu Skin products
and the participation of persons as distributors of Nu Skin products,
the respondents and their representatives or agents have disseminated,
have caused to be disseminated, or have condoned or approved the
dissemination of advertisements and promotional materials for
Face Lift, including but not necessarily limited to the attached
Exhibits J through N. These advertisements and promotional materials
contain the following statements and depictions:
A. "Their nonsurgical face lift will actually remove
wrinkles better than RetinA." (Exhibit J.)
B. "Nu Skin's nonsurgical face liftnow
this face lift is all natural. And it will actually pull wrinkles
off your face better than RetinA, with no negative side
effects." (Exhibit K.)
C. "... a product that can roll ten years off their faces
better than Retin A." (Exhibit L.)
D. "It increases the skin's tone and elasticity ... We can
illustrate the marketing power of a product like our nonsurgical
Face Lift by looking at the history of a drug called RetinA
... The year it was announced that RetinA was also effective
in easing lines and wrinkles off the face, sales of RetinA
increased ... Now RetinA is a dangerous drug with significant
side effects, available by prescription only. Our product is
all natural with absolutely no side effects. Clearly superior
to anything in the market today." (Exhibit M.)
E. Sidebyside front photographs of the faces of an
individual and further contain the following statement: "GET
RID OF WRINKLES! ... NONSURGICAL FACE LIFT"
(Exhibit N.)
PARAGRAPH NINETEEN: Through the use of the statements and depictions
contained in the advertisements and promotional materials referred
to in PARAGRAPH EIGHTEEN, including but not necessarily limited
to the advertisements and promotional materials attached as Exhibits
J through N, respondents have represented, directly or by implication,
that:
A. Face Lift will permanently remove facial wrinkles; and
B. Face Lift is as effective as, or more effective than, the prescription
drug tretinoin (currently known as RetinA) in the removal
of facial wrinkles.
PARAGRAPH TWENTY: In truth and in fact:
A. Face Lift will not permanently remove facial wrinkles; and
B. Face Lift is not as effective as, or more effective than, the
prescription drug tretinoin (currently known as RetinA)
in the removal of facial wrinkles.
Therefore, the representations set forth in PARAGRAPH NINETEEN
were, and are, false and misleading.
PARAGRAPH TWENTYONE: Through the use of the statements
and depictions contained in the advertisements and promotional
materials referred to in PARAGRAPH EIGHTEEN, including but not
necessarily limited to the advertisements and promotional materials
attached as Exhibits J through N, respondents have represented,
directly or by implication, that at the time they made the representations
set forth in PARAGRAPH NINETEEN, respondents possessed and relied
upon a reasonable basis that substantiated such representations.
PARAGRAPH TWENTYTWO: In truth and in fact, at the time
they made the representations set forth in PARAGRAPH NINETEEN,
respondents did not possess and rely upon a reasonable basis that
substantiated such representations. Therefore, the representation
set forth in PARAGRAPH TWENTYONE was, and is, false and
misleading.
CELLTREX
PARAGRAPH TWENTYTHREE: In the course and conduct of their
business, and for the purpose of inducing the purchase of the
Nu Skin products and the participation of persons as distributors
of Nu Skin products, the respondents and their representatives
or agents have disseminated, have caused to be disseminated, or
have condoned or approved the dissemination of advertisements
and promotional materials for Celltrex, including but not necessarily
limited to the attached Exhibit O. These materials prominently
feature sidebyside photographs of the leg of an individual
and further contain the following statement:
"I received second and third degree burns to my legs ...
They [doctors] said that I would need skin grafting on my right
leg ... [and] that without skin grafting, my leg would be disfigured,
tight and scarred in color, and that I would not have full movement
near my ankles because the skin would grow back tight. At that
time, the grafting seem to be the only answeruntil
I was introduced to [Celltrex] ... [Celltrex] has been tested
on burn victims with success in healing tissue. I started to
use the Celltrex ... They postponed all three surgeries because
all the skin came back in less than 90 days. My skin feels normal
in texture and where they told me I'd never have hair on my leg,
I have hair."
PARAGRAPH TWENTYFOUR: Through the use of the statement
and depictions contained in the advertisements and promotional
materials referred to in PARAGRAPH TWENTYTHREE, including
but not necessarily limited to the advertisement and promotional
material attached as Exhibit O, respondents have represented,
directly or by implication, that Celltrex will promote the healing
of third degree burns.
PARAGRAPH TWENTYFIVE: In truth and in fact Celltrex will
not promote the healing of third degree burns. Therefore, the
representation set forth in PARAGRAPH TWENTYFOUR was, and
is, false and misleading.
PARAGRAPH TWENTYSIX: Through the use of the statements
and depictions contained in the advertisements and promotional
materials referred to in PARAGRAPH TWENTYTHREE, including
but not necessarily limited to the advertisement and promotional
material attached as Exhibit O, respondents have represented,
directly or by implication, that at the time they made the representation
set forth in PARAGRAPH TWENTYFOUR, respondents possessed
and relied upon a reasonable basis that substantiated such representation.
PARAGRAPH TWENTYSEVEN: In truth and in fact, at the time
they made the representation set forth in PARAGRAPH TWENTYFOUR,
respondents did not possess and rely upon a reasonable basis that
substantiated such representation. Therefore, the representation
set forth in PARAGRAPH TWENTYSIX was, and is, false and
misleading.
EARNINGS CLAIMS
PARAGRAPH TWENTYEIGHT: In the course and conduct of their
business, and for the purpose of inducing the purchase of the
Nu Skin products and the participation of persons as distributors
of Nu Skin products, the respondents and their representatives
or agents have disseminated, have caused to be disseminated, or
have condoned or approved the dissemination of advertisements
and promotional materials regarding the sale of the Nu Skin products,
the profitability of being a distributor for Nu Skin, and the
recruitment of still additional distributors, including, but not
necessarily limited to the attached Exhibits M, P, Q, and R.
These advertisements and promotional materials contain the following
statements:
A. "$14,000 a month ... $168,000 a year ... a lot of other
people are doing it right now." (Exhibit M.)
B. "... on a part time basis [earn] a monthly net of $7168
... that's $85,000 a year." (Exhibit M.)
C. "If you're not earning $10,000 a month or more We Need
To Talk!" (Exhibit P.)
D. "... be one of the first 25 people I will help get earning
well over $100,000 in the next 1224 months." (Exhibit
Q.)
E. "The people we start working with locally will earn in
excess of $60,000 $80,000 their first year without
jeopardizing their present income." (Exhibit R.)
F.
"Sales Organization Growth
Duplication
5 x 5 x 5 x 5 x 5
1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo.
5 25 125 625 3125
4000 Salespeople
Worst Case Attrition
75% (4000 x .25) = 1000
Remaining 1000
Worst Case Sales
$100/Mo. x 1000 Sales People = $100,000
Volume
14% Commission x $100,000 Volume =
$14,000/Mo.
$14,000 Per Month
$168,000 Per Year"
(Exhibit M.)
PARAGRAPH TWENTYNINE: Through the use of the statements
and depictions contained in the advertisements and promotional
materials referred to in PARAGRAPH TWENTYEIGHT, including
but not necessarily limited to the advertisements and promotional
materials attached as Exhibits M, P, Q, and R, respondents have
represented, directly or by implication, that the amount of money
represented by these statements is representative, or typical,
of what individuals who become Nu Skin distributors will generally
achieve on a monthly or annual basis.
PARAGRAPH THIRTY: In truth and in fact, the amount of money represented
by these statements and depictions is not representative, or typical,
of what individuals who become Nu Skin distributors will generally
achieve on a monthly or annual basis. Therefore, the representation
set forth in PARAGRAPH TWENTY NINE was, and is, false and
misleading.
PARAGRAPH THIRTYONE: Through the use of the statements
and depictions contained in the advertisements and promotional
materials referred to in PARAGRAPH TWENTYEIGHT, including
but not necessarily limited to the advertisements and promotional
materials attached as Exhibits M, P, Q, and R, respondents have
represented, directly or by implication, that at the time they
made the representation set forth in PARAGRAPH TWENTYNINE,
respondents possessed and relied upon a reasonable basis that
substantiated such representation.
PARAGRAPH THIRTYTWO: In truth and in fact, at the time
they made the representation set forth in PARAGRAPH TWENTYNINE,
respondents did not possess and rely upon a reasonable basis that
substantiated such representation. Therefore, the representation
set forth in PARAGRAPH THIRTYONE was, and is, false and
misleading.
PARAGRAPH THIRTYTHREE: In the advertising, promotion, offering
for sale, and sale of distributorships, respondents have represented
that Nu Skin distributors can reasonably expect to earn substantial
sums of money. Respondents have failed to disclose that only a
very small percentage of distributors have earned more than a
small monthly income. These facts would be material to consumers
in their decision to become distributors. The failure to disclose
these facts, in light of the representations made, was, and is,
a deceptive practice.
PARAGRAPH THIRTYFOUR: The acts and practices of respondents
as alleged in this complaint constitute unfair or deceptive acts
or practices and the making of false advertisements in or affecting
commerce in violation of Sections 5(a) and 12 of the Federal Trade
Commission Act.
THEREFORE, the Federal Trade Commission on this first day of April,
1994, has issued this complaint against respondents.
By the Commission.
Donald S. Clark
Secretary
SEAL:
COMMISSIONERS:
Janet D. Steiger, Chairman
Mary L. Azcuenaga
Deborah K. Owen
Roscoe B. Starek, III
Dennis A. Yao
DECISION AND ORDER
The Federal Trade Commission having initiated an investigation
of certain acts and practices of the respondents named in the
caption hereof, and the respondents having been furnished thereafter
with a copy of a draft of complaint which the Chicago Regional
Office proposed to present to the Commission for its consideration
and which, if issued by the Commission would charge respondents
with violation of the Federal Trade Commission Act; and
The respondents, their attorneys, and counsel for the Commission
having thereafter executed an agreement containing a consent order,
an admission by the respondents of all the jurisdictional facts
set forth in the aforesaid draft of complaint, a statement that
the signing of said agreement is for settlement purposes only
and does not constitute an admission by respondents that the law
has been violated as alleged in such complaint, and waivers and
other provisions as required by the Commission's rules; and
The Commission having thereafter considered the matter and having
determined that it had reason to believe that the respondents
have violated the said Act, and that complaint should issue stating
its charges in that respect, and having thereupon accepted the
executed consent agreement and placed such agreement on the public
record for a period of sixty (60) days, and no comments having
been filed thereafter by interested parties pursuant to s 2.34
of its Rules, now in further conformity with the procedures prescribed
in s 2.34 of its Rules, the Commission hereby makes the following
jurisdictional findings and enters the following order:
1. Respondent Nu Skin International, Inc. ("Nu Skin"),
is a corporation organized, existing, and doing business under
and by virtue of the laws of the state of Utah, with its principal
office or place of business located at 75 West Center, Provo,
Utah 84601.
2. Respondent CJM, Inc., is a corporation organized, existing,
and doing business under and by virtue of the laws of the state
of Utah, with its principal office or place of business located
at 1565 East 3300 South, Salt Lake City, Utah 84106.
3. Respondent Clara McDermott is an officer and director of corporate
respondent CJM, Inc. Individually or in concert with others,
she formulates, directs, and controls the acts and practices of
CJM, Inc., including the acts and practices alleged in the complaint
attached hereto. Her principal office or place of business is
the same as that of CJM, Inc.
4. Respondent CST Management, Inc., is a corporation organized,
existing, and doing business under and by virtue of the laws of
the state of Utah, with its principal office or place of business
located at 11 Northridge Way, Sandy, Utah 84092.
5. Respondent Craig Tillotson is an officer and director of corporate
respondent CST Management, Inc. Individually or in concert with
others, he formulates, directs, and controls the acts and practices
of CST Management, Inc., including the acts and practices alleged
in the complaint attached hereto. His principal office or place
of business is the same as that of CST Management, Inc.
6. Respondent CK & C, Inc., is a corporation organized, existing,
and doing business under and by virtue of the laws of the state
of Utah, with its principal office or place of business located
at 3800 Sherwood Drive, Provo, Utah 84604.
7. Respondent Craig Bryson is an officer and director of corporate
respondent CK & C, Inc. Individually or in concert with others,
he formulates, directs, and controls the acts and practices of
CK & C, Inc., including the acts and practices alleged in
the complaint attached hereto. His principal office or place
of business is the same as that of CK & C, Inc.
8. The acts and practices of the respondents alleged in this complaint
have been in or affecting commerce, as "commerce" is
defined in the Federal Trade Commission Act.
9. The Federal Trade Commission has jurisdiction of the subject
matter of this proceeding and of the respondents, and the proceeding
is in the public interest.
ORDER
Definitions
For purposes of this Order:
1. "Substantially similar hair loss treatment product or
service" shall mean any product or service that is advertised
or intended for sale overthecounter to treat, cure
or curtail hair loss and which contains or purportedly contains
polysaccharides or any extract thereof.
2. "Substantially similar facial treatment product or service"
shall mean any product or service that is advertised or intended
for sale overthecounter to remove facial wrinkles
and that contains or purportedly contains albumin or any extract
thereof.
3. "Substantially similar skin treatment product or service"
shall mean any product or service that is advertised or intended
for sale overthecounter to treat or promote the healing
of burns that would otherwise require skin grafting and that contains
or purportedly contains aloe vera and/or avian collagen or any
extract thereof.
4. "Competent and reliable scientific evidence" shall
mean tests, analyses, research, studies, or other evidence based
on the expertise of professionals in the relevant area, that has
been conducted and evaluated in an objective manner by persons
qualified to do so, using procedures generally accepted in the
profession to yield accurate and reliable results.
I.
IT IS ORDERED that respondents Nu Skin, CJM, Inc., CST Management,
Inc., and CK & C, Inc., corporations, their successors and
assigns, and their officers; Clara McDermott, individually and
as an officer and director of CJM, Inc.; Craig Tillotson, individually
and as an officer and director of CST Management, Inc.; Craig
Bryson, individually and as an officer and director of CK &
C, Inc., and respondents' agents, representatives and employees,
directly or through any partnership, corporation, subsidiary,
division, or other device, do forthwith cease and desist from:
A. Representing, in any manner, directly or by implication, in
connection with the advertising, packaging, labeling, promotion,
offering for sale, sale or distribution of Nutriol Hair Fitness
Preparation ("Nutriol"), or any substantially similar
hair loss treatment product or service in or affecting commerce,
as "commerce" is defined in the Federal Trade Commission
Act, that:
1. the use of the product or service can or will stop, prevent,
cure, relieve, reverse or reduce hair loss;
2. the use of the product or service can or will promote the growth
of hair where hair has already been lost;
3. the product or service is as effective as, or more effective
than, the prescription drug Minoxidil in the treatment of hair
loss; or
4. competent and reliable data show that the product or service
is effective in stopping hair loss and promoting hair growth.
B. Representing, in any manner, directly or by implication, in
connection with the advertising, packaging, labeling, promotion,
offering for sale, sale or distribution of any other product or
service in or affecting commerce, as "commerce" is defined
in the Federal Trade Commission Act, that:
1. the use of the product or service can or will stop, prevent,
cure, relieve, reverse or reduce hair loss;
2. the use of the product or service can or will promote the growth
of hair where hair has already been lost;
3. the product or service is as effective as, or more effective
than, any other product or service in the treatment of hair loss;
or
4. competent and reliable data show that the product or service
is effective in stopping hair loss and promoting hair growth,
unless such representation is true and, at the time of making
such representation, respondents possess and rely upon competent
and reliable scientific evidence that substantiates the representation.
C. Advertising, packaging, labeling, promoting, offering for sale,
selling, or distributing any product that is represented as promoting
hair growth or preventing hair loss, unless the product is the
subject of an approved new drug application for such purpose under
the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. s 301 et seq.,
provided that, this subpart shall not limit the requirements of
Part I.A and B herein.
II.
IT IS FURTHER ORDERED that respondents Nu Skin, CJM, Inc., CST
Management, Inc., and CK & C, Inc., corporations, their successors
and assigns, and their officers; Clara McDermott, individually
and as an officer and director of CJM, Inc.; Craig Tillotson,
individually and as an officer and director of CST Management,
Inc.; Craig Bryson, individually and as an officer and director
of CK & C, Inc., and respondents' agents, representatives
and employees, directly or through any partnership, corporation,
subsidiary, division, or other device, do forthwith cease and
desist from:
A. Representing, in any manner, directly or by implication, in
connection with the advertising, packaging, labeling, promotion,
offering for sale, sale or distribution of Face Lift with Activator
("Face Lift"), or any substantially similar facial treatment
product or service in or affecting commerce, as "commerce"
is defined in the Federal Trade Commission Act, that:
1. the use of the product or service can or will permanently remove
facial wrinkles; or
2. the product or service is as effective as, or more effective
than, the prescription drug Tretinoin (currently marketed as RetinA)
in the removal of facial wrinkles.
B. Representing, in any manner, directly or by implication, in
connection with the advertising, packaging, labeling, promotion,
offering for sale, sale or distribution of any other product or
service in or affecting commerce, as "commerce" is defined
in the Federal Trade Commission Act:
1. the efficacy of the product or service in the treatment of
facial wrinkles; or
2. that the product or service is as effective as, or more effective
than, any other product or service in the treatment of facial
wrinkles,
unless such representation is true and, at the time of making
such representation, respondents possess and rely upon competent
and reliable scientific evidence that substantiates the representation.
III.
IT IS FURTHER ORDERED that respondents Nu Skin, CJM, Inc., CST
Management, Inc., and CK & C, Inc., corporations, their successors
and assigns, and their officers; Clara McDermott, individually
and as an officer and director of CJM, Inc.; Craig Tillotson,
individually and as an officer and director of CST Management,
Inc.; Craig Bryson, individually and as an officer and director
of CK & C, Inc., and respondents' agents, representatives
and employees, directly or through any partnership, corporation,
subsidiary, division, or other device, do forthwith cease and
desist from:
A. Representing, in any manner, directly or by implication, in
connection with the advertising, packaging, labeling, promotion,
offering for sale, sale or distribution of Celltrex or any substantially
similar skin treatment product or service in or affecting commerce,
as "commerce" is defined in the Federal Trade Commission
Act, that the product or service will promote the healing of third
degree burns.
B. Representing, in any manner, directly or by implication, in
connection with the advertising, packaging, labeling, promotion,
offering for sale, sale or distribution of any other product or
service in or affecting commerce, as "commerce" is defined
in the Federal Trade Commission Act, that the product or service
will promote the healing of, or is otherwise an effective treatment
for burns, unless such representation is true and, at the time
of making such representation, respondents possess and rely upon
competent and reliable scientific evidence that substantiates
the representation.
IV.
IT IS FURTHER ORDERED that respondents Nu Skin, CJM, Inc., CST
Management, Inc., and CK & C, Inc., corporations, their successors
and assigns, and their officers; Clara McDermott, individually
and as an officer and director of CJM, Inc.; Craig Tillotson,
individually and as an officer and director of CST Management,
Inc.; Craig Bryson, individually and as an officer and director
of CK & C, Inc., and respondents' agents, representatives
and employees, directly or through any partnership, corporation,
subsidiary, division, or other device, in connection with the
advertising, packaging, labeling, promotion, offering for sale,
sale or distribution of any product or service in or affecting
commerce, as "commerce" is defined in the Federal Trade
Commission Act, do forthwith cease and desist from:
A. Making any representation, directly or by implication, regarding
the performance, benefits, efficacy or safety of any food, drug,
or device, as those terms are defined in Section 15 of the Federal
Trade Commission Act, 15 U.S.C. s 55, unless at the time of making
such representation respondents possess and rely upon competent
and reliable scientific evidence that substantiates the representation.
B. Making any representation, directly or by implication, regarding
the performance, benefits, efficacy or safety of any product or
service (other than a product or service covered under Part IV.A.
herein), unless at the time of making such representation respondents
possess and rely upon competent and reliable evidence, which when
appropriate must be competent and reliable scientific evidence,
that substantiates the representation.
V.
IT IS ORDERED that respondents Nu Skin, CJM, Inc., CST Management,
Inc., and CK & C, Inc., corporations, their successors and
assigns, and their officers; Clara McDermott, individually and
as an officer and director of CJM, Inc.; Craig Tillotson, individually
and as an officer and director of CST Management, Inc.; Craig
Bryson, individually and as an officer and director of CK &
C, Inc., and respondents' agents, representatives and employees,
directly or through any partnership, corporation, subsidiary,
division, or other device, in connection with inducing or seeking
to induce the participation of any person in any distribution,
sales, or marketing plan, in or affecting commerce, as "commerce"
is defined in the Federal Trade Commission Act, do forthwith cease
and desist from:
A. Misrepresenting, in any manner, the past, present, or future
profits, earnings, income, or sales from such participation;
and
B. Representing, in any manner, directly or by implication, by
use of hypothetical examples or otherwise, that distributors earn
or achieve from such participation any stated amount of profits,
earnings, income, or sales in excess of the average profits, earnings,
income, or sales of all distributors in any time period respondents
may select, unless in conjunction therewith such average profits,
earnings, income, or sales are clearly and conspicuously disclosed,
and the percent of all distributors who actually achieved such
stated profits, earnings, income, or sales in such time period
is clearly and conspicuously disclosed.
VI.
IT IS FURTHER ORDERED that respondent Nu Skin shall:
A. Within thirty (30) days from the effective date of this Order
deliver a dated and signed notification letter in the form set
forth in Appendix A to this Order to each of its current officers,
agents, representatives, employees, and distributors.
B. For a period of five (5) years from the effective date of this
Order deliver signed notification letter in the form set forth
in Appendix A to this Order to each of its future officers, agents,
representatives, employees, and distributors within three (3)
days after the person assumes such position. Respondent Nu Skin
shall be in compliance with this subparagraph with respect to
notifying future distributors if such notification letter is included
in each starter kit provided to each future distributor.
C. Institute a reasonable program of continuing surveillance adequate
to reveal whether the practices of each person described in Part
VI.A. and B. conform to the requirements of this Order, and promptly
investigate any complaints about any such person received by Nu
Skin and maintain records of any such complaint, investigation
and disposition of the complaint for five (5) years from the date
of the complaint, such records to be furnished to the Commission
upon request.
D. Discontinue dealing with any person described in Part VI.A.
and B:
1. who engages in the acts or practices prohibited by Parts I.A.,
II.A. or III.A. of this Order; or
2. once respondent Nu Skin has actual knowledge, or knowledge
fairly implied on the basis of objective circumstances, that such
person is engaged in acts or practices prohibited by any other
part of this Order, unless such person immediately ceases engaging
in such acts or practices.
VII.
IT IS FURTHER ORDERED that respondents CJM, Inc., CST Management,
Inc., CK & C, Inc., Clara McDermott, Craig Tillotson, and
Craig Bryson shall:
A. Within thirty (30) days from the effective date of this Order
deliver a dated and signed notification letter in the form set
forth in Appendix A to this Order to each of their officers, agents,
representatives, employees, and present distributors, other than
those persons whom Nu Skin is required to notify pursuant to Part
VI.A and B above.
B. For a period of five (5) years from the effective date of this
Order deliver a dated and signed notification letter in the form
set forth in Appendix A to this Order to each of their future
officers, agents, representatives, employees, and distributors
who are engaged in the advertising, promotion, offering for sale,
sale or distribution of any food, drug, device or cosmetic within
the meaning of Section 15 of the Federal Trade Commission Act,
15 U.S.C. s 55, or who are engaged in any multilevel marketing
plan or business, other than those persons whom Nu Skin is required
to notify pursuant to Part VI.A and B above, within three (3)
days after the person assumes such position.
VIII.
IT IS FURTHER ORDERED that respondents shall, within sixty (60)
days after service of this Order, and at such other times as the
Federal Trade Commission may require, file with the Commission
a report, in writing, setting forth in detail the manner and form
in which they have complied with this Order.
IX.
IT IS FURTHER ORDERED that respondents Nu Skin, CJM, Inc., CST
Management, Inc., and CK & C, Inc., shall notify the Federal
Trade Commission at least thirty (30) days prior to any proposed
change in their corporate structures, including but not limited
to dissolution, assignment or sale resulting in the emergence
of a successor corporation, the creation or dissolution of subsidiaries
or affiliates, the planned filing of a bankruptcy petition or
any other corporate change, that may affect compliance obligations
arising under this Order.
X.
IT IS FURTHER ORDERED that respondents Clara McDermott, Craig
Tillotson, and Craig Bryson shall, for a period of five (5) years
from the date this Order becomes final, notify the Commission
within thirty (30) days of the discontinuance of their present
business or employment and of each affiliation with a new business
or employment. Each notice of affiliation with any new business
or employment shall include the individual respondent's new business
address and telephone number, current home address, and a statement
describing the nature of the business or employment and the duties
and responsibilities. The expiration of the notice provision of
this Part X shall not affect any other obligation arising under
this Order.
XI.
IT IS FURTHER ORDERED that respondents Nu Skin, CJM, Inc., CST
Management, Inc., and CK & C, Inc., corporations, their successors
and assigns, and their officers; Clara McDermott, individually
and as an officer and director of CJM, Inc.; Craig Tillotson,
individually and as an officer and director of CST Management,
Inc.; Craig Bryson, individually and as an officer and director
of CK & C, Inc., shall, for five (5) years after the last
date of dissemination of any representation covered by this Order,
maintain and upon request make available to the Federal Trade
Commission or its staff for inspection and copying:
A. All materials which come into their possession from a distributor
or any other source that were relied upon in disseminating such
representation; and
B. All tests, reports, studies, surveys, demonstrations, or other
evidence in their possession or control that contradict, qualify,
or call into question such representation, or the basis relied
upon for such representation, including complaints from consumers.
XII.
IT IS FURTHER ORDERED that respondent Nu Skin, its successors
and assigns, shall pay to the Federal Trade Commission, by cashier's
check or certified check made payable to the Federal Trade Commission
and delivered to the Regional Director, Federal Trade Commission,
55 East Monroe Street, Suite 1437, Chicago, Illinois 60603, the
sum of one million dollars ($1,000,000). Respondent shall make
this payment on or before the tenth day following the date that
this Order becomes final. In the event of default on any obligation
to make payment under this section, interest, computed pursuant
to 28 U.S.C. s 1961(a), shall accrue from the date of default
to the date of payment. The funds paid by respondent shall, in
the discretion of the Federal Trade Commission, be used by the
Commission to provide direct redress to purchasers of the Nutriol,
Face Lift, and Celltrex products. If the Federal Trade Commission
determines, in its sole discretion, that redress to purchasers
of these products is impracticable or otherwise unwarranted, any
funds not so used shall be paid to the United States Treasury.
Respondent shall be notified as to how the funds are distributed,
but shall have no right to contest the manner of distribution
chosen by the Commission.
XIII.
IT IS FURTHER ORDERED that respondents CJM, Inc., CST Management,
Inc., and CK & C, Inc., their successors and assigns, and
their officers, and Clara McDermott, Craig Tillotson and Craig
Bryson, individually and as officers and directors of said corporations,
shall pay to the Federal Trade Commission, by cashier's check
or certified check made payable to the Federal Trade Commission
and delivered to the Regional Director, Federal Trade Commission,
55 East Monroe Street, Suite 1437, Chicago, Illinois 60603, the
sum of two hundred twenty five thousand dollars ($225,000). The
respondents shall make this payment on or before the tenth day
following the date this Order becomes final. In the event of
default on any obligation to make payment under this section,
interest, computed pursuant to 28 U.S.C. s 1961(a), shall accrue
from the date of default to the date of payment. The funds paid
by the individual respondents shall, in the discretion of the
Federal Trade Commission, be used by the Commission to provide
direct redress to purchasers of the Nutriol, Face Lift, and Celltrex
products. If the Federal Trade Commission determines, in its
sole discretion, that redress to purchasers of these products
is impracticable or otherwise unwarranted, any funds not so used
shall be paid to the United States Treasury. The respondents
shall be notified as to how the funds are distributed, but shall
have no right to contest the manner of distribution chosen by
the Commission.
By the Commission.
Donald S. Clark
Secretary
SEAL:
ISSUED: April 1, 1994
APPENDIX A
Dear Officer, Agent, Representative, Employee, Distributor:
The Federal Trade Commission ("FTC") has conducted an
investigation to determine whether Nu Skin International, Inc.
("Nu Skin"), and certain of its distributors may have
engaged in acts or practices which violate Section 5 of the Federal
Trade Commission Act, 15 U.S.C. s 45, as amended, including, but
not limited to, false and unsubstantiated product claims and earnings
representations for Nu Skin products and distributorships. As
a result of its investigation, the FTC has alleged that Nu Skin,
CJM, Inc., CST Management, Inc., and CK & C, Inc., corporations;
Clara McDermott, individually and as an officer and director
of CJM, Inc.; Craig Tillotson, individually and as an officer
and director of CST Management, Inc.; and Craig Bryson, individually
and as an officer and director of CK & C, Inc., (herein collectively
referred to as "respondents"), have made false and unsubstantiated
representations in connection with the advertising, promotion,
offering for sale, sale, and distribution of Nutriol Hair Fitness
Preparation ("Nutriol"), Face Lift with Activator ("Face
Lift"), and Celltrex, and the recruitment of Nu Skin distributors.
As a result of recent discussions with the FTC, the respondents
have agreed to a Consent Order ("Order") with the FTC.
The Order is for settlement purposes only and does not constitute
an admission of violations of law by any of the respondents.
Pursuant to the Order, the respondents have agreed not to make
certain claims for the Nutriol, Face Lift, and Celltrex products
or any substantially similar products or services. In addition,
the respondents have agreed not to make certain claims for any
other products or services unless they can substantiate those
claims. The respondents have also agreed not to make certain
claims about the past or potential earnings of their distributors.
Finally, the respondents are obligated by the Order to discontinue
dealing with any person who engages in the acts or practices prohibited
by the Order.
Specifically, the Order prohibits the respondents from claiming
that:
1. Nutriol or any substantially similar product or service (a)
can or will stop, prevent, cure, relieve, reverse or reduce hair
loss; (b) can or will promote the growth of hair where hair has
already been lost; or (c) is as effective as, or more effective
than, the prescription drug Minoxidil in the treatment of hair
loss;
2. Competent and reliable data show that Nutriol or any substantially
similar product or service is effective in stopping hair loss
and promoting hair growth;
3. Face Lift or any substantially similar product or service (a)
can or will permanently remove facial wrinkles; or (b) is as
effective as, or more effective than, the prescription drug Tretinoin
(currently marketed as RetinA) in the removal of facial
wrinkles; and
4. Celltrex or any substantially similar product or service will
promote the healing of third degree burns.
In connection with any other product or service, the Order prohibits
the respondents from representing:
1. that the product or service: (a) can or will stop, prevent,
cure, relieve, reverse or reduce hair loss; (ii) can or will
promote the growth of hair where hair has already been lost;
(iii) is as effective as, or more effective than, any other product
or service in the treatment of hair loss; (iv) is as effective
as, or more effective than, any other product or service in the
treatment of facial wrinkles; or (v) will promote the healing
of, or is otherwise an effective treatment for burns;
2. that competent and reliable data show that the product or service
is effective in stopping hair loss and promoting hair growth;
and
3. the efficacy of the product or service in the treatment of
facial wrinkles,
unless the claim is true and, at the time of making the claim,
it possesses and relies upon competent and reliable scientific
evidence that substantiates the claim.
The Order also prohibits the respondents from advertising, packaging,
labeling, promoting, offering for sale, selling, or distributing
any product that is represented as promoting hair growth or preventing
hair loss, unless the product is the subject of an approved new
drug application for such purpose under the Federal Food, Drug,
and Cosmetic Act, 21 U.S.C. s 301 et seq.
The Order also prohibits the respondents from making any representation
regarding the performance, benefits, efficacy or safety of any
food, drug, or device unless at the time of making such representation
respondents possess and rely upon competent and reliable scientific
evidence that substantiates the representation. Similarly, the
Order prohibits the respondents from making any representation
regarding the performance, benefits, efficacy or safety of any
product or service (other than any food, drug, or device), unless
at the time of making such representation respondents possess
and rely upon competent and reliable evidence, which when appropriate
must be competent and reliable scientific evidence, that substantiates
the representation.
Finally, the Order prohibits the respondents from:
1. misrepresenting the past, present, or future profits, earnings,
income, or sales of any person in any distribution, sales or marketing
plan; and
2. representing that distributors earn or achieve any stated amount
of profits, earnings, income, or sales in excess of the average
profits, earnings, income, or sales of all distributors unless
in conjunction therewith the average profits, earnings, income,
or sales are clearly and conspicuously disclosed, and the percent
of all distributors who actually achieved such stated profits,
earnings, income, or sales is clearly and conspicuously disclosed.
In addition to the Order's prohibitions, the Order requires the
respondents to provide a copy of this notice to each of their
current and future officers, agents, representatives, employees,
and distributors. The Order also requires Nu Skin to discontinue
dealing with any person who makes any of the representations for
Nutriol, Face Lift, Celltrex, or any substantially similar products
or services, that are expressly prohibited by the Order. Nu Skin
must also discontinue dealing with any person who Nu Skin knows
is engaged in any other acts or practices prohibited by the Order,
unless the person immediately ceases engaging in such acts or
practices.
If you have any questions or would like a copy of the Order, you
can contact us at [* * *].
Very truly yours,
[respondent's name]
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FTC
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