Law Library

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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