INSIDER Law
FTC Building DC

Memory Supplement Marketers Settle FTC Case for $150M

<p>The settlement agreement between FTC and Procera marketers exemplifies how studies for claims substantiation must take place before claims are made.</p>

Here’s the scenario: A company markets a dietary supplement with certain health benefit claims and testimonials. The National Advertising Division (NAD) of the Better Business Bureau (BBB) opens a case with the marketers and ultimately rules many of these claims are unqualified. NAD recommends the company discontinue the use of the claims, and the company agrees to comply. Fast-forward several years and NAD finds out the company is again making the same or similar claims. NAD requests the marketers stop making the claims, and the company agrees to discontinue all but one claim. Since the first NAD decision, the company has funded and completed clinical research that provides support for the claim. NAD says the company cannot submit evidence after the original claim, so the case is going to be referred to FTC. The agency investigates the case, files a complaint and eventually secures a settlement agreement with the defendants, enjoining them from making such claims and levying monetary penalties over a million dollars.

The NAD process is voluntary and does not involve penalties or fines. However, it will refer cases to FTC if discontinued claims are resurrected, even with new evidence. Check out this FDA Law Blog entry for a detailed explanation of this NAD policy.

The marketers of Procera AVH, a dietary supplement containing acetyl-L-carnitine, vinpocetine, and huperzine A, experienced this exact scenario with NAD in 2009 and 2014. The marketers continued to make a claim that vinpocetine delivered increased oxygen and glucose to the brain, based on a 2009 trial. However, NAD said it couldn’t consider new evidence and referred the case to FTC.  The marketers settled with FTC this past week, agreeing to stop making the offending claims and testimonials, and to face fines of more than $150 million.

The claims for Procera AVH were made by Brain Research Labs (BRL) and MedHealth Direct, both based in Laguna Beach, California, and KeyView Labs, based in Tampa, Florida. Also named in FTC’s complaint were George Reynolds (aka Josh Reynolds), founder and chief science officer of BRL, and John Arnold, the sole officer and employee of MedHealth. Both men run and own two entities, Brain Power Founders LLC and Brain Power Partners LLC, which hold majority stakes in BRL, KeyView and MedHealth.

Procera AVH was marketed via infomercials, direct mail fliers, newspapers and the Internet. This marketing, including testimonials, featured claims the products was a solution to memory loss and cognitive decline and could help users get the memory power of someone 15 years younger in 30 days.

FTC alleged the efficacy claims were false, misleading and unsubstantiated and in violation of the FTC Act. Further, the complaint stated the representations of clinical proof were false, and the claims from endorsers, including Reynolds, were unsubstantiated. FTC sought injunction against future violations of the FDA Act as well as redress relief for consumer injury resulting from the years of making the violating claims.

The agency entered into two separate agreements, one with KeyView and BRL, and another one with BRL, MedHealth, Reynolds, Arnold and their ownership entities. Both settlements provide injunctive and monetary relief. The KeyView settlement included a US$61 million judgment and the cancellation of pre-existing continuity purchase programs. The settlement with the other defendants included a US$91 million judgment. In both agreements, the defendants can avoid payment of the full judgment if, in each case, US$1 million is paid to FTC and US$0.4 million is paid to the Attorney General of Santa Cruz County, California—the State sued BRL and Reynolds—within seven days of the FTC settlement. If the defendants misrepresented their financial information supplied to FTC, the full judgments will be due immediately.

The FTC Commissioners voted 5-0 to approve both the initial complaint and the settlements.

“The defendants in this case couldn’t back up their claims that Procera AVH would reverse age-related mental decline and memory loss," said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Be skeptical of ads promising quick and easy cures."

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