What began in 2004 with a government complaint filed over weight loss advertisements has culminated 13 years later in one of the largest monetary judgments ever obtained by the Federal Trade Commission (Commission) in a case involving dietary supplements.
On Oct. 10, U.S. District Judge Charles A. Pannell Jr. imposed approximately US$40 million in sanctions against Hi-Tech Pharmaceuticals Inc., a manufacturer and distributor of sports supplements, its owner Jared Wheat and another Hi-Tech executive, Stephen Smith. This was the second time the judge imposed such hefty sanctions—an earlier ruling was reversed on appeal—after he determined the defendants violated a permanent injunction entered in December 2008.
The new civil judgment was imposed only a week after news broke that Wheat and his beleaguered company have been indicted on criminal charges, including wire fraud and money laundering. Although Wheat has called the criminal charges “bogus," the $40 million civil judgment and grand jury indictment add to his woes in his long-running battles with the federal government.
U.S. District Judge Willis B. Hunt Jr. ruled in April that DMAA (1, 3-dimethylamylamine) is not a dietary ingredient, dealing a victory to FDA in its years-long fight with Norcross, Georgia-based Hi-Tech. Although the case is now on appeal, Wheat agreed not to sell the ingredient as a condition of his bond in the criminal matter.
In FTC’s civil action against Hi-Tech, Wheat and Smith, the judge explained the sanctions he imposed corresponded to the gross receipts for the sales of four weight loss products over a period in which the defendants “engaged in contumacious conduct." Pannell found a fourth defendant in contempt for violating a separate injunction, and he imposed $120,000 in sanctions.
“The court recognizes that the compensatory sanctions are significant, but so, too, was the defendants’ contumacious conduct," Pannell wrote in his 132-page order. “While the defendants essentially claim that several of the violations were honest mistakes, the record is replete with evidence—both direct and circumstantial—showing an intentional defiance of the court’s injunctions."
The 13-year controversy has roots in a 2004 complaint filed by the Commission against Hi-Tech and several others over products marketed for weight loss and erectile dysfunction. Four years later, Pannell held in a summary judgment order that the defendants had violated the Federal Trade Commission Act because—as he wrote in his 2017 order—they failed to substantiate their representations with clinical trials of the actual products, Thermalean and Lipodrene.
The court entered a final judgment and permanent injunction against the defendants, prohibiting various misrepresentations and barring other statements unless the representations are true, not misleading and supported with “competent and reliable scientific evidence."
The defendants lost an appeal, and the Commission subsequently raised new concerns—laid out in 2011 court papers—over Hi-Tech’s representations in a national advertising campaign that touted four weight loss products: Fastin, Stimerex-ES, Benzedrine and a reformulated version of Lipodrene.
Print advertisements containing the representations were made in prominent magazines, such as Cosmopolitan, National Enquirer, US Weekly and the now defunct MuscleMag International. Among the ads that caught FTC’s attention: “EXTREME WEIGHT LOSS GUARANTEED." “Try Lipodrene® and watch the inches melt away." “Benzedrine™ simply blows fat away!"
The advertising claims, Pannell held in his recent order, were unsubstantiated in violation of the 2008 permanent injunction. He also found Hi-Tech failed to provide a warning on products that contained yohimbe as required by the injunction.
The judge ruled Hi-Tech, Wheat and Smith are jointly and severally liable for paying approximately $40 million in compensatory sanctions. Pannell also ordered a fourth defendant—Dr. Terrill Mark Wright—to pay $120,000 in compensatory sanctions for violating a separate injunction by making unsubstantiated claims regarding Fastin.
Decision ‘Sends A Strong Message’
Commenting on Pannell’s order in a press release, the Commission noted it may use all or part of the $40 million judgment to provide refunds to duped consumers who purchased the supplements.
“The court’s decision sends a strong message that companies marketing these products need to have proper scientific evidence to support their advertising claims," said Evan Mendelson, an FTC staff attorney who worked on the case, in an emailed statement.
Jack Wenik, a lawyer in New Jersey representing Hi-Tech, said his team is still studying the ruling and Hi-Tech's legal options. Attorneys listed for Wheat and Smith did not respond to requests for comment.
Bruce Harvey, a lawyer representing Wright, said the physician is no longer associated with Hi-Tech or the supplement industry.
“He maintains that his endorsement—many years ago—was not in violation of the court's injunction, and within industry and regulatory standards," Harvey said in an emailed statement, adding his client will challenge the recent ruling in an appeal.
Eleventh Circuit Appeal
If Pannell’s order is challenged, it won’t be the first time the case ends up before the U.S. Court of Appeals for the Eleventh Circuit. In 2014, Pannell imposed sanctions against the defendants after determining they violated the injunctions. Later, a three-judge panel of the Eleventh Circuit ruled Pannell abused his discretion when he held the defendants in contempt.
In refusing to consider the defendants’ evidence to substantiate their advertising claims, the appeals court held the judge misapplied a legal doctrine known as collateral estoppel. The doctrine bars subsequent litigation of a fact or law previously decided in a prior suit.
The Eleventh Circuit, however, distinguished the initial litigation—specifically Pannell’s ruling that the defendants needed human clinical trials to substantiate their representations about Thermalean and an older version of Lipodrene—from the later controversy over whether the different advertisements pertaining to the four weight loss products were adequately supported or in violation of the 2008 injunction.
In sending, or “remanding," the case back to Pannell, the Eleventh Circuit directed him to exercise his discretion to determine the admissibility of any evidence offered by the parties “and make findings about whether any evidence of substantiation, if admissible, satisfies the standard of the injunctions for ‘competent and reliable scientific evidence.’"
Beginning in March 2017, Pannell held a two-week bench trial.
In its defense, Hi-Tech relied on ingredient studies, certain clinical trials and several experts to establish that its advertising statements were adequately substantiated with competent and reliable scientific evidence. The weight loss products contained many of the ingredients examined in the ingredient studies.
Pannell, however, wasn’t persuaded that Hi-Tech’s science was adequate. He found the government’s experts more credible, including Louis Aronne, M.D., who first opined on the need for randomized, double-blind, placebo-controlled trials (RCTs) in the initial dispute over the two weight loss products that resulted in the 2008 injunction.
In determining the ingredient studies did not substantiate Hi-Tech’s advertising claims, Pannell pointed out flaws in the studies that Aronne highlighted.
“First, the studies were not specific to Hi-Tech’s products, and, as such, it is not possible to predict what will happen when various ingredients are combined, like they are in the four products at issue," the judge noted. “This criticism invokes the necessity for product/dosage specific testing, which is a concept that several of the defense experts corroborated."
Second, the medical doctor distinguished the ingredient studies, which measured a particular endpoint like metabolism, from the claims under review like weight loss.
“Third, Dr. Aronne explained that many of these ingredient studies were of a shorter duration, and therefore, may only demonstrate transient effects," Pannell wrote.
Hi-Tech also relied on clinical trials of a competing dietary supplement, as well as clinical trials of Fastin-XR and Fastin-RR, two Hi-Tech products featuring different product formulations than the four products under review by the court. But in deferring to Aronne’s opinions and citing the Commission’s view that the studies were unreliable due to methodological flaws, Pannell found the trials failed to substantiate Hi-Tech’s advertising claims.
The judge also questioned the credibility of the defendants’ experts and their opinions on substantiation. For instance, he noted Hi-Tech paid one of the experts for years—Timothy Gaginella, Ph.D., a pharmacologist—and Wheat only resumed his relationship with him after the contempt litigation commenced. Pannell further described the history between Gaginella and Hi-Tech as “dubious," citing evidence by the Commission that “Wheat or his companies forged Dr. Gaginella’s signature on letters purporting to show Dr. Gaginella endorsed a particular Hi-Tech product."
‘Antithesis of Substantiation’
To conclude the defendants’ advertising claims were substantiated, Pannell reasoned he would need “to pile speculation on top of speculation, making an analytical leap between the science and the claims made."
“Had the studies the defendants relied upon contained the various components of the RCT standard which Dr. Aronne discussed (e.g., product/dosage specific, double-blinding, randomization, etc.), such evidence would lessen the analytical gap that exists," Pannell wrote in his order. “In the absence of those components, however, when confronted with the question of whether the defendants’ evidence substantiates the claims made, the court, like the defendants and their experts, is left with only assumptions, which is the antithesis of substantiation."
‘Wheat Understood the Injunction Required RCTs’
To find Hi-Tech and the others in contempt, Pannell noted the parties agreed he needed to support his finding with “clear and convincing evidence" that the permanent injunction was lawful; clear and unambiguous; and the defendants had the opportunity to comply with it but failed to do so.
A key dispute was over whether the 2008 injunction required human clinical trials, otherwise known as RCTs. The document doesn’t specifically mention them. Instead, it defines “competent and reliable scientific evidence" as meaning “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."
In examining “the totality of the evidence," the judge determined “the record clearly and convincingly demonstrates that Wheat understood the injunction required RCTs on the products themselves to substantiate the advertising claims that were made."
“If the FTC verdict stands there is nothing we can say without doing a double-blind placebo study so nobody would sign off on that," Pannell quoted Wheat as acknowledging in a 2010 email to three Hi-Tech employees. Wheat sent the email while he was incarcerated in federal prison after having pled guilty to charges in an unrelated criminal case, the judge observed.
Pannell also quoted a 2010 email from Wheat to his legal team. The email related to Hi-Tech’s request that the U.S. Supreme Court review FTC’s advertising lawsuit after the Eleventh Circuit affirmed the 2008 summary judgment order and injunctions.
“[I]f our set of facts is not good enough then a double-blind placebo study would be required," Hi-Tech’s owner wrote to Arthur Leach and Joseph Schilleci.
Typically, such communications are protected by the attorney-client privilege and could not be used against Wheat, but the judge reaffirmed his earlier findings (discussed in an April 2017 order) “that the attorney-client privilege objection is unfounded."