Enzyte Marketers’ Prison Time Could Scare Firms Off Fraudulent Claims
This article was originally published in The Tan Sheet
Executive Summary
In a decision that will make executives think twice before taking part in making false claims and other deceptive behavior, an Ohio court sentenced 11 former employees of Berkeley Premium Nutraceuticals to prison for conspiracy, fraud and money laundering convictions related to marketing its Enzyte "natural male enhancement" product
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In a decision that will make executives think twice before taking part in making false claims and other deceptive behavior, an Ohio court sentenced 11 former employees of Berkeley Premium Nutraceuticals to prison for conspiracy, fraud and money laundering convictions related to marketing its Enzyte "natural male enhancement" product. Berkeley head Steve Warshak was sentenced to 25 years in jail Aug. 27 for his February 2008 convictions in U.S. District Court for the Southern District of Ohio on 93 counts. Judge Arthur Siegel also ordered Berkeley to forfeit $500 million, an estimate of Enzyte sales, according to the U.S. Southern Ohio District Attorney Gregory G. Lockhart's office. Ten other former Berkeley employees, ranging from executives to sales, merchandise and accounting managers, were given one-year prison sentences for their involvement, according to Lockhart. Federal prosecutors charged the company with airing deceptive ads and cheating customers out of $100 million by manipulating credit card transactions and refusing to accept returns or cancel orders. Food and drug attorney Ivan Wasserman, of Washington firm Manatt, Phelps and Phillips, said the sentence will get attention. "All I can say is 'Wow,'" he said. "It's obviously a historic sentence for the dietary supplement industry." "It's not just your typical FTC false advertising case," Wasserman said. "Even with folks not involved in those types of fraudulent criminal activities, anything that involves prison and these huge fines is definitely going to grab headlines in the supplement industry." Since FTC does not have the authority to prosecute criminal cases, the commission refers cases to the Department of Justice for potential prosecution, Wasserman noted. "Historically, DOJ has not decided to turn many consumer marketing matters into criminal cases, but that may be changing." Kevin DiGregory, a former assistant United States attorney and senior Justice Department official and currently a criminal defense attorney with Manatt Phelps, agrees. "Although the facts seem to be egregious, the results of this case may lead to greater scrutiny of cases like this as potentially criminally fraudulent by federal prosecutors," DiGregory said. The Council for Responsible Nutrition commended the court for ordering the lengthy sentence. "I don't think you can be heavy-handed enough with that company," said Andrew Shao, CRN's VP for scientific and regulatory affairs. Ads for Enzyte featured "Smiling Bob," a grinning character whose demeanor was attributed to the implied results of the product. Enzyte contains Korean red ginseng, ginkgo biloba, zinc and octacosanol. Cincinnati-based Berkeley initially claimed Enzyte could increase the size and circumference of the penis, but altered its marketing strategy in 2004 after a disgruntled user sued the company in an Ohio court. However, the firm is the target of a proposed class action suit filed in Ohio. The complaint says the firm made unsubstantiated claims about Enzyte's ability to increase penis size "despite [Berkeley's] knowledge that there was no legitimate scientific basis supporting the claims." The suit was filed on behalf of a consumer who paid $400 for an eight-month supply of the product and received only a portion of the refund he was promised after the product did not work as promised (1 'The Tan Sheet' March 22, 2004, In Brief). Warshak's 75-year-old mother, Harriet Warshak, also was sentenced to two years in prison for convictions of conspiracy and other charges. The judge allowed Harriet Warshak to remain free on bail pending appeal of her convictions, but ordered Steve Warshak to report for assignment to prison within 30 days. Berkeley has a history of run-ins with regulatory authorities. The Council of Better Business Bureaus' National Advertising Division challenged Enzyte in 2003, and recommended the firm discontinue performance and efficacy claims (2 (Also see "Enzyte Male Enhancement Program Claims Overly Enhanced" - Pink Sheet, 25 Aug, 2003.), p. 16). Berkeley settled a complaint for $2.5 million in 2006 with six state Attorneys General who filed suit over the firm's "unsatisfactory" business practices (3 (Also see "Enzyte Marketer Berkeley Settles Complaints For $2.5 Mil." - Pink Sheet, 6 Mar, 2006.), p. 8). - Jessica Lake ([email protected]) and Malcolm Spicer ([email protected]) |