A Georgia federal judge has ordered Hi-Tech Pharmaceuticals Inc. and three individuals last month to pay $40.1 million in compensatory sanctions for violating an injunction in a Federal Trade Commission (FTC) suit. U.S. District Judge Charles A. Pannell Jr. said the supplement maker, its CEO Jared Wheat, Senior Vice President Stephen Smith and Dr. Terrill Mark Wright, who endorsed certain products, violated permanent injunctions barring them from making unsubstantiated claims about weight-loss products when they printed unfounded advertisements about four products. Judge Pannell said:
The FTC has established that the defendants violated the injunctions. The record is clear that the misrepresentations were material, were widely disseminated, and that consumers purchased these four products.
The sanctions arise from a suit brought by the FTC more than 13 years ago, alleging the company and its executives made unfounded claims about two weight-loss products, Thermalean and Lipodrene. The court awarded the FTC summary judgment in 2008, and entered a permanent injunction against Hi-Tech, Wheat and Smith and a separate injunction against Wright. Three years later, the FTC contended Hi-Tech, Wheat and Smith had violated their injunction with an unfounded advertising campaign about four weight-loss products, Fastin, Stimerex-ES, Benzedrine and a reformulated version of Lipodrene. The FTC also argued that Wright had violated his injunction by backing Fastin with unsubstantiated statements.
Judge Pannell determined that the FTC proved “by clear and convincing evidence that the injunctions were valid and lawful, they were clear and unambiguous, and the Defendants had the ability to comply.” The judge found that the defendants clearly violated the injunctions.
Judge Pannell ordered Hi-Tech, Wheat and Smith to pay about $40 million in compensatory sanctions, and ordered Wright to pay $120,000 in compensatory sanctions. The FTC is to reimburse customers who bought the products with these funds, the court said. Judge Pannell stated:
The court recognizes that the compensatory sanctions are significant, but so, too, was the defendants’ contumacious conduct. 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 FTC’s counsel Amanda C. Basta said the court’s decision sends a “strong message” that companies marketing these products need proper scientific backing. She stated:
We are optimistic that this decision will enable us to eliminate the deceptive advertising that was in this case, and hopefully redress the consumers who were injured by the deceptive claims.
Hi-Tech, Wheat and Smith must also recall all products whose packaging includes unsubstantiated claims, Judge Pannell said. The FTC is represented in this matter by Amanda C. Basta, Evan M. Mendelson and Cindy A. Liebes. The case is FTC v. National Urological Group Inc. et al., (case number 1:04-cv-03294) in the U.S. District Court for the Northern District of Georgia.