Tarr Inc. penalized for $179 million in alleged bad sales scheme
Fountain of ...?
False hope springs eternal.
According to a recent complaint filed by the Federal Trade Commission (FTC or Commission) in the United States District Court in the Southern District of California, three individuals and the 19 companies that these individuals operated preyed on some of the most basic desires in American culture: youth and vitality.
The companies, collectively referred to as Tarr Inc., promised youth and vitality – or at least the appearance of same – to its prospective customers. The FTC alleged that Tarr Inc. pushed more than 40 weight-loss, muscle-building and wrinkle-reduction products on a series of websites which made outlandish promises to consumers.
The complaint claimed that Tarr Inc. told its users that they would shed pounds and wrinkles and gain attractive muscle mass, all without exerting much effort at all. One ad claimed, "Now you can lose weight without diet and exercise!" Another ad boasted, "I gained 16 lbs of muscle in 4 weeks. No Special Diet, No Intense Exercise."
The FTC singled out these taglines because the results described were far too rapid and dramatic to be credible, and no substantiation was offered for the product claims. Unsurprisingly, the FTC found these fake media sites were owned and operated by the defendants' affiliate marketers or by the defendants themselves.
Badvertising
But the Commission went on to reveal two more alleged missteps.
First, it noted that Tarr Inc. had spread the unsubstantiated health claims through a web of deceptive advertisements, representations and endorsements. Tarr Inc.'s messaging invoked purported "real-world" customers but also featured false celebrity endorsements from a gallery of stars – Will Ferrell, Paula Deen, Jason Statham and Kim Kardashian all made an appearance in the defendants' ads.
The websites that were used to spread the word, the FTC claims, mimicked the names, URLs and logo design of a number of well-known health and lifestyle magazines, including Men's Health, Good Housekeeping and Everyday with Dr. Oz.
Furthermore, the FTC targeted deceptive negative option schemes. In many cases, risk-free trials were offered to Tarr Inc. customers online. For a small fee, Tarr Inc. would ship the free product to the consumer; however, the defendants failed to disclose that the company enrolled the customers in continuity plans. These negative-option continuity plans charged more than $80 a month to the consumer if they did not cancel.
The Takeaway
This case alleged many overlapping violations, so it's no surprise that the Commission threw the book at Tarr Inc. Based on the alleged conduct, Tarr Inc. was charged with violating the FTC Act, the Restore Online Shoppers' Confidence Act (ROSCA) and the Electronic Funds Transfer Act. It surely didn't help Tarr, Inc.'s case that they had allegedly created multiple regulatory-compliant versions of the same sites in order to keep regulators at bay, thereby demonstrating that the defendants were aware of but disregarded their legal obligations in many instances.
Tarr Inc. reached a settlement with the FTC just a few weeks after the initial complaint.
The agreement bans Tarr Inc. from using negative-option offers to sell much of the material in its product line, orders it to cease making unsubstantiated health claims and charges the company $179 million – the estimated amount that duped consumers were relieved of when they encountered Tarr Inc.'s offers. The monetary award will be suspended after the first $6.4 million is paid to the FTC.
This case serves as another example of the FTC's focus on ROSCA violations as well as false and deceptive health claims. Advertisers should continue to exercise caution when making health and safety claims and marketing via negative-option offers.
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