March 31, 2005
Operators who sent millions of illegal e-mail messages to market their bogus diet patch have settled Federal Trade Commission charges that their operation violated federal laws, including anti-spamming regulations.
The settlement bars the defendants from making false or misleading claims for their products or services and bars unsubstantiated health, efficacy, or safety claims. It also provides for a suspended judgment of $230,000, the total amount of diet patch sales.
In April 2004, the FTC filed suit in U.S. District Court charging that Phoenix Avatar and its principals were violating the CAN-SPAM Act and the FTC Act by marketing their bogus diet patches using massive amounts of illegal spam. The court issued a temporary restraining order to halt the unsubstantiated claims and freeze the defendants assets pending trial.
The individuals challenged the suit claiming they could not be held liable under CAN-SPAM because the FTC could not prove that they sent the spam. The FTC argued that the defendants were responsible because they had either sent the messages or caused the message to be sent by affiliates.
In July, U.S. District Court Judge James Holderman issued an order finding that CAN-SPAM liability is not limited to those who physically cause spam to be transmitted, but also extends to those who procure the origination of offending spam. The court held that the FTC had amassed a persuasive chain of evidence connecting the defendants to violations of the CAN-SPAM Act and the FTC Act.
The settlement ends the litigation with a stipulated order for permanent injunction and final judgment as to defendants Daniel J. Lin, Mark M. Sadek, James Lin and Christopher M. Chung and a default judgment and order for permanent injunction and monetary relief as to defendants Phoenix Avatar, LLC and DJL, LLC.
The final orders bar the defendants from violating the CAN-SPAM Act, including by using false header information or by failing to provide a mechanism by which consumers can opt-out of further e-mail messages. The orders bar the defendants from making false or misleading statements in marketing any product or service. The orders further bar them from making any unsubstantiated health, performance, efficacy, or safety claims and bar misrepresentations that any diet patch causes weight loss, increases metabolism, decreases appetite, or reduces food craving.
Based on financial statements submitted by the defendants, the settlement with the individual defendants suspends a judgment of $230,000 the total amount of diet patch sales. Instead, the defendants will pay $20,000. Should the court find misrepresentations in the financial statements, the entire $230,000 will be due.