Introducing Our Secret Plan to Fight Inflation

It’s simple: Don’t fall afoul of the FTC

’Twas Ever Thus

Every year, like the swallows returning to Capistrano, the Perseid meteor shower, or a Real Housewives casting shake-up, with clockwork efficiency, the Federal Trade Commission announces an adjustment to its civil penalty amounts.

It’s about the Commission’s desire to ensure that violators don’t fall behind the rest of us. Which we can thank it for. If law-abiding citizens have to suffer from inflation, so too should lawbreakers.

(It’s actually because the increases are mandated by the Federal Civil Penalties Inflation Adjustment Act Improvements Act, but we’re trying to make this a bit more exciting.)

The Takeaway

The 2023 increases were recently announced, and the maximum civil penalty for a violation of Section 5 (unfair competition), for instance, has jumped from $46,517 to $50,120. Other penalties leaped upward as well. The key to civil penalties is not really the dollar amount per violation, but in defining what constitutes a violation. If a violation in a digital ad is covered by civil penalty authority, a violation could mean each time the ad was served to a potential customer or each time a potential customer clicked on or otherwise engaged with the ad. It is pretty easy to see how penalties can stack up very quickly if the $50K is really a multiplier.

Be warned: The new amounts apply not only to penalties assessed after the publication of the increase in the Federal Register but also retroactively to any violation predating publication that the Commission pursues after the changes are published.

So, welcome to 2023. And as Sergeant Esterhaus used to say: “Let’s be careful out there.”

Shah Shuffled Off to Clink Over Wire Fraud

Will producers sign her and her cellmate for a new series?

Real Housewife of BOP?

Jen Shah is going to prison. And forking up some serious scratch.

As we explained previously, in March 2021, the star of Bravo’s “The Real Housewives of Salt Lake City” was indicted in the Southern District of New York, arrested, and charged with conspiracy to commit wire fraud and money laundering in connection with a telemarketing scheme that allegedly defrauded “hundreds” of elderly victims.

Coming Clean

While Shah put on a brave face for awhile and originally entered a plea of not guilty—she was even profiled in a documentary about her case, “The Housewife and the Shah Shocker,” still streaming on Hulu—all that turned around in July.

“From 2012 to March 2021,” she said in her plea hearing, “in the Southern District of New York and elsewhere, I agreed with others to commit wire fraud. I did this by knowingly providing customer names to people who were marketing business services that had little or no value. However, I knew the purchasers of these services were misled about the value and that’s why they bought the services.”

While the money laundering charge was dropped as part of the deal, the wire fraud claim stuck like a rayon jumpsuit.

The Takeaway

In January, the self-proclaimed “monetization” expert was sentenced to over six years (78 months) in a minimum-security prison in Texas, a facility that reportedly houses white-collar, nonviolent offenders. Elizabeth Holmes of Theranos fame will also be serving time there—let’s hope they’re cellmates and that someone smuggles in a camera.

While Shah will likely walk out early for good behavior, the sting of her financial burden will last longer. She must cough up $6.6 million in restitution and forfeit $6.5 million to the government.

It’s hard to find a moral in an extreme case like this, especially one that ends in a guilty plea. “Don’t defraud vulnerable people” is one clear message.

But we’ll add this: If you ever find yourself on the business end of a federal indictment—or any regulatory or law enforcement inquiry—check yourself.

Obviously, Shah’s over-the-top antics are what made her noteworthy in the first place. But they may have cost her dearly in her case.

“Following her March 2021 arrest,” NBC news wrote, “Shah insisted that she was innocent and used as her tagline to Season 2: ‘The only thing I’m guilty of is being Shah-mazing.’ Federal authorities used that line against Shah in sentencing papers, claiming it showed that she was mocking the system.”

Her line of trial-related merch probably added to the impression of insouciance.

So, dear readers, watch the ’tude. It won’t win you anything except the chance to beef with Elizabeth Holmes.

NFT Advertising Sees Action Overseas

But when will the U.S. of A. get its act together?

Oh My God, Are You From England?

Remember that scene in “Love Actually”? Where the goofily charismatic 20-something Brit Colin (played by Kris Marshall) finds himself in a bar somewhere in the American heartland (Wisconsin, to be precise) charming supermodels by pronouncing words in his own accent?

(It never worked for us, but we’re from New Jersey.)

In any case, had one of the ladies pointed to the National Advertising Division (NAD), Colin would have pronounced it “Advertising Standards Authority,” and would, of course, immediately have blown his chance.

Like NAD, ASA is a self-regulatory industry body. In its own words, it’s “the U.K.’s independent regulator of advertising across all media.” And if you’re a true nerd who likes reading the NAD website, here’s another ad regulator with tons of decisions for you to pore over.

Instead of going out to a bar. Or a pub, depending on which side of the pond you are on.

We Didn’t Know the Gross Ape Pic Was Loaded!

Here’s a decision to start you off.

Foris DAX Global Ltd, which does business as Crypto.com, bills itself as the “The World’s Leading Cryptocurrency Platform.” (No, it’s not puffery we’re discussing here—this case is about finance.)

Crypto.com got called out by the ASA for its recent social media posts hawking NFTs (you can read the text of the post on the ASA decision page). The key complaints for the regulator: failure to (i) illustrate the risk of investing in NFTs and (ii) make clear that fees would apply. Crypto.com objected, arguing, in part, that it did not believe the NFTs available on the platform—which ranged from artists’ work to sports collectibles—to be “financial in nature.” This assessment was based on a U.K. Treasury consultation paper in which NFTs had been excluded from the scope of financial promotion reforms. Crypto.com, therefore, believed that NFTs should be exempt from the financial rules of the CAP Code, including not having to disclose that profits from cryptocurrencies were subject to capital gains tax or that they were unregulated.

ASA disagreed, holding that NFTs were a cryptoasset, albeit unregulated, that carried great risk and complexity—all of which was “material information that consumers would want to know.” Further, because NFTs could be used as an investment, and the ad stated that consumers could “mint, collect, and trade” NFTs, ASA found that consumers would likely interpret the ad as promoting an investment. Because Crypto.com failed to include any risk warnings about the volatility of an NFT’s value or that NFTs were an unregulated cryptoasset, ASA concluded that the ad was misleading.

The Takeaway

Whence this lesson on British NFT advertising self-regulation?

We did a search of the BBB National Programs site—you’re a geek, you know it’s the home of NAD, NARB, CARU, and so forth—and there’s not one decision regarding NFT advertising. Barely a peep about them.

In fact, we wouldn’t have heard of or noticed any such decision if the folks at Truth In Advertising, Inc., hadn’t profiled the Crypto.com case in relation to their own crusade against influencer token marketing.

This dearth of NFT-related action on the part of U.S.-based industry self-regulators is likely related to a lack of guidance (let alone enforcement action) on the part of the U.S. government. The most recent notable news regarding the matter involved some stirrings at the Securities and Exchange Commission from last spring.

So, until then, we can look at the ASA as a sign of things that may come as, like NAD, the organization hews close to government regulatory and legislative structures.

Company Slapped for FDA-Approval Chicanery

A drug by any other name isn’t allowed to compete

There’s No Such Thing as a Stupid...

If someone asked you if you remember COVID-19, how would you reply?

“Yes, I do”? “Of course, I bloody well do”? Some sort of expletive-laden version of either? An expression of shocked disdain?

It’s an absurd question.

But the Food and Drug Administration seems to think that it’s a reasonable one, because, in a recent warning letter, it goes to great lengths—117 words in fact—to go over the fact that COVID exists, that it’s bad, and that the government is kinda freaked out about it.

You have to hand it to the federal government for being so thorough, though. Because, apparently, there are people who do need to hear it.

Switch Pitch

We’re thinking of www.globalpharmacyplus.com, the website that received the warning letter in question as last December came to a close.

There are a variety of claims in the letter, but the most heinous—if true, of course—involve a nasty bit of slippery advertising.

Take Molnunat 200, a product marketed by the site as “authorized by the FDA to treat Covid-19.”

“Molnupiravir is active against severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2),” the now-deleted product description allegedly read. “Early treatment with the drug reduces the risk of hospitalization or death in at-risk patients that have or have not been vaccinated.”

Now, according to the FDA, there is an “authorized version of molnupiravir currently available in the U.S. under an emergency use authorization…” But the “FDA has not authorized for emergency use the ‘Molnunat 200’” offered by the site.

The Takeaway

The FDA accuses the site of listing two other drugs—treatments for transplant rejection—that were marketed with a similar slippage: claiming FDA approval of the product because the supposed underlying medication had been approved in other forms.

The takeaway? FDA approval (or even emergency authorization) of a drug in one form doesn’t mean you can hawk it as FDA-approved in another. In the case of globalpharmacyplus.com, this was either a truly sloppy mistake or a nasty bit of mendacity. Either way, lives were put at risk.

Were we complaining about how annoyingly thorough the FDA is just a moment ago?

Backsies?

Zara Sues Upstart Fashion House for Copyright Infringement

But is this a case of the handbag calling the leather clutch black?

Prêt à Intenter une Action en Justice

International fashion giant Zara’s lawsuit against Thilikó and its owner, Queenie Williams, is fun on multiple levels.

First of all, the fast-fashion brand is coming in guns blazing. The suit, filed in the Southern District of New York (where else?) in early January, accuses Los Angeles-based Thilikó of copyright infringement, Lanham Act charges (false advertising, unfair competition, false description, and false designation of origin), unfair trade, deceptive trade and false advertising under New York State law, and violations of the New York Art & Cultural Affairs Law.

But even a laundry list this capacious doesn’t do justice to the underlying factual claims.

Pile On

According to Zara, there’s very little Thilikó hasn’t done wrong. “Defendants have engaged in a fraudulent scheme of purchasing ZARA-branded products,” the complaint reads, “removing the labels and hangtags that identify Zara as their source, and replacing them with THILIKÓ-branded labels and hangtags.... Defendants then pass off their misbranded and mislabeled products to the unsuspecting public as original Thilikó-products at exorbitant prices far beyond those consumers would pay for them at Zara’s retail locations.”

If that weren’t enough, Thilikó stands accused of copying and pasting Zara’s photography from its online store and using it to sell merchandise (presumably the alleged misbranded products) on its own site—misrepresenting “ITX’s Copyrighted Photographs as ‘proprietary property of the Company [Thilikó] or one of [its] Brand Ambassadors, endorsers or partners.’”

Throw in a greenwashing claim, and you’ve got yourselves a suit.

Several matching suits, even.

The Takeaway

But here’s the last layer.

For anyone familiar with the fashion world, there will be a delicious irony in Zara’s claim. The company has been accused on multiple occasions of similar behavior. In fact, the entire industry is viewed as a free-for-all when it comes to swiping designs and clothing.

It seems counterintuitive—fashion houses, classic and “fast” alike, live and die by their creativity, right? Wouldn’t they be experts at defending their designs?

Not according to this in-depth discussion of design theft over at Vox, which references Zara a few times alongside a number of similarly offending competitors, from Old Navy to Gucci.

“Large brands get away with stealing designs from smaller companies because fashion is not fully protected under American copyright law,” Vox states. “U.S. copyright law positions American fashion as a manufacturing industry rather than a creative one ... fashion isn’t given nearly enough legal protection, even as blatant knockoffs have become increasingly prevalent.”

Zara’s suit is in its infancy, but we’re eager to see how the court addresses the multiple issues involved in an industry that’s swimming in self-recrimination.

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