ABA CONSUMER PROTECTION UPDATE May 2007 The Lustigman Firm, P.C. Andrew Lustigman Adam Solomon Jonathan Ezor

1. ABA CONSUMER PROTECTION UPDATE May 2007 The Lustigman Firm, P.C. Andrew Lustigman Adam Solomon Jonathan Ezor

2. Agenda • Federal Trade Commission Update • State Attorneys General Update • Private Litigation Update • National Advertising Division Update • Privacy Update

3. Deceptive Marketing of Magazine Subscriptions • FTC charged several Pennsylvania-based defendants with violating the FTC Act and the Telemarketing Sales Rule by telemarketing magazine subscriptions falsely claiming they were only conducting a survey and providing an incentive of receiving “valuable coupons” for groceries and other items worth over $1,000 • FTC alleged that defendants failed to tell consumers that they were actually selling magazine subscriptions and to get the coupons they had to buy magazine subscriptions • FTC alleged that sometimes defendants claimed that the magazines were free or that the consumers only had to pay shipping and handling or otherwise misrepresented the cost of the subscriptions • FTC claimed that defendants violated the TSR when they called consumers and failed to make clear that they were offering products for sale, failed to disclose the total cost of their program before obtaining payment information, made misrepresentations to induce consumers to make a purchase, and misrepresented the cancellation policy

4. Human Growth Hormone Internet Marketer Settles FTC Actions • FTC settled actions against two groups who marketed oral sprays that were supposed to help users lose weight, reverse the aging process, and prevent or treat diseases • Marketing for the sprays claimed that they contained HGH and referred to clinical studies and prestigious publications • FTC alleged that the claims were unproven and untrue. The FTC charged that the sprays did not contain HGH, or cause the body to increase production of HGH, and did not offer anti-aging, weight loss, or disease prevention effects • FTC alleged that representation on website as to use of SSL encryption was false making the credit card information submitted for payment vulnerable to capture while in transit • Settlement provides for payment of $172,000 with a $2.2 million avalanche • Orders also contain injunctions prohibiting misrepresentations in marketing food, drugs, devices, services, or dietary supplements, including misrepresentations about the product benefits, misrepresentations about studies and research, and representations made without possessing competent and reliable scientific evidence. The orders also prohibit misrepresenting the security of Web pages • One group also is precluded from violating CAN-SPAM Act based on prior violations of Act in sending false sender identification, using deceptive subject headings, failing to provide an opt-out mechanism, and failing to provide physical postal address

5. Owners/Mangers of Debt Elimination Program Banned • FTC had sued Debt Solutions, Inc., a group that marketed a “debt elimination” program for $399 to $629 • FTC alleged that marketers falsely promised consumers substantially reduced interest rates and thousands of dollars in savings because a financial consultant with special relationships with the consumers’ creditors would negotiate substantially lower interest rates, resulting in reduced monthly payments and elimination of debt three to five times faster than otherwise would be possible • Promised savings was actually projected savings that would result from simply paying more than the monthly minimum on their credit card debts over an extended period of time and not from reduced interest rates on the debts • Defendants allegedly violated the FTC’s Telemarketing Sales Rule and Washington state law by misrepresenting projected savings, failing to disclose the limits of their money-back guarantee, calling phone numbers listed on the National Do Not Call Registry, failing to pay the required annual fee for access to DNC-listed numbers, and calling people who asked them to stop calling • Settlement permanently prohibits the defendants from engaging in the violations alleged in the complaint and imposes an avalanche judgment of $23,255,420 • Individual owners and telemarketing sales managers are permanently banned from engaging in any debt negotiation or debt elimination business

6. Business OpportunitiesFTC Obtains $17 Million Verdict • FTC obtained a $17 million summary judgment order in an action for falsely representing that the consumers would make substantial money using the “Stefanchik Program” to buy and sell privately held promissory notes and mortgages • Defendants telemarketed and sold a package of products and services as part of a program of course materials, seminars, workshops, video tapes, audio tapes, and personal coaches – which purported to teach consumers how to buy and sell privately held mortgages, commonly known as “paper” • Court found that in the marketing and selling of the Stefanchik Program, the defendants falsely represented, directly or by implication, that: • Consumers who purchased defendants’ materials, attended defendants’ seminars and workshops, or used defendants’ personal coaches, would quickly make large amounts of money in their spare time by learning and using the methods taught • Defendants’ personal coaching service was staffed by persons substantially experienced in the paper business who were readily available by telephone to assist consumers in finding and completing paper transactions” • Order requires John Stefanchik and Beringer to pay $17,775,369, the total amount of consumer loss. Bars defendants from misrepresenting: that consumers will make a substantial amount of money; the income, profit, or sales volume that consumers may or are likely to achieve or that previous consumers achieved; that services are provided by substantially experienced persons, or that such persons are readily available to assist consumers; or any other material fact

7. FTC Settles Franchisor Action • Netvertise, Inc. and Elliot Krasnow settled charges that they deceptively marketed Website design and promotion service franchises • Defendants allegedly misrepresented that franchisees were likely to earn substantial incomes and overstated the value of the supplied search engine optimization software, and failed to provide proper franchise disclosure documents regarding prior consent orders and earnings claims • Defendants are barred from marketing franchises or business opportunity programs. The order bars defendants from marketing or selling any business arrangement covered by the Franchise Rule or the Business Opportunity Rule and from otherwise misrepresenting any business ventures or investment opportunities • Order requires the defendants pay $160,000, with a $500,000 avalanche

8. Permanent Ban Against Repeat Offender In Telemarketing, Selling Business Programs • Richard C. Neiswonger, William S. Reed, and their firm, Asset Protection Group, Inc., charged with deceptively marketing business opportunity programs in action brought in the Eastern District of Missouri • Program offered sale of services relating to the forming of Nevada corporations and off-shore corporation • Unsubstantiated six figure earnings claims and false claims of pre-screened client list • Violation of 1997 Consent Order against Neiswonger which required posting of $100,000 bond • Court found Neiswonger in contempt of prior order. Court also ruled that business partner and corporation were also bound by the prior order because they were aware of the order and acted in concert with deceptive business practices • Court entered a second permanent injunction barring Neiswonger from advertising, marketing, promoting, offering for sale, selling, or otherwise inducing participation in any program and bans him from telemarketing and instructed the court-appointed receiver to calculate how much the defendants had gained from the scheme before he orders a final monetary judgment against the defendants • Judge scheduled a hearing on June 25, 2007, for Reed and APG to defend why they should not be subject to a similar injunction

9. Debt Reduction • Interim Order Entered In FTC v. Debt Set, Inc. • Company advertised "debt reduction services," including "debt consolidation" and "debt settlement" programs • Complaint alleged that defendants promise to stop collections calls, and to consolidate debts, negotiate better interest rates such as "between 0 and 9 percent," or lump settlements such as "50 cents on the dollar" or "50 to 60 percent" of the debt when actually consumers were required to pay 8% of the debt in monthly payments before defendants contact creditors, and sometimes do not contact them at all • Interim Order lifts asset freeze and permits defendants to continue operating its business under a monitor • Interim Order precludes misrepresentations regarding fees or outcome of service • Interim Order specifies certain claims that would be permitted if substantiated

10. Cross-Border Advance Fee Credit Cards • A federal district court in Illinois has entered final orders against three people based in Canada who allegedly defrauded U.S. consumers out of more than $9 million through the sale of advance-fee credit cards • Orders bar the defendants from engaging in similar illegal conduct in the future, as well as from calling consumers whose phone numbers are on the National Do Not Call Registry for telemarketers (litigation continues against the other defendants) • Defendants allegedly used outbound telemarketing to contact consumers in the United States, falsely offering major credit cards, such as MasterCard and Visa, to people who agreed to have the defendants electronically debit their bank accounts for an advance fee of $249 • Defendants typically claimed that the credit cards would have a $2,000 credit limit, zero percent interest, and no annual fees, and often targeted their offers at consumers with poor credit histories • Consumers who provided their bank account information did not receive a major credit card, but instead were sent an application for either a “stored value card” or “cash card” that had no line of credit associated with it and could be used only if the consumer first loaded funds onto the card. The complaint also alleged that the defendants violated the law by calling consumers on the FTC’s National Do Not Call Registry

11. Restaurant Gift Card Settlement Approved • The FTC approved the Darden Restaurant Group’s Consent Order following public comment period • As reported last month, Darden was charged with engaging in deceptive practices in advertising and selling restaurant gift cards by failing to adequately disclose monthly dormancy fees • Consent order requires Darden to restore fees deducted from consumers' gift cards and to disclose -- at point of sale and on the front of any card -- fees and expiration dates

12. Attorney Advertising New Jersey • FTC filed an amicus brief with the NJ SC with the Office of the General Counsel urging the vacating of the NJ Opinion 39 • Opinion prohibits attorneys from participating in ratings programs that result in “Best Lawyers” and “Superlawyers” lists • The FTC argues that there are a growing number and wide variety of legal rating programs in the United States, each with its own method for rating and scoring attorneys based on a variety of criteria, and “these ratings programs serve a consumer demand, and the merit, quality and validity of them is best determined in the marketplace” Indiana • FTC filed comments with the Indiana SC regarding attorney advertising • The proposed amendments would ban deceptive advertisements, but with one exception, place no prophylactic bans on specific forms of advertising • FTC staff recommend that the Bar revise the proposed amendments to make clear that referral programs (such as online legal matching programs) are permissible as they can provide an efficient and lower-cost alternative for consumers to obtain legal services

13. State AG Update: Anheuser-Busch • Twenty-nine Attorneys General criticized Anheuser Busch Companies, Inc. for producing and promoting alcoholic energy drinks containing caffeine and other stimulants • Citing serious health concerns, including skewing a person’s sense of alertness, the Attorneys General called on Anheuser Busch to provide readable warning labels that alert consumers to the risks of alcoholic energy drinks • One week after receiving the Attorneys General’s letter, Anheuser Busch announced that it will stop the production of Spykes, a caffeinated energy drink with alcohol that appeals to youth in taste and appearance • Thirty-Seven Attorneys General praise Beam Global (Jim Beam) for adopting stronger voluntary advertising standard to reduce youth exposure to alcohol ads

14. State AG Update: Dell • New York Attorney General files lawsuit against Dell and DFS for False Advertising, Failure to Provide Services and Deceptive Business Practices relating to Dell’s technical support services, promotional financing, rebate offers, and billing and collection activity • Repeatedly failing to provide timely onsite repair to consumers who purchased service contracts promising “onsite” and expedited service • Pressuring consumers, including those who purchased service contracts promising “onsite” repair, to remove the external cover of their computer and remove, reinstall, and manipulate hardware components • Discouraging consumers from seeking technical support; those who called Dell’s toll free number were subjected to long wait times, repeated transfers, and frequent disconnections • Using defective “refurbished” parts or computers to repair or replace consumers’ equipment • Luring consumers to purchase its products with advertisements that offered attractive “no interest” and/or “no payment” financing promotions.  In practice, however, the vast majority of consumers, even those with very good credit scores, were denied these deals • DFS incorrectly billed consumers on cancelled orders, returned merchandise, or accounts they did not authorize Dell to open, and then continually harassed these consumers with illegal billing and collection activity

15. State AG Update: Best Buy • Connecticut Attorney General files lawsuit against Best Buy alleging the chain used in-store computer kiosks to deceive consumers about product prices and overcharge them • Best Buy operates an internal site accessible only at kiosks in its stores. The site is virtually identical to BestBuy.com, the company's web site, except for listing in-store instead of online prices. Consumers access information at the in-store kiosk by clicking on a tab labeled "BestBuy.com," even though they are not connecting to the internet site • Since 2005, the company's stores have pledged to match any lower online price, including from their own Internet site. Many Best Buy salespeople falsely told consumers searching for or seeking to confirm lower online prices that the kiosk connected them to BestBuy.com. When the site displayed the higher in-store price, salespeople allegedly suggested that consumers, who thought they were viewing BestBuy.com, previously misread the lower online price or the online price had expired

16. State AG Update: BlueHippo • Maryland Attorney general enters into a settlement with Baltimore-based BlueHippo Funding, LLC, its subsidiary, BlueHippo Capital, LLC and Joseph Rensin, the owner of both companies • BlueHippo targets national advertising to consumers who have poor credit histories, claiming to make products affordable by financing the purchases and allowing consumers to pay on a weekly or biweekly basis. Consumer complained they did not receive purchased goods within represented time frames. As many as two-thirds of BlueHippo’s Maryland customers never received the computers or televisions they ordered • When consumers failed to receive the goods and requested to cancel their orders, BlueHippo allegedly refused to refund the consumers’ payments • Settlement resolves allegations that the Defendants engaged in unfair and deceptive trade practices by selling computers, televisions, and other goods to consumers for two or more times their retail price, and then placing undisclosed conditions on delivery of the items that prevented many consumers from ever receiving their purchased items • Under the settlement agreement, Defendants will pay restitution to consumers who did not receive their purchased goods or who the Division alleges were overcharged, cease the practices that the Division alleged violated the Consumer Protection Act, and make a $300,000 payment

17. State AG Update: Certified Game of Skill • Ohio Attorney General unveils new protocol for determining whether electronic gaming machines are skill-based, process will provide guidance to local officials dealing with proliferation of machines • Gaming Laboratories International will exam and evaluate each machine • Ohio AG Order with SGN International Oil Co. (Match’em UP) • Degree of skill necessary for a machine to be a legal game of skill, i.e. it is wholly or largely controlled by skill - - 51%

18. Private Litigation Update • Proposed Settlement in Fair Isaac Corporation and Equifax class action • Related to marketing of Suze Orman’s credit-score kit: Suze Orman Fico Kit and 155 other products • Allegedly violated the Credit Repair Organizations Act • Bar on advertising the products/services as “enhancing”, “boostering”, “raising”, or “improving” credit scores with words such as “tips” “suggestions” or “advice” • Settlement includes three months of free credit-score tracking • Settlement is pending court approval

19. Private Litigation Update Splenda and Equal Settle Private Litigation Ad Charges • The makers of Equal (Merisant) and Splenda (McNeil) reached an undisclosed settlement over Splenda’s slogan "made from sugar, so it tastes like sugar" • Merisant alleged that Splenda’s claims confused consumers into believing that Splenda actually contained sugar, rather than with artificial sweeteners. McNeil argued that it had never deceived consumers or set out to deceive them, since the product did in fact start out with sugar • As a result of the settlement, the verdict was not read, although reportedly the jury had found in favor of Equal’s maker, Merisant, though the damages to be awarded were reportedly not as much as Merisant had wanted • The parties said that the details of the settlement were confidential and that they would make no additional comment • Previously, a French business court ruled in favor of a French subsidiary of Merisant and said that McNeil had intentionally confused consumers with its advertising. The court, which found that McNeil s French subsidiary had violated French advertising and consumer protection laws, ordered the subsidiary to cease its claims that Splenda is made from sugar and tastes like sugar

20. NAD Update The Proctor & Gamble Company: Crest Pro-Heath Toothpaste • Challenge by Colgate, which argued that P&G’s use of a dentist, caduceus, and dental tray in Pro-Health advertising creates an implied message that Crest Pro-Health is a “dentist recommended” product • Claims at issue: • Provides dentist recommended benefits • Crest Pro-Health has received the ADA seal of acceptance for certain specified benefits • Reduces plaque, Whitens teeth • Uses a Polyflourite System consisting of antibacterial fluoride and ActivClean Crystals • Product Research; Over 70 publications & research presentations • Dentifrices containing stabilized stannous fluoride have been shown to provide significant antigingivitis protection. Stannous fluoride has bactericidal and bacteriostatic activity to both kill bacteria and inhibit the re-growth of new bacteria for at least twelve hours • Provides superior cavity protection compared to a standard sodium fluoride toothpaste • P&G argued that the caduceus, used by the ADA in its seal and by dentists around the world, “is simply an ancient symbol of commerce.” P&G also argued that a dental researcher in its ads was simply pointing to a list of points that dentists check and explaining that Crest Pro-Health protects all these areas, but that the ads weren't meant to imply dentists recommend the product for that purpose

21. NAD Update The Proctor & Gamble Company: Crest Pro-Heath Toothpaste (con’t) • The NAD disagreed with P&G. “The concept of a dentist recommending the results or ‘benefits’ themselves . . . is counterintuitive.” “Patients do not need dentists telling them that they do not want plaque-covered teeth or foul-smelling breath.” Because the dentist-recommended message the ads seem to convey was not supported by P&G the NAD recommend it to be discontinued • The NAD also took issue with P&G’s implication that the ADA accepted Crest Pro-Health for certain dental benefits and a cavity-reduction claim based on an early prototype • The NAD rejected five other issues Colgate had with Crest's advertising, finding P&G had provided sufficient substantiation for claims that Pro-Health fights plaque, whitens teeth, and fights bacteria for 12 hours • NAD stated that P&G had supported its claim that Pro-Health provides 12 hours of antibacterial protection. Colgate is currently making that same claim for Total toothpaste

22. NAD Update Starbucks Corporation: Carmel Apple Cider • BBB of Eastern Massachusetts, Maine and Vermont, Inc. challenged name used by Starbucks to market the apple beverage product called “Carmel Apple Cider” • BBB’s position: Product is made with apple juice, rather than apple cider • Starbucks’ position: No laws or regulations that establishes what constitutes “cider” or any distinctions between “apple cider and “apple juice” furthermore there are regional differences in the usage of the terms • NAD recommended that Starbucks discontinue use of the descriptor “cider” in advertising the product

23. NAD Update Wachovia Bank: Customer Service • NAD reviewed commercial pursuant to its ongoing monitoring program • Commercial featured Joe Carta who described how his Wachovia banker helped him on Christmas day to open the vault at 5:00am the next day to get a passport • “At Wachovia we are absolutely obsessed with satisfying our customers” (express claim) • The service depicted is representative of a service a Wachovia customer can typically expect (implied claim)

24. NAD Update Wachovia Bank: Customer Service (con’t) • NAD reviewed customer satisfaction surveys • NAD concluded Wachovia had reasonable basis for express claim • NAD recommend that Wachovia discontinue or modify commercial to clearly and conspicuously disclosure that scenario is unusual, atypical or may depend on certain limitations • No Wachovia policy which requires or suggests that employees should disrupt their family activities during a major holiday in order to retrieve a passport

25. NAD Update Bayer Consumer Healthcare: One-A-Day Women’s • NAD requested substantiation for certain claims made in print ads by Bayer for its One-A-Day Women’s • “One-A-Day Women’s Multi-Vitamin is the only complete multi-vitamin with more calcium for strong bones, and now more vitamin D, which emerging research suggests may support breast health” (express claim) • Taking One-A-Day Women’s multi-vitamins women can reduce or eliminate women’s risk of breast cancer (implied claim)

26. NAD Update Bayer Consumer Healthcare: One-A-Day Women’s (con’t) • NAD determined that a reasonable interpretation of “breast health,” with the claims at issue is that emerging research suggests vitamin D may reduce the risk of breast cancer • NAD noted in its decision that the evidence in the record – several studies and journal articles on the health benefits of vitamin D – indicates that a higher intake of vitamin D may result in a lower risk of breast cancer • NAD determined that the evidence provided a reasonable basis for the advertiser’s claim that the product, which contains 800 International Units of vitamin D per dose, has “more vitamin D, which emerging research suggests may support breast health”

27. Major Data Breaches Continue to Make Headlines • $400,000 worth of funds from Carson, CA attempted stolen via keylogger program installed on city treasurer computer • Attack on a computer server at the University of Colorado exposes names and Social Security numbers of almost 45,000 students • Northwestern University sends letter notifying students after laptop containing the Social Security numbers of Northwestern students and alumni stolen in late April from employee in the Financial Aid Office • American Federation of Government Employees sues TSA for loss of hard drive containing names, social security numbers, dates of birth, and payroll and bank account information for some 100,000 employees • Stony Brook University announces potential release of names and Social Security numbers of 89,853 current and former faculty, staff, students, alumni and others • Chinese hacker broke into a University of Missouri System database, the first of three separate attacks that resulted in the theft of the names and Social Security numbers of 22,000 current and former UM employees • Illinois Department of Financial and Professional Regulation discovers potential compromise of names, Social Security numbers and other personal data of an estimated 300,000 licensees and applicants

28. ChoicePoint Settles Over Breach • Forty-Four Attorneys General reached a settlement with ChoicePoint, resolving allegations that the company failed to adequately maintain the privacy and security of consumers’ personal information • The settlement with the states goes beyond the January 2006 FTC settlement and requires ChoicePoint to improve its credentialing process for clients that obtain Social Security numbers • Among other requirements in the states’ agreement, ChoicePoint must perform audits, including independent audits, to make sure that it is properly identifying those individuals or businesses requesting information • $500,000 on ID theft information campaigns

29. MySpace and Sex Offenders • State prosecutors demanded that MySpace turn over information on convicted sex offenders with profiles on MySpace • MySpace initially refused, citing ECPA subpoena requirement • Monday, 5/21, MySpace and 50 state AGs agreed on disclosure procedure

30. Mergers Raise Privacy Concerns • Recent proposed mergers raising potential privacy issues • Questions of combined databases, matching anonymous and identified data • Announced deals include: • Google buying DoubleClick • Yahoo! buying RightMedia • Microsoft purchasing aQuantive • May also impact on privacy policies of merged firms

31. Identity Theft and Data Breach Laws Expand on State, Federal Level • Two bills now progressing in Congress: • Social Security Protection Act of 2007 (HR 948) • Makes illegal certain sales of Social Security numbers • Securely Protect Yourself From Cyber-Trespass, or Spy Act (HR 964) • Prohibits certain “spyware” technologies, creates FTC enforcement authority • Massachusetts latest state to push ID theft and data breach notification law • Passed MA house on May 9, 2007 in response to TJX case and others

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