StayADvised: What's New This Week

Articles

• MyPillow Once Again Running Deceptive Marketing, Violating CA Settlement Terms, Says Ad Watchdog
• Yet More Anti-Robocall Legislation Proposed, Backed by Cable Industry
• New York Settles Contempt of Court Against Auctioneer Who Defrauded Customers
• FTC Settles Deceptive Advertising Claim, Warns against Bogus Advertising Tactics, Fake Celebrity Endorsements

MyPillow Once Again Running Deceptive Marketing, Violating CA Settlement Terms, Says Ad Watchdog

It's all fluff and no substance at MyPillow, says ad watchdog group Truth in Advertising (TINA), which believes the company is engaging in deceptive marketing of its products in violation of a California District Attorney settlement with the company. In its April 23, 2019 letter to Alameda District Attorney Nancy O'Malley, TINA claims that MyPillow is violating the terms of its 2016 $1 million settlement order, which prohibits it from engaging in misleading marketing of its namesake product. Three years after entering into that settlement, the company is at it again, according to TINA.

The 2016 action settled charges that MyPillow's advertising of its product's ability to cure a host of sleep-related ailments such as fibromyalgia, insomnia, and migraines were not supported by reliable and scientific evidence. As part of the settlement, MyPillow was ordered to pay stiff civil fines and cease marketing its product by claiming that the pillow heals a variety of sleep ailments. The company was also barred from advertising its product as the "official pillow" of the National Sleep Foundation (NSF), given that the company paid the NSF to obtain that designation.

This time the allegations of false marketing center around MyPillow's so-called "clinical sleep study," which, according to TINA's letter, are plainly false and the underlying study lacking in credibility. Specifically, TINA claims that "since November 2018, MyPillow has spent millions of dollars deceptively promoting a 'clinical sleep study'" that it says provides medical proof that its product greatly improves a variety of sleep ailments, including sleep apnea and lowered oxygen levels, thus allowing for a better night's sleep.

The company's claims that the study and its results are supported by science are exaggerated at best, according to TINA. Chief among the allegations in TINA's letter are complaints that MyPillow touts its study as "double-blind" and "placebo-controlled," while a reading of the actual study shows that is not the case. The letter also notes that the study failed to satisfy generally recognized clinical testing protocols such as avoiding bias, using a broad and diverse participant sample size capable of rendering statistically significant results, testing against equivalent competitor products and not being peer reviewed. As for supporting the advertised claims, TINA avers that the study does not prove that the product "helps reduce snoring" or "improve oxygen levels."

If the accusations are true, it could spell trouble for the pillow company, which has a history of making misleading marketing claims, according to TINA. In addition to the Alameda DA action, the company has also faced consumer class action lawsuits challenging its advertising of its spokesperson as a "sleep expert" and that it advertised false endorsements by major news organizations. In 2016, the Better Business Bureau lowered MyPillow's accreditation from an A- to an F following multiple consumer complaints. The company continues to have an F rating with the BBB, and had its membership revoked in 2017

Key Takeaway

As with most matters that TINA refers to regulators, it remains to be seen what, if any, action District Attorney O'Malley will take on this matter. In the meantime, TINA's letter is a reminder that marketing material touting and relying upon clinical studies for support must accurately reflect the results of the study, and the study must follow appropriate and industry accepted testing protocols. Although regulators may have limited resources to monitor compliance with their orders, advertising watchdogs such as TINA continue to track and call out the actions of repeat offenders.

Yet More Anti-Robocall Legislation Proposed, Backed by Cable Industry

Consumers may soon receive some reprieve from annoying telemarketing robocalls thanks to a new House bill currently in the drafting stages. The proposed legislation is aimed at offering consumers protection from robocalls by allowing "voice service" providers to automatically provide robocall blocking to their subscribers without them having to affirmatively enroll in the service. The proposed bill continues the recent trend in Congress of legislation targeting robocalls.

The aptly named "Support Tools to Obliterate Pesky Robocalls," (STOP Robocalls Act for short), would amend Section 227 of the Communications Act of 1934 by allowing voice service providers such as wireless carriers and others to inform their subscribers of the automatic blocking and the option to "opt-out" if they object, ostensibly making it much easier for consumers to block robocalls.

The draft legislation, introduced by Representatives Bob Latta (R-Ohio) and Michael Doyle (D-Pennsylvania), is strongly backed by the cable industry and Voice over Internet Protocol (VoIP) leaders, would offer consumers call-blocking services free of charge. Structuring robocall-blocking this way would provide an effective alternative to the current "opt-in" system, according to cable company representatives, who added that "relatively few" customers utilize the opt-in option.

"This provision would empower providers like us to do more to shield our customers from the ceaseless torrent of robocalls," said executives from Blue Stream and Hotwire Communications.

The draft bill follows on the heels of the recent bipartisan Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED) introduced earlier this year, which similarly seeks to crack down on robocalls. TRACED would strengthen the Federal Communications Commission's and Federal Trade Commission's authority to fine telemarketers and gives the agencies more time to pursue violators, as well as require telemarketers to accurately identify the number they are calling from. In contrast, STOP Robocalls, if passed, would make it easier for consumers to control whether or not they want to receive robocalls in the first place, with the default being not receiving these calls at all.

During a recent hearing on the issue, eight cable company leaders told Congress that giving consumers the option to opt-out of blocking unwanted calls, rather than making consumers proactively opt-in to a robocall blocking service, would be an effective way to counter the scourge of unwanted robocalls currently plaguing consumers. Eight VoIP and other voice services also wrote the subcommittee leaders drafting the bill expressing support for the provision.

"These low opt-in rates persist in spite of consumers' growing frustration with robocalls. And the feedback we've received from 'early adopters' of robocall blocking tools has been overwhelmingly positive, which makes it unfortunate that customers who are less familiar with and slower to adopt new technologies are missing out," continued company officials.

According to the cable companies supporting the bill, few customers take the affirmative step of opting in to robocall-blocking services. "By moving to an 'informed opt-out' model as the STOP Robocalls Act contemplates, a provider can empower a much broader share of its customers to enjoy freedom from robocalls — while still preserving the right of the customer to choose," cable industry group ACA Connects added.

Key Takeaway

Anti-robocall legislation is a popular cause in Congress and has been embraced by members on both sides of the aisle in a show of bipartisanship. Given the recent trend of legislation targeting robocalls, whether or not STOP Robocall is passed, expect to see even more legislation targeting robocalls introduced in Washington D.C. and the statehouses.

New York Settles Contempt of Court against Auctioneer Who Defrauded Customers

Oops, he did it again. A New York auctioneer was found in contempt of court for violating a 2008 court order prohibiting him from engaging in the auction business without first posting a half million dollar performance bond. The auctioneer and the New York Attorney General have settled the contempt order, with the settlement banning Timothy W. Conroy from running any further auctions.

The 2008 Court Order resulted from a lawsuit filed by the New York Attorney General against Conroy and his companies TW Conroy and Associates and My Sister the Lister for repeatedly engaging in illegal deceptive acts and practices through his auction business operating in Syracuse, New York, including defrauding consumers out of hundreds of thousands of dollars by failing to pay them for their sold items and returning unsold items.

The current action by New York Attorney General Letitia James settles claims that Conroy has been working in the auction business without posting the $500,000 performance bond mandated by the 2008 Order. He and the companies under which he operates -- Estate Consultants LLC and Estate Consultants 123, Inc.-- are now permanently prohibited from engaging in the auction business and must pay back moneys owed to those he defrauded.

"Bad actors who prey on unsuspecting consumers for their own personal gain will be brought to justice," said Attorney General James, who announced the settlement. "My office remains diligent and will continue our efforts to prevent New Yorkers from falling victim to the fraudulent actions of auction houses."

Pursuant to the terms of the consent order and judgment, Conroy is not only prohibited from running auctions but is also barred from in any way holding or controlling the proceeds of sales from others' property. This means he may not receive, administer or in any way control the proceeds of any sales of property owned by others, and he must hire a trustee to handle any proceeds received from auction sales. The trustee will maintain a separate account for auction proceeds to pay consumers whose goods were sold at auction and then remit no less than 20 percent of the retained commissions and sales expenses to the state to be applied to outstanding restitution owed to his prior victims. Any remaining balance after restitution of payment to defrauded consumers will revert to Conroy.

Key Takeaways

With this action, the New York Attorney General's office has made clear that it takes seriously and will actively pursue claims against repeat offenders who defraud customers. Consumer protection continues to be a priority of Attorney General James, and repeat offenders will face harsh penalties for their recidivist actions.

FTC Settles Deceptive Advertising Claim, Warns against Bogus Advertising Tactics, Fake Celebrity Endorsements

Companies marketing their products using phony celebrity endorsements and other deceptive marketing practices should take note that the FTC is watching—especially those companies that prey on vulnerable populations. The FTC's latest action involves a settlement of charges against various companies and individuals using deceptive marketing techniques and a complex web of affiliate marketers to sell cognitive nutritional supplements to seniors.

The FTC complaint in this action alleged that the corporate defendants and individual defendants Fred Richard Guerra, III; Lanty Paul Gray, Jr.; Rafat Abbas; and Robby O. Salaheddine had engaged in a number of deceptive marketing tactics in connection with the advertising of its product sold under the names Geniux, Xcel, EVO, and Ion-Z. Chief among the company's tactics called out by the FTC were sham news websites, fake celebrity endorsements, fraudulent consumer testimonials and fake claims about the efficacy of its product. The terms of the settlement with the FTC bar the defendants from engaging in these deceptive marketing tactics and require payment of nearly $10 million in redress and penalties, though most will be suspended due to the defendants' inability to pay the full amount.

According to the FTC complaint, the defendants marketed the cognitive dietary supplements between August 2012 and January 2017 utilizing a complex corporate structure and an affiliate network of at least 36 different entities intended to hide their identity and avoid liability, but nonetheless acting as a common entity.

In addition to their corporate hoax, the complaint alleged that the defendants marketed their product on websites contrived to look like news outlets, with some offering purported celebrity endorsements attributing the Geniux product with the success of thought leaders and entrepreneurs like Stephen Hawking, Bill Gates and Elon Musk. In one instance, according to the FTC, an ad was made to look like a CNN news story in which Anderson Cooper concluded Geniux was "the real deal."

The FTC also alleged that defendants made a number of false or unsupported claims about the product's ability to dramatically boost cognitive function, including that it increased memory and focus by as much as 300 percent. The ads, which falsely claimed that the product had been tested in over 2000 clinical trials, says the FTC, also touted the product as "Smart Pill 'Viagra for the Brain'" and directed consumers to take the product "for extreme IQ effects."

Further, the FTC claimed that the defendants misled consumers with bogus "risk-free" "100% Money Back Guarantee" claims, when in practice customers who attempted a return found it difficult or impossible to receive a refund.

The FTC specifically called out the defendants for targeting vulnerable populations. "With an aging population, it is more important than ever that advertisers have solid evidence to back up their claims about memory and cognitive health benefits," said Andrew Smith, Director of the FTC's Bureau of Consumer Protection. "Moreover, the FTC will hold companies accountable when they deceptively design their ads to look like news articles and fabricate celebrity endorsements and consumer testimonials."

In addition to the multi-million dollar judgment, the proposed settlement enjoins the defendants from engaging in future fraudulent and misleading conduct and making any claims about their product's effects on cognitive performance or health benefits without scientific evidence. The settlement also bars them from utilizing sham news sources or fake celebrity endorsements, and requires them to honor any refund requests. In addition, the defendants must monitor their affiliate marketing websites to ensure they are not engaging in deceptive marketing.

In a separate press release issued by the FTC's Business Blog the same day, the agency reminded companies of the dangers of utilizing marketing tactics like those used by defendants. The release, targeted at advertisers as well as affiliate marketers, provides important lessons from the Geniux settlement:

1. Have appropriate science to back up health and safety claims
2. Do not use bogus testimonials and phony advertising formats
3. Hiding behind complicated and convoluted corporate structures will not deter law enforcement efforts
4. Monitor others that help sell your products

Key Takeaway

As it has in the past, the FTC will aggressively pursue companies that use fake testimonials and endorsements and deceptive ad formats to sell their products. And attempting to hide behind a convoluted corporate structure will offer no protection from the FTC's reach. Companies should take note that the FTC will hold companies accountable for their own deceptive marketing as well as the actions of affiliate marketing sites. Misleading ads touting solutions for memory and brain function remain an FTC priority as companies target baby boomer consumers concerned about cognitive decline.