Online Pharmacy Ordered to Pay FTC $15.8 Million

Saying they 'dispensed deception,' a federal judge in Atlanta has ordered the founders and operators of a now-defunct online pharmacy business to pay the U.S. Federal Trade Commission ('FTC') $15.8 million for fraudulent claims associated with the drugs they peddled. In his order, issued June 4, U.S. District Judge Charles A. Pannell also found Dr. Terrill Mark Wright, a physician associated with the online pharmacies, liable for $15.4 million to compensate consumers for false advertising claims.

Pannell released the findings in an order granting summary judgment to the FTC after a four-year legal battle against the National Urological Group (doing business as Warner Laboratories), the National Institute for Clinical Weight Loss Inc., Hi-Tech Pharmaceuticals Inc. (doing business as Planet Pharmacy, Global Pharmacy and others), Wright, and corporate officers Jared Wheat, Thomasz Holda, Michael Howell and Stephen Smith.

In the 98-page order, Pannell called the FTC violations by the companies 'numerous and grave.'

From their headquarters in Norcross, GA, the companies used the Internet to market ThermaLean via spam e-mail. They claimed it was a 'naturally occurring, non-prescription drug' that could be substituted for the prescription weight loss drugs Meridia, Xenical and Fastin, and that it caused fat loss of more than 600% without any dangerous side effects.

The companies also marketed a second weight loss drug, Lipodrene, and a purported erectile dysfunction remedy known as Spontane-ES, which the companies claimed in both e-mail and direct mailings had 'success rates as high as 90%!'

Pannell found that the bulk of the marketing claims about the efficacy of the weight loss and erectile dysfunction drugs were unsubstantiated and false. The judge also ruled that Wright, as a physician, had individually violated federal trade laws by offering himself as a medical expert and deceptively touting the drugs' effectiveness.

Appeal in the Works

'All of the products at issue in this case are dietary supplements and/or drugs that are marketed as promoting health benefits in the form of weight loss and sexual enhancement,' Pannell's order stated. 'Not surprisingly, all of the unsubstantiated representations that the FTC claims the advertisements make are related to the safety and/or efficacy of the dietary supplements, and correspondingly, implicate health concerns.'

Neither Edmund J. Novotny of Baker, Donelson, Bearman, Caldwell & Berkowitz in Atlanta, lead counsel in the FTC case, nor Atlanta attorney Bruce S. Harvey, who represents Wright, could be reached for comment.

But Birmingham lawyer J. Stephen Salter, who has represented Wheat in a variety of legal matters for more than 18 years, called his client 'a fighter.'

'We believe in these issues,' Salter said. 'We are going to take an appeal ' to the Eleventh Circuit Court of Appeals to see if we can get some relief.'

Wheat, Salter continued, 'believes he is doing everything by the book,' adding that his client is 'in complete compliance' with a 2003 consent decree reached with the U.S. Food and Drug Administration ('FDA') regarding the operation of the online pharmacies. The FTC, the lawyer added, 'seems to believe that they are a law unto themselves and that nobody can challenge them. That's what this entire case is about.'

In court papers, Hi-Tech attorneys argued the company was not subject to FTC regulatory fines because ' while it produced and marketed 'multiple products under the name Lipodrene,' those products are 'completely different in look and formulation' from the Lipodrene that the National Urological Group marketed in the advertisements cited in the FTC complaint.

The lawyers said none of the defendant companies manufactured, advertised or marketed the kind of Lipodrene that is the subject of the FTC action.

Defense lawyers also argued that federal laws allow a certain amount of 'puffery,' or exaggeration, in promoting or marketing a product.

The judge was not convinced.

'To demonstrate the rampant use of puffery, the defendants go through the advertisements sentence by sentence and sometimes even phrase by phrase to point out any language that could fit ' even in the remotest sense ' within the definition of puffery,' Pannell noted.

Despite that effort, the judge concluded: 'All of the claims that the FTC articulates in the complaint are phrased as factual statements that can be verified by research and science. ' The fact that puffery is present cannot serve as a shield for the advertisements' deceptive, factual representations.'

'Deceptive Propaganda'

In 2003, U.S. District Judge Robert L. Vining Jr. granted a request by the FDA to bar Wheat, Hi-Tech Pharmaceuticals, the National Urological Group, the National Institute for Clinical Weight Loss, the American Weight Loss Clinic Inc. and the United Metabolic Research Center Inc. from marketing or selling more than a dozen drugs, including those drugs that prompted Pannell's order last month.

Wheat, Smith, Holda and Hi-Tech also are among 12 defendants named in a 2006 federal indictment that charges them with fraud, adulteration or misbranding of drugs, the introduction or distribution of drugs not approved by the FDA, and violations of federal drug import laws. The criminal case is pending before U.S. District Judge Jack T. Camp.

That indictment alleges that the defendants operated Web sites, among them canadiangenerics.com, genericvi agra.bz, genericpharmacy.bz, pharma cy.bz, targetdata.bz and planetpharmacy.bz ' all of which offered prescription drugs for sale without a prescription.

According to the indictment, the Web sites 'falsely stated that these drugs would be imported from Canada, falsely stated that all pharmaceuticals purchased via the [Web site] were manufactured using good manufacturing practices, and falsely stated that a licensed medical doctor would review the online questionnaire for the drugs.'

Instead, the defendants arranged for the manufacture of the prescription drugs they purchased in Belize 'in non-sterile conditions and without using good manufacturing practices.' Those drugs included Xanax, Valium, Ativan, Ambien, Lipitor, Celebrex, Vioxx, Zoloft, Viagra, Cialis and Levitra, according to the indictment.

In the FTC's order, Pannell dismissed any suggestion that the online pharmacies engaged in 'a harmless advertising scheme with an isolated incidence of deception' with regard to the sale of weight loss and erectile dysfunction drugs.

Instead, the judge described the advertisements as 'deceptive propaganda' that was 'chock-full of false, misleading and unsubstantiated information' that was sent directly to 'pre-determined lists of individuals who were especially vulnerable to such targeted advertisements. In short, the defendants dispensed deception to those with the greatest need to believe it, and ' not surprisingly ' generated a handsome profit for their efforts.'

Pannell's order described the false claims alleged by the FTC as centering on a diet pill the online pharmacies sold under the brand name Therma Lean and touted as 'clinically proven to inhibit the absorption of fat [and] suppress appetite.'

ThermaLean was promoted as causing 'rapid and substantial weight loss, including as much as 30 pounds in two months; ' clinically proven to enable users to lose 19% of their total body weight, lose 20%-35% of abdominal fat, reduce their overall fat by 40%-70%, decrease their stored fat by 300%, and increase their metabolic rate by 76.9%' ' all claims that Pannell concluded were unsubstantiated.

Similar claims about another weight loss pill, Lipodrene, that the companies marketed through direct mail and in magazines such as Cosmopolitan were similarly flawed, Pannell determined.

The FTC, the judge noted, 'cited its expert's testimony that there is no evidence that the active ingredients used in ThermaLean and Lipodrene can provide anything more than two pounds per month of weight loss.'

While the defendants disputed the FTC's findings, they failed to provide enough evidence to satisfy Pannell.

Court: Defendants Knew of Misrepresentation

'The court is persuaded that the defendants' failure to combat the FTC's expert testimony with anything more than a vague reference to 50 paragraphs is the equivalent of sending the court on a snipe hunt through the defendants' evidence,' Pannell wrote. 'It is not the role of the court to pinpoint the defendants' evidence for them.'

In his order, Pannell also agreed with the FTC that advertisements for Spontane-ES ' a drug promoted as a treatment for erectile dysfunction but also offered as a way of increasing libido 'even if you don't have ED' ' were similarly misleading.

Moreover, Pannell determined that the companies' executives 'knew of, or at least were recklessly indifferent to, the misrepresentations the advertisements made. ' The defendants, in their motion for summary judgment, do not even dispute the individual defendants' knowledge of the advertisements' misrepresentations.'

'Significantly,' Pannell added, 'each of the individual defendants testified that he had a hand in creating the advertisements or reviewing them prior to dissemination.'

Pannell singled out Wright in his order, holding him individually liable for his participation in marketing ThermaLean. 'Dr. Wright helped develop the products, reviewed the substantiation regarding the ingredients in the products, and reviewed and edited the advertisements before they were disseminated,' Pannell wrote. 'He allowed himself to be called 'Chief of Staff' and 'medical director' in the advertisements.

'He knew that no clinical trials had ever been conducted on the products and conducted no such trials himself. He was aware that none of the studies that he reviewed were conducted on any of the products sold by the defendants.

'Because Dr. Wright did not base his endorsements on the substantiation that a similarly positioned expert in his field would require when making such endorsements, his endorsements were deceptive.'

The judge also determined that Wright, who touted himself as the companies' in-house physician, represented that ThermaLean was safe 'without adequate substantiation.'

The more than $30 million that Pannell ordered defendants to pay to the FTC represents the approximate amount of money spent by consumers on the fraudulently marketed products, the judge wrote in his order. While concerned that future business endeavors of the defendant companies 'will almost certainly result in financial harm to consumers,' Pannell also was troubled by the potential physical harm that such deceptive claims 'could foreseeably inflict on consumers' health.'

'It is easy to imagine that a consumer, relying upon false and unsubstantiated advertising about a dietary supplement's safety, efficacy, and ability to conquer health threatening circumstances, could forgo a much needed medical appointment,' the judge suggested. 'Moreover, it is also easy to imagine the physical harm that a consumer, relying upon a product's assertions of safety and clinical testing, might experience when suddenly struck by a violent side effect. ' Thus, it is clear to the court that the recurrence of the corporate defendants' violations could cause significant harm to consumers.'

The case is U.S. v. Hi-Tech Pharma- ceuticals, No. 1:03-cv-2789.

Saying they 'dispensed deception,' a federal judge in Atlanta has ordered the founders and operators of a now-defunct online pharmacy business to pay the U.S. Federal Trade Commission ('FTC') $15.8 million for fraudulent claims associated with the drugs they peddled. In his order, issued June 4, U.S. District Judge Charles A. Pannell also found Dr. Terrill Mark Wright, a physician associated with the online pharmacies, liable for $15.4 million to compensate consumers for false advertising claims.

Pannell released the findings in an order granting summary judgment to the FTC after a four-year legal battle against the National Urological Group (doing business as Warner Laboratories), the National Institute for Clinical Weight Loss Inc., Hi-Tech Pharmaceuticals Inc. (doing business as Planet Pharmacy, Global Pharmacy and others), Wright, and corporate officers Jared Wheat, Thomasz Holda, Michael Howell and Stephen Smith.

In the 98-page order, Pannell called the FTC violations by the companies 'numerous and grave.'

From their headquarters in Norcross, GA, the companies used the Internet to market ThermaLean via spam e-mail. They claimed it was a 'naturally occurring, non-prescription drug' that could be substituted for the prescription weight loss drugs Meridia, Xenical and Fastin, and that it caused fat loss of more than 600% without any dangerous side effects.

The companies also marketed a second weight loss drug, Lipodrene, and a purported erectile dysfunction remedy known as Spontane-ES, which the companies claimed in both e-mail and direct mailings had 'success rates as high as 90%!'

Pannell found that the bulk of the marketing claims about the efficacy of the weight loss and erectile dysfunction drugs were unsubstantiated and false. The judge also ruled that Wright, as a physician, had individually violated federal trade laws by offering himself as a medical expert and deceptively touting the drugs' effectiveness.

Appeal in the Works

'All of the products at issue in this case are dietary supplements and/or drugs that are marketed as promoting health benefits in the form of weight loss and sexual enhancement,' Pannell's order stated. 'Not surprisingly, all of the unsubstantiated representations that the FTC claims the advertisements make are related to the safety and/or efficacy of the dietary supplements, and correspondingly, implicate health concerns.'

Neither Edmund J. Novotny of Baker, Donelson, Bearman, Caldwell & Berkowitz in Atlanta, lead counsel in the FTC case, nor Atlanta attorney Bruce S. Harvey, who represents Wright, could be reached for comment.

But Birmingham lawyer J. Stephen Salter, who has represented Wheat in a variety of legal matters for more than 18 years, called his client 'a fighter.'

'We believe in these issues,' Salter said. 'We are going to take an appeal ' to the Eleventh Circuit Court of Appeals to see if we can get some relief.'

Wheat, Salter continued, 'believes he is doing everything by the book,' adding that his client is 'in complete compliance' with a 2003 consent decree reached with the U.S. Food and Drug Administration ('FDA') regarding the operation of the online pharmacies. The FTC, the lawyer added, 'seems to believe that they are a law unto themselves and that nobody can challenge them. That's what this entire case is about.'

In court papers, Hi-Tech attorneys argued the company was not subject to FTC regulatory fines because ' while it produced and marketed 'multiple products under the name Lipodrene,' those products are 'completely different in look and formulation' from the Lipodrene that the National Urological Group marketed in the advertisements cited in the FTC complaint.

The lawyers said none of the defendant companies manufactured, advertised or marketed the kind of Lipodrene that is the subject of the FTC action.

Defense lawyers also argued that federal laws allow a certain amount of 'puffery,' or exaggeration, in promoting or marketing a product.

The judge was not convinced.

'To demonstrate the rampant use of puffery, the defendants go through the advertisements sentence by sentence and sometimes even phrase by phrase to point out any language that could fit ' even in the remotest sense ' within the definition of puffery,' Pannell noted.

Despite that effort, the judge concluded: 'All of the claims that the FTC articulates in the complaint are phrased as factual statements that can be verified by research and science. ' The fact that puffery is present cannot serve as a shield for the advertisements' deceptive, factual representations.'

'Deceptive Propaganda'

In 2003, U.S. District Judge Robert L. Vining Jr. granted a request by the FDA to bar Wheat, Hi-Tech Pharmaceuticals, the National Urological Group, the National Institute for Clinical Weight Loss, the American Weight Loss Clinic Inc. and the United Metabolic Research Center Inc. from marketing or selling more than a dozen drugs, including those drugs that prompted Pannell's order last month.

Wheat, Smith, Holda and Hi-Tech also are among 12 defendants named in a 2006 federal indictment that charges them with fraud, adulteration or misbranding of drugs, the introduction or distribution of drugs not approved by the FDA, and violations of federal drug import laws. The criminal case is pending before U.S. District Judge Jack T. Camp.

That indictment alleges that the defendants operated Web sites, among them canadiangenerics.com, genericvi agra.bz, genericpharmacy.bz, pharma cy.bz, targetdata.bz and planetpharmacy.bz ' all of which offered prescription drugs for sale without a prescription.

According to the indictment, the Web sites 'falsely stated that these drugs would be imported from Canada, falsely stated that all pharmaceuticals purchased via the [Web site] were manufactured using good manufacturing practices, and falsely stated that a licensed medical doctor would review the online questionnaire for the drugs.'

Instead, the defendants arranged for the manufacture of the prescription drugs they purchased in Belize 'in non-sterile conditions and without using good manufacturing practices.' Those drugs included Xanax, Valium, Ativan, Ambien, Lipitor, Celebrex, Vioxx, Zoloft, Viagra, Cialis and Levitra, according to the indictment.

In the FTC's order, Pannell dismissed any suggestion that the online pharmacies engaged in 'a harmless advertising scheme with an isolated incidence of deception' with regard to the sale of weight loss and erectile dysfunction drugs.

Instead, the judge described the advertisements as 'deceptive propaganda' that was 'chock-full of false, misleading and unsubstantiated information' that was sent directly to 'pre-determined lists of individuals who were especially vulnerable to such targeted advertisements. In short, the defendants dispensed deception to those with the greatest need to believe it, and ' not surprisingly ' generated a handsome profit for their efforts.'

Pannell's order described the false claims alleged by the FTC as centering on a diet pill the online pharmacies sold under the brand name Therma Lean and touted as 'clinically proven to inhibit the absorption of fat [and] suppress appetite.'

ThermaLean was promoted as causing 'rapid and substantial weight loss, including as much as 30 pounds in two months; ' clinically proven to enable users to lose 19% of their total body weight, lose 20%-35% of abdominal fat, reduce their overall fat by 40%-70%, decrease their stored fat by 300%, and increase their metabolic rate by 76.9%' ' all claims that Pannell concluded were unsubstantiated.

Similar claims about another weight loss pill, Lipodrene, that the companies marketed through direct mail and in magazines such as Cosmopolitan were similarly flawed, Pannell determined.

The FTC, the judge noted, 'cited its expert's testimony that there is no evidence that the active ingredients used in ThermaLean and Lipodrene can provide anything more than two pounds per month of weight loss.'

While the defendants disputed the FTC's findings, they failed to provide enough evidence to satisfy Pannell.

Court: Defendants Knew of Misrepresentation

'The court is persuaded that the defendants' failure to combat the FTC's expert testimony with anything more than a vague reference to 50 paragraphs is the equivalent of sending the court on a snipe hunt through the defendants' evidence,' Pannell wrote. 'It is not the role of the court to pinpoint the defendants' evidence for them.'

In his order, Pannell also agreed with the FTC that advertisements for Spontane-ES ' a drug promoted as a treatment for erectile dysfunction but also offered as a way of increasing libido 'even if you don't have ED' ' were similarly misleading.

Moreover, Pannell determined that the companies' executives 'knew of, or at least were recklessly indifferent to, the misrepresentations the advertisements made. ' The defendants, in their motion for summary judgment, do not even dispute the individual defendants' knowledge of the advertisements' misrepresentations.'

'Significantly,' Pannell added, 'each of the individual defendants testified that he had a hand in creating the advertisements or reviewing them prior to dissemination.'

Pannell singled out Wright in his order, holding him individually liable for his participation in marketing ThermaLean. 'Dr. Wright helped develop the products, reviewed the substantiation regarding the ingredients in the products, and reviewed and edited the advertisements before they were disseminated,' Pannell wrote. 'He allowed himself to be called 'Chief of Staff' and 'medical director' in the advertisements.

'He knew that no clinical trials had ever been conducted on the products and conducted no such trials himself. He was aware that none of the studies that he reviewed were conducted on any of the products sold by the defendants.

'Because Dr. Wright did not base his endorsements on the substantiation that a similarly positioned expert in his field would require when making such endorsements, his endorsements were deceptive.'

The judge also determined that Wright, who touted himself as the companies' in-house physician, represented that ThermaLean was safe 'without adequate substantiation.'

The more than $30 million that Pannell ordered defendants to pay to the FTC represents the approximate amount of money spent by consumers on the fraudulently marketed products, the judge wrote in his order. While concerned that future business endeavors of the defendant companies 'will almost certainly result in financial harm to consumers,' Pannell also was troubled by the potential physical harm that such deceptive claims 'could foreseeably inflict on consumers' health.'

'It is easy to imagine that a consumer, relying upon false and unsubstantiated advertising about a dietary supplement's safety, efficacy, and ability to conquer health threatening circumstances, could forgo a much needed medical appointment,' the judge suggested. 'Moreover, it is also easy to imagine the physical harm that a consumer, relying upon a product's assertions of safety and clinical testing, might experience when suddenly struck by a violent side effect. ' Thus, it is clear to the court that the recurrence of the corporate defendants' violations could cause significant harm to consumers.'

The case is U.S. v. Hi-Tech Pharma- ceuticals, No. 1:03-cv-2789.