Advertising Law Blog

A business owner has just been convicted of defrauding customers seeking sexual enhancement drugs as well as a variety of other dietary herbal supplements. Steve Warshak, CEO of Berkeley Premium Nutraceuticals ("Nutraceuticals"), was sentenced last week to 25 years in federal prison. Eight other former executives and employees also received sentences ranging from one month to one year for their roles in assisting the fraud.

Nutraceuticals' main product, Enzyte, promises sexual enhancement. Along with this supplement the company sells various products alleged to boost energy, manage weight, reduce memory loss, and aid sleep. In 2006 the Federal Trade Commission filed civil charges against the company alleging that many of these products did not in fact do what their advertisements claimed. That civil suit is still pending.

Warshak and his company were convicted on 93 counts of conspiracy, fraud, and money laundering.

Nutraceuticals' supplements attracted its customers through "free" sample incentives. Customers were quick to accept the products and did not hesitate to provide their debit or credit card information, which was to be used strictly for a $4.50 'shipping and handling' charge. What many of the customers allegedly did not know was that once they agreed to the sample and provided their credit information, the customers were enrolled in a continuity plan in which they would continue to receive monthly shipments of the supplement, at a cost of approximately $35 per month. According to the indictment, there were some situations in which the customers were not informed that they were being enrolled in these continuity programs and in other instances, the telemarketers told the customers that it was required. Nutraceuticals was found to have obtained $400 million from naive consumers through allegedly false advertising, misappropriated credit card information, and refusal to accept returns or cancel orders.

In addition to Warshak's 25-year sentence, he and his company were ordered to forfeit more than $500 million in bank funds, elite memberships, cars and homes, a dollar amount based on the gross revenue received from customers, as alleged in the indictment.

Warshak's suit, which seemingly began as a false advertising claim, now carries a penalty on a much greater scale. Companies can no longer rely on a civil suit brought by the Federal Trade Commission in situations where products do not live up to their perceived expectations. The possibility of criminal liability is a harsh reality.

United States v. Steven Warshak, et al. Case No.1:06-CR-0111-SJD

United States District Court for the Southern District of Ohio Western Division