[Federal Register Volume 62, Number 66 (Monday, April 7, 1997)]
[Notices]
[Pages 16587-16590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8802]
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FEDERAL TRADE COMMISSION
[File No. 942-3237]
KCD Holdings, Inc., et al.; Interactive Medical Technologies,
Ltd., et al.; William Pelzer, Jr.; and William E. Shell, M.D.; Analysis
to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreements.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair or deceptive acts or practices and unfair methods of
competition, the four consent agreements, accepted subject to final
Commission approval, would prohibit, among other things, the
California-based companies, which market cellulose-bile products, and
their officers from providing means and instrumentalities or
substantial assistance to any person who they know, or should know, is
making any false or unsubstantiated benefit, performance, efficacy or
safety claim for any weight loss, fat or cholesterol reduction product
or program. The consent agreements would require KCD, KCD Holdings and
Richards to pay $150,000 in consumer redress, in thirteen installments
over a period of one year, Interactive Medical and Effective Health to
pay $35,000 in consumer redress, and Dr. William E. Shell, a former
officer of Interactive Medical Technologies, Ltd., to pay $20,000 in
consumer redress.
DATES: Comments must be received on or before June 6, 1997.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.
FOR FURTHER INFORMATION CONTACT:
Laureen France or Nadine Samter, Federal Trade Commission, Seattle
Regional Office, 915 Second Ave., Suite 2896, Seattle, WA. 98174. (202)
220-6350 or 220-4471.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the above-captioned consent agreements containing a consent
orders to cease and desist, having been filed with and accepted,
subject to final approval, by the Commission, have been placed on the
public record for a period of sixty (60) days. The following Analysis
to Aid Public Comment describes the terms of the consent agreements,
and the allegations in the complaints. An electronic copy of the full
text of the consent agreement package can be obtained from the FTC Home
page (for March 25, 1997), on the World Wide Web, at ``http://
www.ftc.gov/os/actions/htm.'' A paper copy can be obtained from the FTC
Public Reference Room, Room H-130, Sixth Street and Pennsylvania
Avenue, N.W., Washington, D.C. 20580, either in person or by calling
(202) 326-3627. Public comment is invited. Such comments or views will
be considered
[[Page 16588]]
by the Commission and will be available for inspection and copying at
its principal office in accordance with Section 4.9(b)(6)(ii) of the
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).
Analysis of Proposed Consent Orders
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, agreements to proposed consent orders from KCD,
Incorporated (``KCD'') and KCD Holdings, Inc. (``KCD Holdings''), their
former officer, Clark M. Holcomb (``Holcomb''), and their current
officer, Bonnie L. Richards (``Richards'') (hereinafter ``KCD
respondents''), their advertising agency Deerfied Corporation
(``Deerfield''), and its owner, Gerald E. Hatto (``Hatto''). The KCD
respondents market and sell an over-the-counter weight loss product,
known as SeQuester, comprised of fiber and ox bile. The product
advertisements have represented that the product reduces the body's
absorption of fat and sugar from consumed food, thereby providing
weight loss and cholesterol lowering benefits. Respondents Deerfield
and Hatto assisted in the creation and dissemination of the SeQuester
advertisements.
The Commission has also accepted, subject to final approval,
agreements to proposed consent orders from Interactive Medical
Technologies, Ltd. (``IMT''), its wholly owned subsidiary, Effective
Health, Inc. (``EHI''), William Pelzer, Jr. (``Pelzer''), a former
officer of IMT and EHI, and William E. Shell, M.D. (``Shell''), also a
former officer of IMT (hereinafter ``IMT respondents''). These
respondents marketed and sold an over-the-counter weight loss product,
known as Lipitrol, also comprised of fiber and ox bile. The Lipitrol
product advertisements represented that the product reduced the body's
absorption of fat from consumed food, thereby providing weight loss and
cholesterol lowering benefits. The IMT respondents also provided means
and instrumentalities or substantial assistance to the KCD respondents'
marketing and sale of SeQuester.
The proposed consent orders have been placed on the public record
for sixty (60) days for receipt of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreements and the comments received and will decide whether it should
withdraw from the agreements and take other appropriate action or make
final the proposed orders contained in the agreements.
The Proposed Complaints
The Commission's complaint against the KCD respondents, Deerfield
and Hatto, charges these respondents with making false and
unsubstantiated claims, in advertising and promotional materials,
regarding the efficacy of SeQuester as a weight loss, fat reduction and
cholesterol reduction product. Specifically, the complaint alleges that
the KCD respondents falsely represented, expressly or by implication,
that SeQuester prevents or significantly reduces the body's absorption
of fat and sugar from consumed food. The complaint also charges that
these respondents failed to possess and rely upon a reasonable basis
for these representations. The Complaint further alleges that these
respondents made false and deceptive representations that scientific
research demonstrates that SeQuester prevents or significantly reduces
the body's absorption of fat from consumed food and causes significant
weight loss.
In addition, the compliant alleges that the KCD respondents have
represented that SeQuester causes significant weight loss; allows
consumers to eat high-fat foods without gaining weight; causes
significantly greater weight loss than diet and exercise alone; allows
consumers to eat high-fat foods without increasing their risk of high
cholesterol, clogged arteries, heart disease and other health problems
associated with a high-fat diet; reduces the risk of high cholesterol,
clogged arteries, heart disease and other problems associated with a
high-fat diet; and is beneficial and safe when used in amounts
sufficient to cause diarrhea. The Complaint charges that these
respondents did not possess and rely upon a reasonable basis for these
representations.
The complaint also alleges that Deerfield and Hatto have
represented, expressly or by implication, that SeQuester causes
significant weight loss; allows consumers to eat high-fat foods without
gaining weight; allows consumers to eat high-fat foods without
increasing their risk of high cholesterol, clogged arteries, heart
disease and other health problems associated with a high-fat diet;
prevents or significantly reduces the body's absorption of fat and
sugar from consumed food; reduces the risk of high cholesterol, clogged
arteries, heart disease and other problems associated with a high-fat
diet; and significantly reduces the body's absorption of sugar from
consumed food. The compliant charges that Deerfield and Hatto did not
possess and rely upon a reasonable basis for these representations. The
complaint further alleges that Deerfield and Hatto falsely represented
that scientific research demonstrates that SeQuester prevents or
significantly reduces the body's absorption of fat from consumed food
and causes significant weight loss. The compliant also charges that
respondents Deerfield and Hatto knew or should have known that these
representations were false and misleading.
The Commission's complaint against the IMT respondents charges IMT,
EHI and Shell, with making false and unsubstantiated advertising claims
regarding the efficacy of Lipitrol as a weight loss, fat reduction and
cholesterol reduction product. Specifically, the complaint alleges that
IMT, EHI and Shell falsely represented, either expressly or by
implication, that Lipitrol prevents or significantly reduces the body's
absorption of fat from consumed food, and absorbs approximately 5.9
grams of fat per tablet from consumed food. The complaint also charges
that respondents IMT, EHI and Shell failed to possess and rely upon a
reasonable basis for these representations. The complaint further
alleges that these respondents made false and deceptive representations
that scientific research demonstrates that Lipitrol prevents or
significantly reduces the body's absorption of fat from consumed food,
absorbs approximately 5.9 grams of fat per tablet from consumed food,
causes significant weight loss and lowers blood cholesterol levels.
In addition, the complaint alleges that respondents IMT, EHI and
Shell have represented that Lipitrol causes significant weight loss;
lowers blood cholesterol levels; reduces, or reduces the risks
associated with, high cholesterol, including clogged arteries, high
blood pressure, diabetes, breast cancer and heart disease; causes
significantly greater weight loss than diet and exercise alone; and is
beneficial and safe when taken in amounts sufficient to cause diarrhea.
The complaint charges that these respondents did not possess and rely
upon a reasonable basis for these representations.
Respondent William Pelzer, Jr. in not included in the above-
mentioned allegations because he had no involvement in the advertising,
marketing or sale of Lipitrol.
In addition, the complaint charges that the IMT respondents,
including respondent Pelzer, provided means and instrumentalities and/
or substantial assistance to others who respondents knew or should have
known were making false and deceptive or
[[Page 16589]]
unsubstantiated claims for the product, sold under the name SeQuester.
Specifically, the complaint alleges that the respondents licensed to
KCD, its holding company, KCD Holdings, those companies' former
principal, Holcomb, and current principal, Richards, the exclusive
rights to market the product.
The complaint alleges that the IMT respondents knew or should have
known that the KCD respondents made false and deceptive or
unsubstantiated representations similar to those made for Lipitrol, in
advertisements for SeQuester. The complaint charges that despite the
fact that respondents knew or should have known that KCD was making the
false and deceptive, and/or unsubstantiated representations in the
marketing and sale of SeQuester, the IMT respondents nevertheless
provided various services and promotional materials to the KCD
respondents in furtherance of the KCD respondents' efforts to
disseminate these false claims, including providing the KCD respondents
with studies purporting to show that SeQuester effectively reduces the
body's absorption of fat from consumed food and causes significant
weight loss; the licensing rights to market and sell the product to
consumers; technical information regarding the product; and various
promotional materials and information for marketing the product.
The Proposed Orders
The Commission has accepted four separate consent orders in this
matter. The proposed orders contain provisions designed to remedy the
alleged violations. The proposed orders against respondents KCD
Holdings, Inc., KCD, Incorporated and Bonnie L. Richards; IMT and EHI;
and Shell provide for the payment of consumer redress in installments
over a period of one year from the date the proposed orders become
final. In the event that consumer redress is not feasible, the proposed
orders provide that the funds will be deposited in the United States
Treasury. In addition, the proposed order against respondent Shell
requires him to post a performance bond of either $250,000 or
$1,000,000, depending on the circumstances of his activities.
Proposed Consent Order with the KCD Respondents, Deerfield and
Hatto
Part I of the proposed consent order against the KCD respondents,
Deerfield and Hatto bars them from making representations that SeQueter
or any product or program prevents or reduces the body's absorption of
fat or sugar from consumed food unless the representation is true at
the time it is made and is supported by competent and reliable
scientific evidence.
Part II of the proposed consent order against the KCD respondents,
Deerfield and Hatto prohibits them from representing that Sequester or
any product or program provides any weight loss benefit; causes greater
loss of body fat than diet and exercise alone; allows consumers to eat
high-fat foods without increasing their risk of high cholesterol,
clogged arteries, heart disease or other health problems associated
with a high-fat diet; or reduces, or reduces the risk of, high
cholesterol, clogged arteries, heart disease and other health problems
associated with a high-fat diet, unless respondents can substantiate
these representations with competent and reliable scientific evidence.
Part III of the proposed consent order against the KCD respondents
prevents them from representing that SeQuester or any product or
program can be used beneficially and safely, in amounts or with
frequency sufficient to cause diarrhea, unless, at the time the
representation is made, they possess and rely upon competent and
reliable scientific evidence that substantiates the representation,
which when appropriate, must be competent and reliable scientific
evidence.
Part IV of the proposed consent order against the KCD respondents,
Deerfield and Hatto bars them from misrepresenting the existence,
contents, validity, results, conclusions or interpretations of any
test, study or research.
Part V of the proposed consent order against the KCD respondents,
Deerfield and Hatto prohibits them from making representations about
the benefits, performance, efficacy or safety of SeQuester or any
product or program unless competent and reliable evidence substantiates
any such representation.
Part VI of the proposed consent order against the KCD respondents
provides Deerfield and Hatto with a defense to Parts I, II and V of the
order if they neither knew nor had reason to know of an inadequacy of
substantiation for any representation covered by those parts of the
order; and a defense to Part IV of the order if they neither knew nor
had reason to know that the test, study or research did not prove,
demonstrate or confirm any representation covered by that part of the
order.
Part VII of the proposed order against the KCD respondents requires
KCD, KCD Holdings and Richards to pay $150,000 in consumer redress, in
thirteen installments over a period of one year. If consumer redress is
impracticable, Part VII provides that these funds will be paid to the
United States Treasury. Part VII(C) requires KCD, KCD Holdings and
Richards to provide the Commission with a security interest in certain
property to insure full payment of the $150,000 of consumer redress.
Parts VIII and IX of the proposed order against the KCD
respondents, Deerfield and Hatto contain provisions permitting certain
claims that are approved for labeling by the FDA, either under the
Nutrition Labeling and Education Act, a tentative final or final
monograph or under any new drug application approved by the FDA.
Parts X, XI, XII, XIII and XIV of the proposed order against the
KCD respondents, Deerfield and Hatto contain compliance reporting
provisions requiring respondents to: retain records that bear on their
compliance with the order; distribute copies of the order to those
persons having responsibility with respect to the subject matter of the
order; notify the Commission of any changes in the structure of the
corporate respondents that may affect their compliance obligations
under the order, or any changes in the business affiliations of the
individual respondents; and report to the Commission their compliance
with the terms of the order.
Part XV of the proposed order against the KCD respondents,
Deerfield and Hatto contains a provision automatically terminating the
order twenty (20) years from the date that it becomes final.
Proposed Consent Order With IMT, EHI, Shell and Pelzer
Part I of the proposed consent order against respondents IMT and
EHI bars them from making representations that LIPITROL or any weight
loss, fat reduction or cholesterol reduction product or program
prevents or reduces the body's absorption of fat from consumed food or
absorbs any amount of fat from consumed food unless the representation
is true and supported by competent and reliable scientific evidence.
Part I of the proposed order against respondent Shell contains the same
bar, but covers representations for Lipitrol or any product or program.
Part II of the proposed order against respondents IMT and EHI
prohibits them from representing that Lipitrol or any weight loss, fat
reduction or cholesterol reduction product or program, or any food,
drug or dietary supplement, provides any weight loss benefit; lowers
blood cholesterol levels; reduces, or reduces the risks associated
with, high cholesterol, including clogged arteries, high blood
pressure, diabetes, breast cancer and heart
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disease; or can be used, beneficially and safely, in amounts or with
frequency sufficient to cause diarrhea, unless respondents can
substantiate these representations with competent and reliable
scientific evidence. Again, the same prohibition is contained in Part
II of the proposed order against respondent Shell, but covers
representations for Lipitrol or any product or program.
Part III of the proposed order against respondents IMT and EHI
prohibits them from misrepresenting the existence, contents, validity,
results, conclusions or interpretations of any test, study or research
in connection with Lipitrol or any weight loss, fat reduction or
cholesterol reduction product or program, or any food, drug or dietary
supplement. Part IV of the proposed order prohibits respondents IMT and
EHI from making representations about the benefits, performance,
efficacy or safety of Lipitrol or any weight loss, fat reduction or
cholesterol reduction product or program, or any food, drug or dietary
supplement unless competent and reliable scientific evidence
substantiates any such representation. Parts III and IV of the proposed
order against respondent Shell are the same except that the
prohibitions apply to representations for Lipitrol or any product or
program.
Part V of the proposed orders against respondents IMT, EHI and
Shell, and Part I of the proposed order against respondent Pelzer, bars
each of these respondents from providing means and instrumentalities or
substantial assistance or support to any person or entity who they know
or should know is making any false or misleading or unsubstantiated
claim for any weight loss, fat reduction or cholesterol reduction
product or program. The proposed orders define ``assistance'' to
include providing: tests, analyses, studies or research to determine
the benefits, performance, efficacy or safety of the product or
program; licensing or other contractual rights to market any such
product or program; technical assistance; or advertising, labeling or
promotional materials for the marketing and sale of any such product or
program.
Part VI of the proposed orders against respondents IMT, EHI and
Shell, and Part II of the proposed order against respondent Pelzer,
require these respondents to monitor business practices of certain
parties to whom they provide assistance. To the extent that any such
party is engaged in the marketing and sale of any weight loss, fat
reduction or cholesterol reduction product or program, these
respondents must make an effort to determine whether false or
misleading or unsubstantiated claims are being made with respect to any
such product or program. Specifically, these respondents must review
all advertisements and promotional materials and all tests, reports,
studies, surveys, demonstrations or other evidence that any such person
relies upon in making any claims to consumers. In addition, these
respondents are required to terminate their business relationship with
any person whom they know or should know is making any false or
misleading or unsubstantiated claims.
Part VII of the proposed order against respondents IMT and EHI
requires them to pay $35,000 in consumer redress in three installments
over a period of one year. If consumer redress is impracticable, Part
VII provides that these funds will be paid into the United States
Treasury. Part VII(C) requires IMT and EHI to provide the Commission
with a security interest in certain property to insure full payment of
the $35,000 of consumer redress.
Part VII(A)(1) and (2) of the proposed order against respondent
Shell requires him to obtain a performance bond for $1,000,000 before
he markets, sells or holds any ownership interest or official position
in any business that advertises or sells Lipitrol or any other weight
loss, fat reduction or cholesterol reduction product composed of fiber
and bile extract. Part VII(A)(3) and (4) of the proposed order also
requires respondent Shell to obtain a performance bond of $250,000
before he markets, sells or holds an ownership interest or official
position in any business that advertises or sells any weight loss, fat
reduction or cholesterol reduction product or program to consumers,
other than his treatment of patients in connection with his private
medical practice. Parts VII(B) through (F) require respondent Shell to
provide a copy of the bond to the FTC; prohibit him from disclosing the
existence of the bond to any consumer; and describe the period during
which the bond must remain effective, the bond's coverage, the bond's
potential beneficiaries and certain other administrative requirements.
Part VIII of the proposed order against respondent Shell requires
him to pay consumer redress in the amount $20,000 in four installments
over a period of one year. In the event that consumer redress is
impractical, this Part provides that these funds will be paid into the
United States Treasury. Part VII(C) requires Shell to provide the
Commission with a security interest in certain property to insure full
payment of the $20,000 of consumer redress.
Parts VIII and IX of the proposed order against respondents IMT and
EHI, Parts IX and X of the proposed order against respondent Pelzer,
contain provisions permitting certain claims that are approved for
labels by the FDA, either under the Nutrition Labeling and Education
Act, a tentative final or final monograph or under a new drug
application approved by the FDA.
Parts X, XI, XII and XIII of the proposed order against respondents
IMT and EHI, Parts XI, XII, XIII and XIV of the proposed order against
respondent Shell, and Parts V, VI, VII and VIII of the proposed order
against respondent Pelzer, contain compliance reporting provisions
requiring these respondents to: retain all records that would bear on
their compliance with the respective orders; notify the Commission of
any changes in the structure of the corporate respondents that may
affect their compliance obligations under the orders, or any changes in
the business affiliations of the individual respondents relating to the
advertising, offering for sale, sale or distribution of any weight
loss, fat reduction or cholesterol reduction product or program;
distribute copies of the orders to those persons having responsibility
with respect to the subject matter of the respective orders; and report
to the Commission their compliance with the terms of the respective
orders.
Part XIV of the proposed order against respondents IMT and EHI,
Part XV of the proposed order against respondent Shell, and Part IX of
the proposed order against respondent Pelzer contain a provision
automatically terminating the order twenty (20) years from the date
that they become final.
The purpose of this analysis is to facilitate public comment on the
proposed orders. It is not intended to constitute an official
interpretation of the agreements and proposed orders or to modify their
terms in any way.
Donald S. Clark,
Secretary.
[FR Doc. 97-8802 Filed 4-4-97; 8:45 am]
BILLING CODE 6750-01-M