Court Orders DRTV Vets to Pay $480M, Bans Them for Life6 Sep, 2012 By: William I. Rothbard
In May, I reported on the Federal Trade Commission (FTC) victory against DRTV veterans Gary Hewitt and Doug Gravink and their company, Family Products LLC, in FTC v. John Beck Amazing Profits et al. Hewitt and Gravink sold real estate and Internet “wealth creation” products through national infomercials and telemarketing. The court said defendants violated the FTC Act and Telemarketing Sales Rule by making false earnings claims and failing adequately to disclose negative option terms for their continuity programs. It withheld final judgment, however, until it could hear further from the parties on the remedy the FTC was seeking: more than $450 million in consumer redress and lifetime bans on Hewitt and Gravink.
Well, the court has now heard – and decided. In a judgment of unprecedented size, it has ordered Hewitt and Gravink to pay the whopping sum of $480 million, and banned them for life from infomercials and telemarketing. Other individual defendants were ordered to pay parts of the $480 million (smaller portions: $11 million; $34 million; $113 million) but only Hewitt and Gravink, as heads of the entire enterprise, were held “jointly and severally” liable for the whole amount and banned.
While acknowledging the severity of the judgment, the court felt it was justified in the circumstances. So-called “fencing-in” relief that bans or circumscribes future conduct must bear a “reasonable relation” to the unlawful conduct. Whether it does, and what its scope should be, depends on how serious and deliberate the violation was, how easily it can be transferred to other products, and the defendant’s prior history (i.e., is he a “recidivist”?).
On each count, the court found evidence to support the ultimate fencing-in relief of lifetime bans against Hewitt and Gravink. Each had a “long history of blatantly disregarding the law,” including repeated state violations involving the same products in this case and prior FTC orders involving infomercials for different products.
This history showed not only a propensity to break the law but how easily their “technique of deception” could be applied to other products. Further, their violations were “serious, pervasive and continuous,” resulting in injury of nearly $500 million to almost 1 million consumers, and their personal involvement was “extensive and highly deliberate.” Considering all this, the court said any fencing-in less restrictive than a lifetime ban would be “ineffective” to prevent future violations.
With regard to the $480 million, the court said it was warranted because this was the total amount consumers had paid, minus chargebacks and refunds. Hewitt and Gravink argued $5.5 million should be deducted, as the amount of “wealth” consumers had derived from the products sold. The court said no, stating that “whether the consumer is lucky enough to make a profit or some small amount of money … is irrelevant to the issue of whether defendants’ representations were deceptive and misleading.”
Following other recent FTC triumphs resulting in substantial money judgments against individual defendants ($18 million in Commerce Planet, $30 million in Grant Connect), the extraordinary redress award and conduct bans ordered in John Beck illustrates again the high-risk FTC environment DR marketers are operating in today. Should you become an FTC target, you probably will not be allowed to settle unless you agree to give the FTC everything you have. And should you (understandably) refuse to do that, as the defendants in these cases did, and duke it out in court, you could suffer a similarly hideous fate. It is, indeed, a “Hobbesian” choice, one that can be avoided for sure only by fulfilling your FTC obligations in the first place.
William I. Rothbard is a former FTC attorney and practices in Los Angeles, specializing in advertising and marketing law. He can be reached at (310) 453-8713, Rothbard@FTCAdLaw.com, and www.ftcadlaw.com.