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Just a month following its last announcement of an enforcement action against a dietary supplement maker, the FTC recently announced filing suit in California district court against another supplement maker, Amare, a self-described “mental wellness company.” Headed by two individuals (also named as defendants in the complaint) who were already subject to prior court-ordered permanent injunctions prohibiting them from making false claims, the multi-level marketing company is alleged in the FTC’s complaint to be engaging in a wide range of bad behavior, from misrepresenting the income its salespeople (“brand partners”) can earn selling the products, to letting those brand partners run amok on social media, to making false and misleading claims about the products themselves.
As alleged in the complaint, and like the supplement maker targeted in the earlier action, Amare claims that its products provide health benefits for both children and adults. The products, including Kids Happy Juice and Kids Mood+, are claimed to “work across the entire gut-brain axis” in order to help with depression, anxiety and ADHD. To support these claims, Amare relied on a study that the FTC alleged was wholly unreliable: the study, authored by Amare itself, was not blinded, it did not include a placebo, and included just ten subjects (children) who took the supplement for a month. Notwithstanding the insufficiency of this study, Amare purportedly regularly cited it in its advertising and through its brand partners.
These brand partners are alleged to be the most significant driver of the company’s sales. They not only promote the products themselves on social media; they also promote the amount of money brand partners can make selling the products (enough to replace their current income!) According to the FTC, although Amare and its officers were well aware of the false and unsubstantiated claims made by these brand partners, it did nothing to stop them, like “freezing their commissions, disabling their credentials, or suspending or terminating them from the network.” Rather, as alleged, Amare featured and promoted these brand partners instead. How did FTC discover all this? By having an investigator go undercover, posing as a prospective brand partner.
Not surprisingly, the complaint alleges that all of this conduct violates the FTC Act and the FTC is seeking a permanent injunction. What lessons does this have for other companies, even those who are not so clearly running afoul of the rules?
(1) Good science makes for good claims (and the obvious corollary).
(2) Health claims, particularly those involving kids, are an FTC priority (as the FTC keeps telling us).
(3) Dietary supplements may not be regulated like drugs, but claims about their efficacy need real science too.
(4) Earnings claims are a perennial favorite for regulators. Maybe now more than ever as more workers are looking to supplement their income in this uncertain economic climate?
(5) Influencers, brand partners, salespeople: you break it you own it. Train them, monitor them, and fire them if they’re going off the rails.
UPDATE: On June 12th, the FTC announced that it filed a contempt motion against Amare and several of its former and current executives alleging that they acted in concert to systematically violate the terms of the earlier order prohibiting the use of false and unsubstantiated health claims for two other dietary supplements. In filing for contempt, the FTC is seeking compensatory damages for consumers in the full amount consumers paid for the products.
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