Double Whammy for a Dietary Supplement Company Executive – First Come Civil Charges, Now Criminal Charges

May 3, 2011By John R. Fleder

By John R. Fleder

In 2004, the Federal Trade Commission (“FTC”) brought a civil action against the marketers of products sold as “Coral Calcium Daily” and “Supreme Greens with MSM.”  The FTC challenged a number of claims, including that the products allegedly made express or implied claims that they were an effective treatment for cancer and would cause significant weight loss.  In 2008, the United States District Court for the District of Massachusetts granted in part the FTC’s motion for summary judgment.  Judge O’Toole ruled that certain claims were not adequately substantiated, finding that the infomercials were misleading as a matter of law.  After a subsequent bench trial, the District Court entered judgments enjoining the defendants from running deceptive infomercials, and ordered them to pay in excess of $48 million.  In 2010, the United States Court of Appeals for the First Circuit affirmed those rulings (see our previous post here).  FTC v. Direct Marketing Concepts, 624 F.3d 1 (1st Cir. 2010).

One of the defendants in that action was Donald Barrett, who owned half of Direct Marketing Concepts.  On April 26, 2011, the United States Attorney’s Office in Massachusetts filed a criminal Information against Mr. Barrett in connection with his companies’ sales of these same products.  The government alleged that he unlawfully introduced Supreme Greens into interstate commerce.  The government alleged the products were drug products, and that sales of these products was unlawful because the products were misbranded in that they did not have adequate directions for use.  On May 2, 2011, the United States Attorney’s office issued a press release announcing that Mr. Barrett had agreed to plead guilty to an FDC Act misdemeanor charge, along with tax charges.  According to the government, Mr. Barrett faces a possible three year jail sentence and a fine.

These cases are noteworthy on a number of grounds.  First, the FTC action shows that the Commission is seeking and will surely continue to seek large monetary payments from dietary supplement companies and their executives when the FTC believes that certain defendants have made large sums of money from sales of their products.  Second, it shows that company executives can face criminal charges for the same type of activity.

However, what is most striking about these cases is that the government will use both civil and criminal remedies against company executives for FTC Act and FDC Act violations.  Indeed, it is quite clear that the FTC and the FDA are working closely these days to coordinate their enforcement activities.  Nevertheless, this coordination poses severe landmines for companies, their executives and the lawyers who represent them.  Absent some type of global resolution of all potential criminal and civil charges, the end of either a criminal or civil case may not mean the end of a company executive’s legal problems.