On September 21, 2005 the Federal Trade Commission (FTC) announced that three defendants will give up $4.5 million in cash and other assets to settle FTC charges stemming from their roles in the marketing of CortiSlim and CortiStress, dietary supplements promoted for weight loss and disease prevention, respectively. The surrendered assets will include an investment partnership and related charitable foundation, a speedboat, a truck, and a variety of real estate interests. As part of the settlement, the defendants cannot seek a cash refund of state or federal taxes for 2003, 2004, or 2005 that were paid prior to the settlement. In its complaint, the FTC alleged that the defendants made false or unsubstantiated product claims and used deceptively formatted infomercials in pitching the dietary supplements.

The defendants in the settlement announced today, California-based Pinnacle Marketing Concepts, Inc. (“Pinnacle”) and its president, Thomas F. Cheng, and Utah-based Shawn M. Talbott, cannot make benefit or efficacy claims for any dietary supplement, food, drug, cosmetic, or device unless the claims are truthful and substantiated. Litigation continues against the four defendants who have not settled.

In September 2004, the Commission filed a complaint against Window Rock Enterprises, Inc.; Stephen F. Cheng; Infinity Advertising, Inc.; Gregory S. Cynaumon; and Shawn M. Talbott. The Commission later amended its complaint to add Pinnacle and Thomas F. Cheng as additional defendants. The FTC alleges that advertising claims about CortiSlim’s ability to, among other things, cause rapid, substantial, and permanent weight loss in all users were false or unsubstantiated, as were claims about CortiStress’s ability to reduce the risk of, or prevent, osteoporosis, obesity, diabetes, Alzheimer’s disease, cancer, and cardiovascular disease. The FTC also alleges that CortiSlim and CortiStress infomercials were deceptively formatted to appear as talk shows rather than advertisements. The advertising campaign for CortiSlim ran nationwide, including ads on broadcast and cable television, radio, print media, and the Internet.

The FTC announced two separate stipulated final agreements and orders for permanent injunction today, one with Pinnacle and its president, Thomas Cheng, who the FTC alleges participated in the marketing of Cortislim and CortiStress; and one with Talbott, who the FTC alleges formulated the two products and participated in the advertising. Both orders prohibit the making of certain claims about CortiSlim and CortiStress and require competent and reliable scientific evidence to support any other claims made about the products. The orders also bar misrepresentations of any tests or studies and prohibit claims about the performance, effects on weight, or other health benefits of any dietary supplement, food, drug, cosmetic, or device unless the claims are true, not misleading, and substantiated by competent and reliable scientific evidence. Finally, both orders prohibit the use of deceptively formatted television and radio advertisements and require the use of “paid advertisement” disclosures for television ads longer than 15 minutes and for radio ads longer than five minutes.

The settlement with Pinnacle and Thomas Cheng requires them to give up $3.4 million in assets: $700,000 cash; the net proceeds from an investment partnership and related charitable foundation; a $215,000 boat; a $40,000 truck; and a $450,000 property lien. If they are later found to have misrepresented their financial status, the two defendants would be liable for a $23.8 million judgment.

The settlement with Talbott requires him to give up $1.12 million in assets: $225,000 cash; $350,000 from equity in property in Centerville, Massachusetts, or title to the property; $38,700 from the sale of a timeshare in Hawaii or title to the timeshare; and cash equal to 80 percent of the current market value of a property in Lisbon, Ohio, or title to the property. If Talbott is later found to have misrepresented his financial status, he would be liable for a $3.5 million judgment.

Under the agreements, the defendants also assign to the FTC all claims they might have against the other defendants in this case, and they will not use their settlement with the Commission as a basis for seeking a cash refund of income taxes that they reported as paid. In addition, the agreements include standard record-keeping provisions and require the defendants to distribute copies of the orders to certain entities and individuals.