FEDERAL TRADE COMMISSION AND COMPUTER GAME MAKER SETTLE "BRAIN TRAINING" GAME CASE

FROM:  U.S. FEDERAL TRADE COMMISSION 
Makers of Jungle Rangers Computer Game for Kids Settle FTC Charges that They Deceived Consumers with Baseless “Brain Training” Claims

A Texas company and its officers must stop making unsubstantiated claims that their computer game, Jungle Rangers, permanently improves children’s focus, memory, attention, behavior, and school performance, including for children with attention deficit hyperactivity disorder (ADHD), under a Federal Trade Commission settlement.

“This case is the most recent example of the FTC’s efforts to ensure that advertisements for cognitive products, especially those marketed for children, are true and supported by evidence,” said Jessica Rich, Director of the Bureau of Consumer Protection.  “Many parents are interested in products that can improve their children’s focus, behavior, and grades, but companies must back up their brain training claims with reliable science.”

The FTC’s administrative complaint states that Focus Education,its chief executive officer, Michael Apstein, and its chief financial officer, John Able, have marketed and sold the ifocus System, including the Jungle Rangers computer game, via television infomercials and the company’s websites for $214.75 plus tax, generating sales of approximately $4.5 million between 2012 and the middle of 2013.

The advertisements claimed that Jungle Rangers had “scientifically proven memory and attention brain training exercises, designed to improve focus, concentration and memory”  and  touted the software as giving children “the ability to focus, complete school work, homework, and to stay on task.” Focus Education’s website implied that these benefits would be permanent.

The infomercial featured children stating that because of Jungle Rangers they could “pay attention to [their] teacher a lot more,” and got “better grades,” and “a lot more 100 percents,” according to the complaint.  Parents, teachers, and a child psychiatrist also appeared, stating that Jungle Rangers had improved children’s school performance and behavior.

The FTC has charged that Focus Education and its officers violated the FTC Act by making false or unsubstantiated claims that the ifocus System permanently improves children’s focus, memory, attention, behavior, and/or school performance, including in children with ADHD.  The company also allegedly falsely claimed that these benefits were scientifically proven.

The proposed consent order settling the FTC’s charges prohibits Focus Education and its principals from making the claims alleged in the complaint about the ifocus System (or any substantially similar product), unless the claims are non-misleading and are supported by competent and reliable scientific evidence.

The proposed order further prohibits the company and its principals from making unsubstantiated claims about the benefits, performance, or efficacy of products or services that supposedly alter the brain’s structure or function, improve cognitive abilities, behavior, or academic performance, or treat or reduce the symptoms of cognitive disorders, including ADHD.

Finally, the proposed order bars the company and its principals from misrepresenting the results of any test, study, or research; or misrepresenting that the benefits of a cognitive improvement product are scientifically proven.

Further details of the settlement can be found in the analysis to aid public comment for this matter.

The Commission vote to accept the proposed consent order for public comment was 5-0.  The FTC will publish a description of the consent agreement package in the Federal Register shortly.  The agreement will be subject to public comment for 30 days, beginning today and continuing through February 20, 2015, after which the Commission will decide whether to make the proposed consent order final.  Interested parties can submit comments electronically by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.  Each violation of such an order may result in a civil penalty of up to $16,000.

HEAD LICE COMPANY SETTLES FTC CHARGES OF MAKING DECEPTIVE CLAIMS

FROM:  U.S. FEDERAL TRADE COMMISSION 

FTC Approves Final Order Settling Charges that Company’s Head Lice Protection Claims Were Deceptive

Following a public comment period, the Federal Trade Commission has approved a final order settling charges that personal care company Lornamead, Inc. deceived consumers with exaggerated claims that its “Lice Shield” shampoo, stick, and spray products will prevent or reduce the risk of getting head lice.

According to the FTC’s complaint, Lornamead claimed in print ads, website and banner ads, and on product packaging, that the citronella and other essential oils in its Lice Shield products would “dramatically reduce” the risk of head lice infestations. The company also claimed that the best way to treat lice was to avoid getting them, with Lice Shield products that are “scientifically shown to repel head lice.”

Under the final order setting the FTC’s charges, Lornamead will pay $500,000, and is prohibited from making further deceptive lice-prevention claims.

The Commission vote approving the final order and responses to members of the public who provided comments was 4-0-1, with Commissioner Terrell McSweeny not participating. (FTC File No. 132-3204.

FTC SETTLES WITH ALLEGED HOME-BASED BUSINESS SERVICE PROVIDER MISCONDUCT

FROM:  U.S. FEDERAL TRADE COMMISSION 

Defendants Who Allegedly Took Millions from Consumers Trying to Launch Or Succeed in Home-Based Businesses Settle FTC Charges

Tax Club Defendants Will Surrender $15 Million for Return to Consumers

The Federal Trade Commission halted the allegedly deceptive practices of two schemes that targeted consumers hoping to succeed through home-based businesses. The defendants behind both operations have agreed to settlements that will prohibit future misconduct, and in the Tax Club case, they will surrender assets valued at more than $15 million.

The FTC cases against The Tax Club and American Business Builders are part of a federal-state crackdown on scams that falsely promise jobs and opportunities to “be your own boss.” In the Tax Club case, brought by the FTC and the New York and Florida Attorneys General, operators sold services they allegedly falsely claimed would help consumers’ home-based businesses succeed. The operators of American Business Builders allegedly sold a home-based business opportunity where consumers could earn income offering payment processing services, credit card terminals, and merchant cash advances to small businesses.

“Before you put money into a work-at-home business opportunity, ask questions to determine if it is legitimate,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, adding, “We encourage consumers to read our consumer information to learn how to recognize schemes that promise more than they deliver.”

The Tax Club

According to the complaint filed in January 2013, The Tax Club called consumers and falsely claimed to be affiliated with companies that consumers had already bought services or products from. The complaint alleges that the defendants’ telemarketers pitched business development services such as business coaching services, corporate formation services, and credit development services, falsely claiming the services were essential to the success of consumers’ businesses. The complaint further alleges that after an initial sale, they called consumers numerous times to  sell more “essential” services, typically for several thousand dollars per service, with a large initial fee and recurring smaller monthly “membership” payments. Many of the services offered by the defendants were neither essential nor provided as promised, according to the complaint.

Under settlement orders announced today, the settling defendants are required to surrender assets valued at more than $15 million, and they are banned from selling business coaching services and work-at-home opportunities, subject to certain exemptions. They are also permanently prohibited from misrepresenting material facts about any product or service, selling or otherwise benefitting from consumers’ personal information, violating the Telemarketing Sales Rule, and failing to clearly disclose the seller’s identity, that the purpose of a call is to sell a good or service, and the nature of the good or service.

The order against Edward B. Johnson  also bans him from selling credit development, business planning, and merchant account processing services, and imposes a $115 million judgment that will be suspended upon surrender of certain assets valued at approximately $2.6 million. The assets to be turned over include bank and brokerage accounts, and proceeds from the sale of real and personal property. The full judgment will become due immediately if Johnson is found to have misrepresented his financial condition.

Under a separate settlement order, Brendon A. Pack, Michael M. Savage and all but one of the corporate defendants named in the complaint are also banned from selling credit development services. They are also prohibited from outbound telemarketing unless they have a consumer’s express written agreement to receive calls or they are fulfilling or providing services previously purchased by the consumer. The order imposes a $140 million judgment that will be suspended upon surrender of assets valued at approximately $13 million, including investment accounts and proceeds from the sale of numerous real properties. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.

“As a result of this settlement, former Tax Club executives will be giving up a substantial chunk of their personal assets,” said New York Attorney General Eric Schneiderman. “Before turning over your hard-earned money to telemarketers, it’s important to make sure they have a reputation for delivering what they promise.” Florida Attorney General Pam Bondi concurred, stating, “While work-at-home careers are an attractive opportunity for many people, it is imperative that Florida consumers do their research and report any possible scams to my office.”

The Commission vote authorizing the staff to file the proposed stipulated final orders was

5-0. The orders were entered by the U.S. District Court for the Southern District of New York on June 2, 2014.

American Business Builders

According to an FTC complaint filed in November 2012, the American Business Builders defendants falsely claimed that, for a fee ranging from $295 to $495, consumers could make substantial income in several ways, including earning commissions on terminals sold or leased to merchants in consumers’ communities. They also sold sales leads and promised to conduct telemarketing campaigns that would generate customers and income. The defendants charged $10 per lead, with some consumers paying up to $40,000, but they failed to provide the promised customer leads for the consumers, and the consumers did not earn any income. The court subsequently halted the operation, froze its assets, and put the companies into receivership.

Under the settlements in the American Business Builders case, defendants are banned from selling business and work-at-home opportunities and related services. In addition to the business and work-at-home opportunity ban, the settlement orders permanently prohibit the defendants – American Business Builders LLC, UMS Group LLC,  United Merchant Services LLC, Unlimited Training Services LLC, Shane Michael Hanna, also known as Shane Michael Romeo, Stephen Spratt, Universal Marketing and Training LLC, and ENF LLC, also doing business as Network Market Solutions – from misrepresenting that consumers are likely to earn money and misrepresenting any material fact about a product or service. The defendants also are barred from selling or otherwise benefitting from consumers’ personal information, and failing to properly dispose of customer information.

The orders impose a judgment of more than $5.4 million, which will be suspended upon surrender of certain bank accounts and real and personal property, including a 2013 Cadillac Escalade ESV. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.

The Commission vote authorizing the staff to file the proposed stipulated final orders was 5-0. The orders were entered by the U.S. District Court for the District of Arizona on May 19, 2014.

SEC FILES ACTION TO HALT ALLEGED ONGOING FRAUD

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission filed an emergency
 enforcement action to halt an ongoing fraud by an investment adviser based in Albany, N.Y., who is charged with lying to clients about the success of their investments while stealing their money for his personal use.

The SEC alleges that Scott Valente and his firm The ELIV Group LLC have fraudulently raised more than $8.8 million from approximately 80 clients by falsely claiming they achieve consistent and outsized positive returns among other misrepresentations about the safety of the investments.  ELIV Group has in fact earned no positive results at all, instead sustaining consistent investment losses for the past three years. Meanwhile, Valente has been making substantial cash withdrawals of client funds and spending their money on his home improvements and mortgage payments as well as jewelry and a vacation condominium.  Valente’s unsuccessful trading strategies and misappropriations have severely diluted the amount of client funds on hand at ELIV Group, and the SEC is seeking an asset freeze to halt the fraud as Valente continues to solicit new clients with his false claims.  ELIV Group has offices in Albany and Warwick, N.Y.

“Valente used his one-man advisory firm to fraudulently lure unsuspecting investors in the Albany and Warwick communities to invest millions of dollars with him as advisory clients,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.  “He said all the right things to make investors believe he was making the right investments and taking the right precautions with their money, but he was merely telling blatant false tales about the safety and success of the investments.”

Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York office, added, “Beyond the lies to his clients regarding his investment performance, Valente’s abuse of his fiduciary obligations included the theft of at least $2.66 million in client funds for personal spending, including hefty credit card bills, a vacation home, and jewelry.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Valente misleadingly told his clients that he has a 30-year record of investing experience “dedicated to the highest standards of service” and that he founded ELIV Group after leaving the “corporate financial industry” upon concluding there “had to be a better way for clients to achieve financial independence.”  What he failed to disclose was that he twice filed for bankruptcy and started ELIV Group only after the Financial Industry Regulatory Authority (FINRA) permanently expelled him from the broker-dealer industry in 2009 for engaging in serial misconduct against numerous customers.

The SEC alleges that Valente and ELIV Group attracted clients by falsely assuring them that the principal amount of their investments was fully liquid and “guaranteed” because it was backed by a large money market fund.  Client funds were in fact never guaranteed or backed by any money market funds, and the majority of ELIV Group’s investments were in highly illiquid investments in privately-held companies.  Valente and ELIV Group also assured clients that the firm’s books and records were audited independently.  However, ELIV Group never had an auditor, and the firm sent clients monthly investment reports in which they actually inflated the monthly returns, assets under management, and client account values.

The SEC’s complaint charges Valente and ELIV with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.  The SEC is seeking a temporary restraining order to freeze their assets and prohibit Valente and ELIV from committing further violations of the federal securities laws.  The SEC seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest and pay financial penalties.

The SEC’s investigation, which is continuing, has been conducted by Gerald Gross, Richard Primoff, and Barry O’Connell of the New York Regional Office.  The inquiry that led to the investigation was conducted by Richard Heaphy, Yvette Panetta, Dee-Ann DiSalvo, and Edward Cody of the New York Regional Office.  The SEC appreciates the assistance of the Federal Bureau of Investigation.

NUCLEAR REACTOR COMPONENT MAKER TO PAY $2.7 MILLION TO RESOLVE FALSE CLAIMS ALLEGATIONS

FROM:  DEFENSE DEPARTMENT
Thursday, January 23, 2014
General Electric Hitachi Nuclear Energy Americas Agrees to Pay $2.7 Million for Alleged False Claims Related to Design of Advanced Nuclear Reactor

The Justice Department announced today that General Electric Hitachi Nuclear Energy Americas LLC (GE Hitachi) has agreed to pay $2.7 million to resolve allegations under the False Claims Act that it made false statements and claims to the Department of Energy and the Nuclear Regulatory Commission (NRC) concerning an advanced nuclear reactor design.  GE Hitachi, a provider of nuclear energy products and services headquartered in Wilmington, N.C., is a subsidiary of General Electric Company (GE) that is also partially owned by Hitachi Ltd., a multinational engineering and manufacturing firm headquartered in Tokyo, Japan.  GE is headquartered in Fairfield, Conn.

“Transparency and honesty are absolutely critical when dealing with issues relating to the design of a nuclear reactor,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “The Department of Justice will protect federal funds and the Nuclear Regulatory Commission’s crucial mandate of ensuring public safety.”  

“Fraud involving government contracts will be zealously pursued in North Carolina,” said U.S. Attorney for the Eastern District of North Carolina Thomas G. Walker.  “We encourage our citizens to report fraud related to government contracts and our federal programs.”

GE Hitachi allegedly made false statements to the NRC and Department of Energy about a component of the advanced nuclear Economic Simplified Boiling-Water Reactor (ESBWR) known as the steam dryer.  A steam dryer removes liquid water droplets from steam produced by the nuclear reaction that generates electricity in boiling-water type reactors.  The NRC requires that applicants for nuclear reactor design certification, such as GE Hitachi, demonstrate that vibrations caused by the steam dryer will not result in damage to a nuclear plant.  The government alleged that GE Hitachi concealed known flaws in its steam dryer analysis and falsely represented that it had properly analyzed the steam dryer in accordance with applicable standards and had verified the accuracy of its modeling using reliable data.    

Between 2007 and 2012, GE Hitachi received funding from the Department of Energy to cover up to half of the cost of developing, engineering and obtaining design certification for the advanced nuclear ESBWR.  The NRC, which regulates the civilian use of nuclear power in the U.S., is responsible for determining whether to approve GE Hitachi’s application for the reactor design certification.  The NRC is still reviewing the application and has not reached a final decision on the certification.

“The Nuclear Regulatory Commission supports the settlement and appreciates the Department of Justice’s close coordination during its investigation of these allegations,” said Director of NRC’s Office of New Reactors Glenn Tracy.  “The NRC continues to rigorously review the ESBWR application in order to reach a final design certification decision, ensure compliance with NRC regulations and protect public health and safety.”

The allegations resolved by this settlement arose from a whistleblower lawsuit filed under the False Claims Act by LeRay Dandy, a former employee of GE Hitachi.  Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.  Dandy’s share of the settlement has not been determined.  

This case was handled by the Department of Justice Civil Division, Commercial Litigation Branch; the U.S. Attorney’s Office for the Eastern District of North Carolina and the Offices of Inspector General for the Nuclear Regulatory Commission and the Department of Energy.

U.S. FILES COMPLAINT AGAINST COMPANY THAT PROVIDED SECURITY GUARDS IN IRAQ

Photo Credit:  U.S. Army.
FROM: U.S. DEPARTMENT OF JUSTICE

Wednesday, October 31, 2012
United States Sues Virginia-based Contractor for False Claims Under Contract for Security in Iraq
Allegedly Billed US for Security Guards Who Did Not Meet Contract Requirements
The United States has filed a complaint against a Virginia-based contractor alleging that the company submitted false claims for unqualified security guards under a contract to provide security in Iraq, the Justice Department announced today. The company, Triple Canopy Inc. is headquartered in Reston, Va.

In June 2009, the Joint Contracting Command in Iraq/Afghanistan (JCC-I/A) awarded Triple Canopy a one-year, $10 million contract to perform a variety of security services at Al Asad Airbase – the second largest air base in Iraq. The multi-national JCC-I/A was established by U.S. Central Command in November 2004, to provide contracting support related to the government’s relief and reconstruction efforts in Iraq.

The government’s complaint alleges that Triple Canopy knowingly billed the United States for hundreds of foreign nationals it hired as security guards who could not meet firearms proficiency tests established by the Army and required under the contract. The tests ensure that security guards hired to protect U.S. and allied personnel are capable of firing their AK-47 assault rifles and other weapons safely and accurately. The government also alleges that Triple Canopy’s managers in Iraq falsified test scorecards as a cover up to induce the government to pay for the unqualified guards, and that Triple Canopy continued to bill the government even after high-level officials at the company’s headquarters had been alerted to the misconduct. The complaint further alleges that Triple Canopy used the false qualification records in an attempt to persuade the JCC-I/A to award the company a second year of security work at the Al Asad Airbase.

"For a government contractor to knowingly provide deficient security services, as is alleged in this case, is unthinkable, especially in war time," said Stuart F. Delery, Acting Assistant Attorney General for the Civil Division of the Department of Justice. "The department will do everything it can to ensure that contractors comply with critical contract requirements and that contractors who don’t comply aren’t permitted to profit at the expense of our men and women in uniform and the taxpayers at home who support them."

"We will not tolerate government contractors anywhere in the world who seek to defraud the United States through deliberate or reckless conduct that violates contractual requirements and risks the security of government personnel," said Neil H. MacBride, U.S. Attorney for the Eastern District of Virginia.

The government’s claims are based on a whistleblower suit initially filed by a former employee of Triple Canopy in 2011. The suit was filed under the qui tam, or whistleblower, provision of the False Claims Act, which allows private persons to file suit on behalf of the United States. Under the act, the government has a period of time to investigate the allegations and decide whether to intervene in the action or to decline intervention and allow the whistleblower to go forward alone.

This matter was investigated by the U.S. Attorney’s Office for the Eastern District of Virginia; the Commercial Litigation Branch of the Justice Department’s Civil Division; and the Army Criminal Investigative Command (CID) and Defense Criminal Investigative Service (DCIS) of the Department of Defense.

The claims asserted against Triple Canopy are allegations only; there has been no determination of liability. The government is not aware of any injuries that occurred as a result of the alleged misconduct.

MILITARY FLARE MAKER PAYS NEARLY $37 MILLION TO SETTLE FALSE CLAIMS ACT

FROM:  U.S. JUSTICE DEPARTMENT
Monday, April 23, 2012
Atk Launch Systems Inc. Settles False Claims Product Substitution Case for Nearly $37 Million Allegedly Delivered Unsafe Illuminating Para-flares Under Department of Defense Contracts

ATK Launch Systems Inc. has agreed to a $36,967,160 settlement with the United States to resolve allegations that ATK sold dangerous and defective illumination flares to the Army and the Air Force.   According to the government’s allegations, from 2000 to 2006, ATK delivered LUU-2 and LUU-19 illuminating para-flares to the Defense Department.   These flares, which burn in excess of 3,000 degrees Fahrenheit for over five minutes, are used for nighttime combat, covert and search and rescue operations and have been used extensively by American forces in Iraq and Afghanistan in the global war on terror.  The government alleged that the flares delivered by ATK were incapable of withstanding a 10-foot drop test without exploding or igniting, as required by specifications, and that ATK was aware of this when it submitted claims for payment.

ATK has agreed to pay the United States $21 million in cash and provide necessary in-kind services worth $15,967,160 to fix the 76,000 unsafe para-flares remaining in the government’s inventory.   The settlement resolves a False Claims Act suit filed in the U.S. District Court for the District of Utah.

The lawsuit was initially filed by an ATK employee under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals, called “relators” to bring lawsuits on behalf of the United States and receiv e a portion of the proceeds of a settlement or judgment awarded against a defendant.

“Our men and women in combat deserve equipment that meets critical safety and performance requirements,” said Stuart F. Delery, Acting Assistant Attorney General for the Civil Division. “This case demonstrates that the Department of Justice will pursue cases where contractors knowingly provide defective equipment that puts the safety of American military service members at risk.”

“This settlement demonstrates our commitment to aggressively go after contractors who recklessly disregard and deliberately ignore critical safety defects in munitions used by America’s uniformed fighting men and women on the front lines of the war on terror,” said David B. Barlow, U.S. Attorney for the District of Utah.  “This office fully supported the federal investigators in their efforts to uncover these fraudulent claims and recover the ill-gotten gains for the American taxpayers.”

The investigation team, which was led by the Defense Criminal Investigative Service, included the Air Force Office of Special Investigation, the Navy Naval Criminal Investigative Service, the Army Criminal Investigative Command and auditors from the Defense Contract Audit Agency and the Defense Contract Management Agency.  Additional technical support was provided by the Army Research Laboratory in Aberdeen, Md., the Army Aviation and Missile Command in Huntsville, Ala., the Naval Sea Systems Command at Crane, Ind. and Portsmouth, R.I., the Defense Standardization Program Office at Fort Belvoir, Va., the Air Force Materiel Command at Wright Patterson Air Force Base, Ohio and Hill Air Force Base, Utah, and the Army Materiel Command at Rock Island Arsenal, Ill.