FTC GRANTS SUMMARY DECISION AGAINST OWNER OF "THE ANTI-SOCIAL NETWORK"

FROM:  U.S. FEDERAL TRADE COMMISSION
Order Requires Deletion of All Consumer Data, Prohibits Further Deception

The Federal Trade Commission has granted summary decision against the operators of Jerk.com, a website that billed itself as “the anti-social network,” for deceiving users about the source of content on the website. The Commission found that the operators – Jerk, LLC (“Jerk”) and John Fanning – misled consumers by claiming that content on the website was posted by other users. Instead, most of the content came from Facebook profiles mined by the operators.

The Commission also found that the company and Fanning misrepresented the benefits of a paid membership which, for $30, purportedly allowed consumers to update information in their Jerk.com profiles.  In fact, consumers who paid for the membership were unable to correct information about them on the site, and did not receive anything of value for their “membership.”

The final order and an accompanying opinion resulted from an administrative complaint the FTC staff filed in 2014 against Jerk and Fanning. The summary decision was requested by FTC staff trying the case.

The order requires the company and Fanning to delete all personal and customer information collected during the operation of the now-defunct website within 30 days, and prohibits them from selling or disclosing any of that information. The order also prohibits them from misrepresenting the source of any content on a website, including personal information, and from misrepresenting the benefits of joining any service.                      

The Commission vote to issue the opinion granting summary decision and the final order was 5-0.

The company or Fanning may file a petition for review of the Commission Opinion and Final Order with a U.S. Circuit Court of Appeals within 60 days after service of the Final Order.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

SEC ANNOUNCES $17 MILLION COURT ORDER AGAINST COMPANY THAT ALLEGEDLY MADE MISREPRESENTATIONS TO INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23220 / March 25, 2015
Securities and Exchange Commission v. BioChemics, Inc., et al., Civil Action No. 12-12324-MLW (United States District Court for the District of Massachusetts, Complaint filed Decmber 14, 2012)

Federal Court Orders Massachusetts Company to Pay Over $17 Million in SEC Fraud Case

The Securities and Exchange Commission ("Commission") announced today that on March 25, 2015, the Honorable Mark L. Wolf, United States District Court for the District of Massachusetts, entered a judgment against BioChemics, Inc. ("BioChemics"), a biopharmaceutical company based in Danvers, Massachusetts, in a Commission enforcement action filed in December 2012. Among other things, the judgment orders BioChemics to pay a total of over $17 million. This judgment supplements a prior judgment entered against BioChemics on March 18, 2015, that enjoined the company from violating the antifraud provisions of the federal securities laws.

The Commission originally filed its enforcement action on December 14, 2012, against BioChemics and three individuals affiliated with the company: (i) John J. Masiz ("Masiz"), the company's founder and, until January 2014, its President, CEO, and Chairman of its Board of Directors; (ii) Gregory S. Kroning ("Kroning"), a promoter (someone paid by BioChemics to solicit investors); and a (iii) Craig Medoff, another promoter and, at one point, BioChemics' interim director of Finance ("Medoff," and, collectively, the "Individual Defendants").

The Commission's Complaint alleged that from 2009 until mid-2012, BioChemics and the Individual Defendants raised at least $9,000,000 from approximately 70 investors by misrepresenting, among other things: (a) that BioChemics had ongoing research and development collaborations with certain pharmaceutical companies when in fact the collaborations with those companies had either never begun or had ended; (b) that BioChemics had two drugs currently under FDA review, when in fact it had no products under any type of FDA review; (c) the status and results of clinical trials for BioChemics' drugs; and (d) that certain purported valuations of BioChemics at between $500 million and $2 billion were independent and reliable when they were not. The Complaint also alleged that BioChemics and the Individual Defendants misrepresented Masiz's background and use of investor proceeds--for example, they failed to disclose to investors that Masiz was the subject of a prior Commission securities fraud action that resulted in a final judgment against him in 2004, and that BioChemics' investor funds were used to pay for Kroning and Masiz's personal expenses.

In February 2014, BioChemics agreed to a partial settlement with the Commission, consenting to the entry of a judgment permanently enjoining it, without admitting or denying the substantive allegations in the Complaint, from violating Section 17(a) of the Securities Act ("Securities Act") of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder (the antifraud provisions), and leaving disgorgement, prejudgment interest, and civil penalties to be decided by the Court. On March 18, 2015, the Court entered this consented-to judgment permanently enjoining BioChemics from violating the antifraud provisions of the securities laws.

The judgment entered on March 25, 2015, supplements the March 18, 2015 judgment, and requires BioChemics to disgorge $15,105,325 in ill-gotten gains plus prejudgment interest of $2,042,559, and pay a civil penalty of $750,000. The civil penalty is a "third tier" penalty. Under the Securities Act and the Exchange Act, a third tier penalty is one where the violation involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement, and such violation directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons.

FTC SETTLES DECEPTIVE AD CHARGES AGAINST TWO AUTO DEALERS

FROM:   FEDERAL TRADE COMMISSION 
FTC Approves Final Order Settling Charges Involving Two Auto Dealers’ Deceptive Ads

Following a public comment period, the Federal Trade Commission approved final consent orders settling charges that two automotive dealers deceptively advertised the cost or available discounts for their vehicles.

The FTC charged Don White’s Timonium Chrysler Jeep Dodge of Cockeysville, Md., with advertising “dealer discounts” and “internet prices” not available to a typical consumer. Ganley Ford West, Inc., in Cleveland, was charged with misrepresenting that vehicles were available at a specific dealer discount, when in fact the discounts only applied to specific, and more expensive, models of the advertised vehicles.

Under the settlements, both dealers are prohibited from advertising discounts or prices unless the ads clearly disclose any qualifications or restrictions. The settlements also prohibit the auto dealers from making misrepresentations regarding the existence, price, value coverage, or features of any product or service associated with the motor vehicle purchase, and the number of vehicles available at particular prices.

Both cases are part of the FTC’s ongoing efforts to combat deceptive motor vehicle dealer practices. The FTC announced these cases in September 2013 as well as a nationwide sweep against 10 other dealers in January 2014.

The Commission vote to approve the final orders was 4-0.