Research Proposal on "Business Law Berkeley Premium Nutraceuticals, Inc"

Research Proposal 8 pages (2742 words) Sources: 4 Style: APA

[EXCERPT] . . . .

Business Law

Berkeley Premium Nutraceuticals, Inc.

There are three main things that a business needs to remember in order to stay out of trouble. First, always tell the truth about the products that you are selling, never cheat your customers out of money and don't be greedy. Engaging in these practices can do nothing but lead to trouble and nobody knows that better now than Steve Warshak and Berkley Premium Nutraceuticals. In the beginning Steve Warshak could not seem to understand that what he was doing was wrong, but hopefully after spending the next 25 years reflecting about his actions, he will finally get it.

In the beginning Berkeley Premium Nutraceuticals goal was to provide their customers with only the best natural supplements available to help improve their health and the health of their loved ones. They believed that many health concerns could be addressed without resorting to pharmaceutical options or cheap herbal cure-alls. Since opening their doors in 2001, Berkeley Premium Nutraceuticals has focused on providing quality natural supplements, with superior formulas that use only premium ingredients, manufactured according to exacting standards (Berkeley Premium Nutraceuticals, Inc., 2009). This philosophy is what Berkley made available on their web site for everyone to read, if only they had practiced what they preached.

In the first three years that an Ohio salesman, Steve Warshak started selling penis enlargement pills out of a spare room in his house, his company was raking in more than $200 million a year. The Forest Park-based Berkeley was the maker of Enzyte, a natural male enhancement product. The company also sold other supplements including Avlimil, Altovis and Suvaril (Enzyte maker calls raid 'unwarranted', 2005). Steve Warshak was on top of the world, if only it had been an ethical world. When Warshak was just getting started in the dietary supplement business, his claims about Enzyte were very explicit. He bought ads in the back of GQ and Esquire magazines promising that taking Enzyte for eight-months would increase the size of a mans erectile chambers as well as his penis by up to 41% (Company touts pills for middle-age ailments, 2004). This was the beginning of Warshak's not telling the truth about the products that he was selling and the fraud that he participated in against his customers.

Steve Warshak marketed and sold more than a dozen dietary supplements that included Avlimil, Rogisen, and Enzyte. They claimed that these supplements offered a variety of health benefits, including treating male and female sexual dysfunction, improving sleep, fighting fatigue, aiding weight loss, and improving skin, night vision, and heart health, among other things. They offered their customers free samples through radio, television, and print ads and through the Internet. The ads ran on cable television networks, including ESPN, Comedy Central, Oxygen, Soap Net, and Lifetime, and in magazines such as Forbes, Playboy, Cosmopolitan, Oprah, Better Homes and Gardens, Psychology Today, and Redbook (FTC Charges Sellers of Avlimil, Rogisen, And Other Dietary Supplements, 2006).

In February of 2004, the federal Food and Drug Administration sent Warshak a letter demanding that they stop claiming that Rovicid could lower cholesterol and prevent heart disease. The letter also objected to the companies marketing of Prulato in which it claimed that it prevented prostate cancer. They were also claiming that Rogisen treated macular degeneration which is an eye disease that leads to blindness. All of these claims according to the FDA were unsubstantiated and thus false. In reaction to the letter, Berkley changed their marketing of Enzyte. Instead of claiming that the supplement would produce penis enlargement they now claimed that it produced male enhancement (Company touts pills for middle-age ailments, 2004).

In March, the law firm of Hagens Berman filed a class action law suit against Berkeley Premium Nutraceuticals demanding that it refund the money of people who bought Enzyte, and pay a substantial amount in compensatory and punitive damages. The lawsuit claimed that the company was continuing to engage in unfair, deceptive and fraudulent promotions and advertising by advertising a claim of male enhancement that was no less misleading than its former, explicit claim of penis enlargement (Company touts pills for middle-age ailments, 2004). Basically all the company had done was change the wording of their advertisement to make them even more misleading than they had been before.

In March of 2005 The U.S. Postal Inspection Service raided Berkley Premium Nutraceuticals, accompanied by the FBI, IRS, U.S. Food and Drug Administration, Hamilton County Sheriff's Office and local police departments. The Postal Inspection Service claimed that the raid was based on consumer complaints about the questionable business practices that they were engaged in. The Better Business Bureau's Web site listed Berkeley with an unsatisfactory rating because of a pattern of complaints that concerned billing and refund issues, along with unanswered and unresolved customer complaints. In the 36 months that preceded the raid, the Better Business Bureau had processed 4,225 complaints against the company. During the previous year there had been 2,687 complaints alone. Most of the complaints involved credit and billing issues (Enzyte maker calls raid 'unwarranted', 2005)

In June of that same year, the Ohio Attorney General Jim Petro filed a lawsuit against Berkeley Premium Nutraceuticals founder Steve Warshak, claiming that his companies was engaging in deceptive practices that resulted in more than 1,000 unsatisfied customers. The suit claimed that Berkeley, Lifekey Inc., Boland Naturals Inc., Warner Health Care, and Wagner Nutraceuticals all failed to inform consumers who signed up for the free trial offer for nutritional supplements that they also would be enrolled in a plan that automatically billed them for future shipments of products. It also alleged that Warshak and his companies made unproven claims about the effectiveness of products and that the companies did not have any competent and reliable scientific evidence to back up what they were advertising as health claims (Ohio AG sues Enzyte maker, 2005). Basically Petro's lawsuit accused Berkeley Nutraceuticals of luring customers in with a free trial offer, then billing them without their knowledge. This was in direct violation of Ohio's Consumer Sales Protection Act and telemarketing sales acts (Supplement company fires back at Petro, 2005).

In February of 2006, The Federal Trade Commission filed charges against the marketers of Avlimil and Rogisen. According to the complaint, the defendants had been offering consumers free samples of their dietary supplements, and then enrolling them in a program that automatically shipped them more pills and billed them for those shipments, even though most consumers never agreed to participate in the program. The FTC also charged that two of the products, Avlimil and Rogisen, which were marketed as treatments for female sexual dysfunction and night vision problems, did not live up to the advertising claims that were made by the company (FTC Charges Sellers of Avlimil, Rogisen, And Other Dietary Supplements, 2006).

The FTC charged that after consumers provided credit or debit card information to pay the $4.50 shipping and handling fee for the free samples, then the defendants used that information to bill the consumers for future shipments that they sent automatically. The company enrolled customers in the continuity program and automatically billed them on a recurring basis without obtaining the consumers' express, informed consent and without telling them the terms and conditions of the program. In addition, they did not obtain written authorization from the customer for recurring debits. The complaint stated that the defendants often made the process to cancel the shipments very difficult. Consumers that attempted to cancel often encountered busy telephone lines, Web sites that did not work, and were put on hold indefinitely. Many consumers who were able to reach a company representative were still denied refunds in the end (FTC Charges Sellers of Avlimil, Rogisen, And Other Dietary Supplements, 2006).

The FTC's complaint also claimed that for one of their dietary supplements, Avlimil, that the defendants made false and unsubstantiated claims about its effectiveness. Avlimil had bee advertised to treat female sexual dysfunction and provide female sexual enhancement. In the companies advertising, the defendants cited a clinical study that allegedly proved Alvlimil was safe and effective. According to the complaint, Avlimil's ingredients were completely different from the ingredients that were in the product that had actually tested in the clinical study. The FTC also charged that the defendants made unsubstantiated claims that another dietary supplement, Rogisen, improved night vision, which was never substantiated either. All of these things were false claims and amounted to fraud on the part of the company (FTC Charges Sellers of Avlimil, Rogisen, And Other Dietary Supplements, 2006).

The Forest Park-based Berkeley, best known for its commercials on cable TV advertizing its Enzyte product, was the target of federal investigation of its selling practices that lasted several months. Customers had complained that they were billed for products they didn't receive and were unable to obtain refunds from the company when they asked (Berkeley president, others indicted for fraud, 2006). In 2006, after the months long investigation, the head of Berkeley Premium Nutraceuticals and five others were indicted… READ MORE

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