Garvey Charges May Signal Crackdown by FTC

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When the Federal Trade Commission decided to extend the charges of "unsubstantiated claims" against the Enforma weight-loss system to include the infomercial host Steve Garvey and his company, Garvey Management Group Inc., many in DRTV thought this might change the landscape of the industry.

Further charges against the show's producers, Modern Interactive Inc., and the company's principals, Mark Levin and David Richmond, heightened the possibility of a change in the FTC's policies regarding who is responsible for alleged fraudulent claims.

Many feared that holding producers and hosts responsible for false claims may force hired talent and production companies to watch their words so closely that business as usual would change. Furthermore, extending charges to all participants in a federally scrutinized campaign -- such as telemarketers and fulfillment houses -- could cripple the industry, some said.

But according to the FTC, the new charges arose not because of what Garvey may have said or what the producers may have shot, but because of FTC claims that both had a direct stake in the action -- receiving a "monthly royalty payment" -- and manipulated the results of Fat Trapper and Exercise in a Bottle to keep the cash rolling in.

"Basically, we are alleging that Modern Interactive and Garvey Management Group Inc. received a cut of the sales," said David Frankel, staff attorney at the FTC division of advertising practices, bureau of consumer protection. "We have heard this is not the typical arrangement. Production companies are usually paid a one-time fee. Think about the incentive that gives anyone when they have to review the infomercial.

"Modern Interactive has a duty to make sure the claims that they are making -- they wrote the script -- are true. The same thing follows for Steve Garvey Productions and Mr. Garvey himself. This is very important."

The charges against Garvey and the producers do not amount to a precedent, as other hosts have been held responsible for alleged false claims. But the decision to take Garvey to federal court rather than dealing with him directly through the FTC does indicate that prosecutors are taking these cases more seriously than before and will hold all parties involved accountable.

"There are two types of cases that the commission brings in terms of the litigation strategies we use," Frankel said. "One is we file cases within the FTC -- those are administrative cases -- and the second type is when we go to federal court. The Garvey case was brought right into federal court. The fact is that federal court is a litigation strategy decision. Generally speaking, federal court litigation is faster, and the relief we seek is more effective.

"A violation of a federal court order would subject [Garvey] to contempt, while a violation of a Federal Trade Commission order subjects [Garvey] to civil penalties of $11,000 a day. The difference is that if someone violates a federal court order, they can be held in contempt and be subject to much more serious fines and placed in jail for noncompliance."

Though Frankel said that federal, instead of FTC, prosecution in this case does not mean each successive case will go to federal court, such prosecution has become more likely with further offenses in the industry.

"It's hard to say that all future cases are going to go into federal court," Frankel said. "What I can say is, look at the trend of the cases recently, and you definitely will find more cases going to federal court."

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