Diet Patch Spammers Settle With FTC

The bogus diet patch spammers settled with the Federal Trade Commission (FTC) Thursday on charges they violated the CAN-SPAM Act and other federal laws.

Last year, Phoenix Avatar and its principals fought the charges, claiming they could not be held liable because the FTC could not prove that they actually sent the spam.

Thursday’s settlement bars the defendants from making false or misleading claims for their products or services and bars unsubstantiated health, efficacy or safety claims.

The settlement provides for a suspended judgment of $230,000, the total amount of diet patch sales. Instead, the defendants will pay $20,000. But, if the FTC finds that Phoenix Avatar cooked its books, the entire $230,000 will be due.

In April 2004, the FTC filed suit in U.S. District Court charging Daniel J.

Lin, Mark M. Sadek, James Lin, Christopher M. Chung and their company

with violating the CAN-SPAM Act and the FTC Act by marketing bogus

diet patches using massive amounts of illegal spam.

Although the FTC won a temporary restraining order halting the

unsubstantiated claims and freezing the defendants’ assets pending trial,

Phoenix Avatar appealed on the grounds that marketing affiliates, not

Phoenix Avatar, sent the spam.

In July, U.S. District Court Judge James Holderman issued an order finding

that CAN-SPAM liability “is not limited to those who physically cause spam

to be transmitted, but also extends to those who ‘procure the origination’

of offending spam.” The court held that the FTC had amassed a “persuasive

chain of evidence” connecting the defendants to violations of the CAN-SPAM

Act and the FTC Act.

The new settlement ends the litigation with a stipulated order for permanent

injunction and final judgment. The final order bars the defendants from

using false header information or not providing a mechanism by which

consumers can opt out of further e-mail messages.

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