Defendant in Federal Trade Commission Weight Loss Fraud Case
Arrested and Charged With Criminal Contempt

FTC News Release
February 23, 1994

James Norman Wells, defendant in a Federal Trade Commission weight-loss fraud case, has been arrested by federal authorities in Houston, Texas, and charged with criminal contempt. He will be transported by the US Marshals Service to San Diego, California, where he has been ordered to show cause in federal court there why he should not be held in criminal contempt for allegedly engaging in four sets of transactions in which he transferred, or directed the transfer of, assets in violation of a court-ordered asset freeze issued at the request of the FTC in September of 1990. Dorthy S. Wells, a former wife of Norman Wells who served as an officer of various corporations he controlled, also has been arrested by federal authorities in Houston and is being transported by US Marshals to San Diego, where she, too, has been ordered to show cause why she should not be held in criminal contempt for her participation in one of these transactions. If the court holds the Wells in criminal contempt, they both could face prison sentences.

The government's request for orders to show cause stem from a September 1990 case in which the FTC charged Pacific Medical Clinics Management, Inc., and two individuals, Norman Wells and Karin Lynn Norred, with falsely advertising that, through their supposedly medically-formulated diet program, consumers could adjust their metabolism and lose up to one and one-half pounds a day without strict dieting or exercise. The court immediately issued an order temporarily halting the allegedly deceptive claims and freezing the defendants' assets. The asset freeze was later extended in a preliminary injunction entered by the court on Sept. 27, 1990. (In September 1991, the Commission accepted a separate settlement with Norred, ending litigation against her.)

In April 1992, the court granted the Commission's motion for summary judgment, finding that Pacific Medical Clinics and Norman Wells had made false representations regarding their diet program, and held that they should make full refunds to their customers. On July 16, 1992, the court issued a permanent injunction barring these defendants from making similar misrepresentations about the efficacy of any weight-loss programs or products and ordered them to pay approximately $21.5 million in consumer redress. This final judgment also continued the September 1990 asset-freeze provisions.

According to the documents filed in connection with the government's petition for an order to show cause, announced today, Norman and Dorthy Wells violated the asset freeze on two occasions by transferring title to a Mercedes-Benz automobile, a frozen asset registered to Medical Clinics, Inc. According to the petition, the first violation occurred in January 1992, when title was transferred from Medical Clinics to Dorthy Wells. The second violation occurred the following October, when title was transferred from Dorthy Wells to National Communications, Inc., another corporation controlled by Norman Wells.

The petition also charges that Norman Wells continued to sell Medical Clinics' diet products through his new corporation, United Communication, Inc., and at the Blue Moon Bookstore he controlled. He allegedly sold the same "Medical Clinics Choice" diet products, previously sold by the clinics, both over-the-counter at Blue Moon Books and by mail through a Blue Moon Books order form that was mailed to individuals who called "Psychic Friends," a 900-number telephone service operated by Wells through United Communication, Inc.

The petition also alleges that Norman Wells conducted a separate but similar mail-order sales campaign of diet products after the freeze under the Medical Clinics name using his old client lists from the defunct diet clinics. According to the petition, Norman Wells maintained a bank account in San Diego in the name of the diet clinics, into which he deposited the receipts from the mail-order sales of diet products under the Medical Clinics name. The September 1990 order required the defendants to notify the FTC on a monthly basis of sales of any weight-loss products or services and, according to the petition, Norman Wells failed to do so, again in violation of the order.

Finally, the petition charges that in June 1992, Norman Wells transferred about $13,600 from the Medical Clinics San Diego bank account into a trust account in the name of Dorthy Wells. According to the petition, Norman Wells then used the funds to pay his personal expenses and to transfer funds to other corporations he controlled, also in violation of the asset freeze.

The petition was filed by the Department of Justice at the FTC's request in US District Court for the Southern District of California, in San Diego, and signed by the judge Feb. 11. The order to show cause was made public yesterday upon arrest of the defendants.

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