Multi-Level Marketing Company and Three Of Its Distributors
Agree to Pay $1.2 Million to Settle FTC Charges
FTC News Release
January 10, 1994
Nu Skin International, Inc., three other companies, and three of Nu Skin's leading distributors have agreed to settle Federal Trade Commission charges that they falsely represented the earnings potential of Nu Skin distributors, and that they made false and unsubstantiated claims for three products — a baldness treatment, a wrinkle lotion and a burn cream. The proposed settlement would require the respondents to disgorge a total of $1.225 million, would prohibit them from making the specifically challenged claims for the three products or substantially similar products, and would require them to have evidence to back up any similar claims—as well as any other claims about the performance, benefits, efficacy or safety—for any product they market in the future. The settlement also would contain disclosures in connection with future earnings claims. Nu Skin International is a multi-level marketing company that advertises, promotes and sells numerous personal-care products, including Nutriol Hair Fitness Preparation, Face Lift with Activator, and Celltrex. Nu Skin markets its products through a network of distributors, who earn money by selling the products at a suggested mark-up to consumers. Distributors also recruit and train additional distributors to earn money from their sales, as well as from the sales of others recruited, in turn, by the additional distributors.
The FTC complaint detailing the charges names Nu Skin, based in Provo, UT, as well as CJM, Inc., of Salt Lake City, UT; CST Management, Inc., of Sandy, UT; and CK&C, Inc., of Provo, UT. The complaint also names Nu Skin distributors Clara McDermott, director of CJM; Craig Tillotson, director of CST Management and Craig Bryson, director of CK&C.
The products and representations at issue are:
- Nutriol Hair Fitness Preparation, allegedly promoted as a product than can prevent, cure, or reduce hair loss, and that is as effective as, or more effective than, the prescription drug Minoxidil;
- Face Lift with Activator, which was advertised as a non-surgical face lift that permanently will remove facial wrinkles, and is as effective as, or more effective than, Retin-A; and
- Celltrex, allegedly advertised as a product that will promote the healing of third degree burns, which otherwise would require skin grafting.
According to the FTC complaint, the respondents' alleged representations for the products are false and unsubstantiated.
The FTC also alleged that the respondents made deceptive earnings claims to prospective distributors through ads and promotional materials. According to the complaint, these materials state, for example, that distributors "will earn in excess of $60,000 - $80,000 their first year without jeopardizing their present income," and that "a lot of other people" are earning $14,000 a month … $168,000 a year."
The FTC alleged that, through these and other statements, the respondents represented falsely and without substantiation that such earnings are typical of Nu Skin distributors. Additionally, according to the complaint, it was deceptive for the respondents to fail to disclose that only a very small percentage of Nu Skin distributors have earned more than a small monthly income—a material factor in consumers' decisions about whether to become distributors.
The proposed consent agreement to settle the charges, announced today for public comment, would prohibit the respondents from making the alleged deceptive claims about Nutriol, Face Lift, Celltrex, or any substantially similar products. In addition, the proposed consent would require the respondents to have competent and reliable scientific evidence to support future hair growth, wrinkle removal or burn claims. The settlement also would require the respondents to have scientific substantiation to support any claims they make about the performance, benefits, efficacy or safety of any food, drug, device or cosmetic they offer in the future.
To settle the earnings claim allegations, the proposed consent would prohibit the respondents from misrepresenting the earnings, profits or sales of anyone participating in a sales or distribution plan. Further, it would require them to disclose in conjunction with any future earnings claim they make both the average earnings of all distributors and the percentage of them who actually achieved the claimed earnings.
In addition, the proposed settlement contains provisions that would require Nu Skin International to establish a surveillance program to determine whether its employees or distributors are violating the order and to discontinue dealing with any person who makes any representation prohibited by the order.
Finally, the order would require Nu Skin International to disgorge $1 million, and the other respondents to disgorge $225,000 collectively.
The Commission vote to approve the proposed consent agreement for public comment was 5-0. The Chicago Regional Office handled the investigation.
- FTC File No. 912-3071. FTC Docket No. C-3489.
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